SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-13992
CYBER DIGITAL, INC.
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(Name of small business issuer in its charter)
New York 11-2644640
------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Oser Avenue, Hauppaupge, New York 11788
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (631) 231-1200
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No___
The number of shares of stock outstanding at August 10, 2000: 19,387,096 shares
of Common Stock; par value $.01 per share.
<PAGE>
CYBER DIGITAL, INC.
BALANCE SHEETS
June 30, March 31,
2000 2000
(Unaudited) (Audited)
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Current Assets
Cash and cash equivalents $ 389,938 $ 1,650,801
Accounts Receivable 3,378 5,078
Inventories 602,910 592,125
Prepaid and other current assets 55,376 52,990
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Total Current Assets $ 1,051,602 $ 2,300,994
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Property and Equipment, Net
Equipment $ 398,193 $ 385,743
Furniture and Fixtures 68,589 66,262
Leasehold Improvements 4,786 4,786
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$ 471,568 $ 456,791
Accumulated depreciation 273,354 255,010
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Total Property and Equipment $ 198,214 $ 201,781
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Other Assets $ 30,124 $ 21,750
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$ 1,279,940 $ 2,524,525
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The accompanying notes are an integral part of these statements
2
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<TABLE>
<CAPTION>
CYBER DIGITAL, INC.
BALANCE SHEETS
June 30, March 31,
2000 2000
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
<S> <C> <C>
Accounts payable, accrued expenses, and taxes $ 235,810 $ 283,232
--------------- ---------------
Total Current Liabilities $ 235,810 $ 283,232
--------------- ---------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock - $.05 par value; cumulative, convertible and
participating; authorized 10,000,000 shares
Series A; issued and outstanding - none at June 30, 2000
and March 31, 2000 -0- -0-
Series B-1 issued and outstanding - none at June 30, 2000
and March 31, 2000 -0- -0-
Series B-2 issued and outstanding - none at June 30, 2000
and March 31, 2000 -0- -0-
Series C issued and outstanding - 310 shares at June 30,
2000 and March 31, 2000 16 16
Series D-1 issued and outstanding - none at June 30, 2000
and 851 shares at March 31, 2000 -0- 43
Common stock - $.01 par value; authorized 30,000,000
shares; issued and outstanding 19,387,096 shares
at June 30, 2000 and 19,199,807 at March 31, 2000,
respectively 193,871 191,998
Additional paid-in capital 17,069,876 17,574,905
Accumulated deficit (16,219,633) (15,525,669)
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$ 1,044,130 $ 2,241,293
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$ 1,279,940 $ 2,524,525
=============== ===============
The accompanying notes are an integral part of these statements
</TABLE>
3
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<TABLE>
<CAPTION>
CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
June 30,
2000 1999
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<S> <C> <C> <C>
Net Sales $ 12,254 $ -0-
Cost of Sales 8,697 16,481
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Gross Profit (Loss) $ 3,557 $ (16,481)
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Operating Expenses
Selling, general and administrative expenses $ 374,336 $ 200,969
Research and development 128,498 101,692
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Total Operating Expenses $ 502,834 $ 302,661
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Loss from Operations $ (499,277) $ (319,142)
Other Income, net 12,333 1,285
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Net Loss $ (486,944) $ (317,857)
Preferred Stock Dividends (35,419) -0-
-------------- --------------
Loss Available to Common Stockholders $ (522,363) $ (317,857)
============== ==============
Earnings (loss) per common and common equivalent share Basic $ (0.03) $ (0.02)
============== ==============
Diluted $ (0.03) $ (0.02)
============== ==============
Weighted average number of common shares outstanding 19,387,096 18,247,283
============== ==============
The accompanying notes are an integral part of these statements
</TABLE>
4
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<TABLE>
<CAPTION>
CYBER DIGITAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
June 30,
2000 1999
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Cash Flows from Operating Activities
<S> <C> <C>
Net loss $ (486,944) $ (317,857)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 18,259 18,314
Amortization 85 85
(Increase) decrease in operating assets:
Accounts receivable 1,700 (800)
Inventories (10,785) (2,053)
Prepaid expenses (2,386) 4,777
Other assets (8,374) -0-
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (47,422) (49,922)
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Net Cash Used in Operating Activities $ (535,867) $ (347,456)
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Cash Flows from Investing Activities
Purchase of equipment $ (12,450) $ (2,088)
Purchase of furniture and fixtures (2,327) -0-
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Net Cash Used in Investing Activities $ (14,777) $ (2,088)
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Cash Flows from Financing Activities
Issuance of preferred stock $ -0- $ 210,000
Redemption of preferred stock (686,400) -0-
Preferred Stock Dividends (23,819) -0-
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Net Cash (Used) Provided by Financing Activities $ (710,219) $ 210,000
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Net Decrease in Cash and Cash Equivalents $ (1,260,863) $ (139,544)
Cash and Cash Equivalents at Beginning of Period 1,650,801 246,834
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Cash and Cash Equivalents at End of Period $ 389,938 $ 107,290
============= =============
Supplemental Disclosures of Cash Flow Information Cash paid
during the period for:
Income taxes $ 460 $ 4,424
============= =============
Preferred stock dividend issued in common stock $ 11,600 $ -0-
============= ==============
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2001. For further information, refer to the financial statements and footnotes
thereto included in the Company's Form 10-KSB for the fiscal year ended March
31, 2000.
