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 September 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.
-------------------
(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
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (631) 231-1200
13
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 September 30, 2000: 19,462,096
shares of Common Stock; par value $.01 per share.
<PAGE>
CYBER DIGITAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
(Unaudited) (Audited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 53,068 $1,650,801
Accounts Receivable 4,867 5,078
Inventories 607,584 592,125
Prepaid and other current assets 48,204 52,990
---------- ----------
Total Current Assets $ 713,723 $2,300,994
---------- ----------
Property and Equipment, Net
Equipment $ 401,458 $ 385,743
Furniture and Fixtures 68,589 66,262
Leasehold Improvements 4,786 4,786
---------- ----------
$ 474,833 $ 456,791
Accumulated depreciation 292,189 255,010
---------- ----------
Total Property and Equipment $ 182,644 $ 201,781
---------- ----------
Other Assets $ 30,124 $ 21,750
---------- ----------
$ 926,491 $2,524,525
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
2
<PAGE>
CYBER DIGITAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, accrued expenses, and taxes $ 232,218 $ 283,232
------------ ------------
Total Current Liabilities $ 232,218 $ 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 September 30, 2000
and March 31, 2000 -0- -0-
Series B-1 issued and outstanding - none at September 30, 2000
and March 31, 2000 -0- -0-
Series B-2 issued and outstanding - none at September 30, 2000
and March 31, 2000 -0- -0-
Series C issued and outstanding - 310 shares at September 30,
2000 and March 31, 2000 16 16
Series D-1 issued and outstanding - none at September 30, 2000
and 851 shares at March 31, 2000 -0- 43
Common stock - $.01 par value; authorized 30,000,000
shares; issued and outstanding 19,462,096 shares
at September 30, 2000 and 19,199,807 at March 31, 2000,
respectively 194,621 191,998
Additional paid-in capital 17,144,125 17,574,905
Accumulated deficit (16,644,489) (15,525,669)
------------ ------------
$ 694,273 $ 2,241,293
------------ ------------
$ 926,491 $ 2,524,525
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Net Sales $ 13,828 $ -0-
Cost of Sales 8,346 -0-
------------ ------------
Gross Profit $ 5,482 $ -0-
------------ ------------
Operating Expenses
Selling, general and administrative expenses $ 365,040 $ 342,775
Research and development 99,133 130,730
------------ ------------
Total Operating Expenses $ 464,173 $ 473,505
------------ ------------
Loss from Operations $ (458,691) $ (473,505)
Other Income, net 33,834 1,156
------------ ------------
Net Loss $ (424,857) $ (472,349)
============ ============
Net Loss Per Share of Common Stock
Net Loss-Basic $ (0.02) $ (0.03)
============ ============
Net Loss-Diluted $ (0.02) $ (0.03)
============ ============
Weighted average number of common shares outstanding 19,399,391 18,016,873
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Net Sales $ 26,082 $ -0-
Cost of Sales 17,043 -0-
------------ ------------
Gross Profit $ 9,039 $ -0-
------------ ------------
Operating Expenses
Selling, general and administrative expenses $ 739,376 $ 575,488
Research and development 227,631 217,149
------------ ------------
Total Operating Expenses $ 967,007 $ 792,637
------------ ------------
Loss from Operations $ (957,968) $ (792,637)
Other Income, net 46,167 2,441
------------ ------------
Net Loss $ (911,801) $ (