NOTE 2 - INVENTORIES
Inventory of purchased parts for eventual resale to customers are valued at the
lower of cost or market, as determined by the first-in, first-out (FIFO) method
and consisted of the following:
June 30, 2000 March 31, 2000
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Raw Materials $ 539,166 $ 528,221
Finished Goods 63,744 63,904
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$ 602,910 $ 592,125
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6
<PAGE>
PART 1
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Overview
During the year ended March 31, 2000 ("Fiscal 2000"), we made a strategic shift
to enter the fast growing, lucrative high-speed internet access market. We
rapidly developed our Cyber Business Internet Gateway (CBIG) and Cyber Internet
Access Network (CIAN) switch. We forged an alliance with AT&T Corporation to
become a provider of high-speed internet access and to create Virtual Private
Networks (VPN) for businesses using our Internet Protocol (IP) Frame Relay and
Private Line based "broadband" technology. We have recently developed our
Internet Protocol (IP) Frame Relay and Private Line infrastructure equipment to
piggyback on AT&T's rapid deployment of Internet Protocol (IP) Frame Relay based
"broadband" internet backbone.
During the quarter ended June 30, 2000, we developed and enhanced our digital
"broadband" products, CIAN and CBIG, to expand our bandwidth offerings to
include (i) Platinum Business Class Carrier Grade Service for mission critical
applications, (ii) Gold Business Class Carrier Grade Service for designated
connectivity, and (iii) Copper Business Class Carrier Grade Service for basic
connectivity. International Data Corporation (IDC) estimates that the investment
in U.S. market for network service provision by digital "broadband" means will
grow from $17 billion in 1999 to $32 billion in 2003. Most of the investment in
1999 has been in the implementation of fiber optic Internet Protocol (IP)
backbone network connecting major cities, such as AT&T's IP backbone. The next
growth in investment is expected towards the implementation of digital
"broadband" local transport, such as Cyber Digital's offerings, to connect
corporate local area networks and PCs to IP backbone.
During the quarter ended June 30, 2000, we developed and enhanced our products
to expand our firewall service offerings to include Internet Protocol encryption
security (IPSec) in addition to previously developed IP tunneling, IP
masquerading and IP packet filtering based on firewall products for virtual
private network (VPN) applications. According to International Data Corporation
(IDC) U.S. IP VPN Service Market will grow from $0.2 billion in 1998 to $2.0
billion in 2002. In addition, IDC security survey indicates that 65% of users
choose VPNs directly from product vendors, such as Cyber Digital.
According to International Data Corporation (IDC), there are six emerging new
technology drivers, namely software application service providers, storage
service providers, IT and web-site operations providers, network service
providers, information appliances and B2B e-services. We are engaged in three
out of six of these emerging new technology driver markets. These
accomplishments by our company are significant, especially when viewed from the
standpoint of rapid development of our proven products and services. We are
early movers and we intend to take advantage of this position.
Our business model was proven in last quarter of fiscal year 2000 when we rolled
out our digital broadband services in Boston area and began generating recurring
monthly revenues. We established our New England sales and service office in
Woburn, MA. We expect to roll out our services in New York City in the summer of
year 2000. We have just recently established our sales and service office in New
York City.
7
<PAGE>
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
For further information, refer to the financial statements and footnotes thereto
included in the Company's Form 10-KSB for the fiscal year ended March 31, 2000.
Readers are cautioned not to place undue reliance on these forward-looking
statements, as refer to in the annual Form 10-KSB for the fiscal year ended
March 31, 2000, which speak only as of the date hereof.
Results of Operations
Net sales for the quarter ended June 30, 2000 were $12,254 as compared to zero
for the quarter ended June 30, 1999. Net sales were due to high speed Internet
access service provided to customers who have signed at least one year
contracts. Gross profit (loss) for the quarter ended June 30, 2000 was 29% of
net sales as compared to (100%) for the quarter ended June 30, 1999.
Fluctuations in gross profit margins are primarily attributable to price
changes, changes in sales mix by product or distribution channel. Selling,
general and administrative expenses increased $173,367 or 86% in the quarter
ended June 30, 2000 as compared to the quarter ended June 30, 1999, primarily
due to increases in marketing expenses. Research and development expenses for
the quarter ended June 30, 2000 were $128,498 as compared to $101, 692 for the
quarter ended June 30, 2000. Net loss for the quarter ended June 30, 2000 was
$(486,944) or $(.03) per share as compared to $(317,857) or $(.02) per share for
the quarter ended June 30, 1999.
Liquidity and Capital Resources
Total working capital decreased $1,201,970 to $815,792 for the quarter ended
June 30, 2000 from $2,017,762 for the period ended March 31, 2000. The current
ratio decreased to 4.5 to 1 as at June 30, 2000 from 8.1 to 1 as at March 31,
2000. Current levels of inventory are adequate to meet short term sales. There
were no significant capital expenditures in the quarter ended June 30, 2000. Due
to the completion of the Series A, Series B, Series C and Series D-1 Preferred
Stock transactions, expected exercise of options and warrants and together with
expected cash flow from operations, the Company believes its liquidity will be
sufficient to meets its needs for the next 12 months. The Company believes that,
if needed, it will be able to obtain additional funds required for future needs.
Impact of the Year 2000 ("Y2K") Issue
The Company conducted a review of its operating and computer systems to identify
the areas, which could be affected by the Y2K issue. The Company presently
believes the Year 2000 problem will not pose significant operational problems
for the Company and the estimated cost of achieving compliance is minimal and is
not expected to have a material adverse effect on the financial condition,
liquidity or results of operations of the Company.
8
<PAGE>
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
The Company's internet gateway, digital voice switching and networking systems
which it designs, develops, manufactures, markets and services have been
designed to be Y2K compliant and the Y2K issue is not expected to have a
material effect on the Company's ability to serve its customers.
As part of the Company's assessment of the Y2K issue, consideration was given to
the possible impact upon the Company from using purchased software, suppliers
and outside service providers. The Company's efforts with regard to Y2K issues
are dependent in part on information received from such suppliers and vendors
upon which the Company has relied. While it is not possible for the Company to
predict all future outcomes and events, the Company is not aware, at this time,
of any Y2K non-compliant situations with regard to any of its purchased software
or its use of suppliers and outside service providers.
PART II
ITEM 1 - Legal Proceedings
On or about August 5, 1996, Brockington Securities, Inc. ("Brockington")
commenced an action, in the Supreme Court of the State of New York, County of
Suffolk, against the Company for wrongful termination of a purported agreement
for investment banking services. Brockington is seeking damages in the amount of
(1) $775,000 based upon the alleged net aggregate value of the shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), upon
which Brockington alleges it had option and (2) $1 million for the alleged
wrongful termination.
The Company has asserted counterclaims based upon Brockington's wrongful conduct
and is seeking damages in the amount of $428,000 or, in the alternative,
recission of the alleged contract and the return of the 100,000 shares
previously issued Brockington.
The Company believes that Brockington's claims are without merit and intends to
vigorously defend its position.
Although, as of the issuance date, no legal action has commenced against the
Company or its directors by Uniworld Communications Co., (UCC"), a New York
company, they have threatened the Company and its directors for a possible
litigation arising due to the contention that the Company refused to remove
restrictive legend on 500,000 shares of common stock of the Company held by UCC.
The Company has issued 500,000 restricted shares to UCC pursuant to a stock
option agreement. The Company believes that UCC's threatened claims, if any, are
without merit and the Company will vigorously defend its position.
ITEM 2 - Changes in Securities and Use of Proceeds
None.
9
<PAGE>
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
ITEM 3 - Defaults on Senior Securities.
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
10
<PAGE>
CYBER DIGITAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS IN FORM 8-K
(a) Exhibits.
3.1 Composite Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-QSB for the period ended
December 31, 1996).
3.2 Composite Amended and Restated By-Laws (incorporated herein by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1997 (the
"September 1997 Form 10-QSB")).
10.1 Cyber Digital, Inc. 1993 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
10.2 Amended and Restated Employment Agreement, dated as of August
4, 1997, between the Company and J.C. Chatpar (incorporated
herein by reference to Exhibit 10.1 to the September 1997 Form
10-QSB).
10.3 Manufacturing License Contract between the Company and
National Telecommunications Co., dated as of December 4, 1995
(incorporated herein by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-KSB/A for the fiscal year
ended March 31, 1996)).
10.4 Manufacturing License Contract between the Company and Gujarat
Communications and Electronics, Ltd. dated as of May 30, 1996
(incorporated herein by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1997).
10.5 Cyber Digital, Inc. 1997 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31,
1998).
10.6 Contractor Agreement between the Company and GTE Data Services
GmbH, dated as of December 9, 1997 (incorporated herein by
reference to Exhibit 10.6 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1998).
10.7 Amendment to the Company's 1997 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.7 to the
Company's Proxy Statement for Annual Meeting of Shareholders
dated February 14, 2000).
10.8 Amendment to the Company's Certificate of Incorporation
(incorporated herein by reference to Exhibit 10.8 to the
Company's Proxy Statement for Annual Meeting of Shareholders
dated February 14, 2000).
11 Computation of Loss Per Share.
27 Financial Data Schedule.
(b) Reports of Form 8-K.
No reports on Form 8-K were filed by the Registrant for the three months
ended June 30, 2000.
11
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CYBER DIGITAL, INC.
DATED: August 11, 2000 By: /s/ J.C. Chatpar
--------------------------
Chairman of the Board,
President, Principal Financial
Officer and Chief Executive
Officer
<PAGE>
Index to Exhibits
(a) Exhibits.
3.3 Composite Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-QSB for the period ended
December 31, 1996).
3.4 Composite Amended and Restated By-Laws (incorporated herein by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1997 (the
"September 1997 Form 10-QSB")).
10.6 Cyber Digital, Inc. 1993 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
10.7 Amended and Restated Employment Agreement, dated as of August
4, 1997, between the Company and J.C. Chatpar (incorporated
herein by reference to Exhibit 10.1 to the September 1997 Form
10-QSB).
10.8 Manufacturing License Contract between the Company and
National Telecommunications Co., dated as of December 4, 1995
(incorporated herein by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-KSB/A for the fiscal year
ended March 31, 1996)).
10.9 Manufacturing License Contract between the Company and Gujarat
Communications and Electronics, Ltd. dated as of May 30, 1996
(incorporated herein by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1997).
10.10 Cyber Digital, Inc. 1997 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31,
1998).
10.9 Contractor Agreement between the Company and GTE Data Services
GmbH, dated as of December 9, 1997 (incorporated herein by
reference to Exhibit 10.6 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1998).
10.10 Amendment to the Company's 1997 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.7 to the
Company's Proxy Statement for Annual Meeting of Shareholders
dated February 14, 2000).
10.11 Amendment to the Company's Certificate of Incorporation
(incorporated herein by reference to Exhibit 10.8 to the
Company's Proxy Statement for Annual Meeting of Shareholders
dated February 14, 2000).
11 Computation of Loss Per Share.
27 Financial Data Schedule.
(b) Reports of Form 8-K.
--------------------
No reports on Form 8-K were filed by the Registrant for the three months
ended June 30, 2000.
12
<PAGE>
Exhibit 11
COMPUTATION OF LOSS PER SHARE
(Unaudited)
Weighted average shares outstanding
Common Stock 19,387,096 18,247,283
Common Stock Equivalents -0- -0-
---------- ----------
Weighted average common shares
And equivalents 19,387,096 18,247,283
========== ==========
Net loss (486,944) (317,857)
Preferred stock dividends (35,419) -0-
---------- ----------
Loss available to common stockholders (522,363) (317,857)
========== ==========
Loss per share:
Basic (0.03) (0.02)
Diluted (0.03) (0.02)
13
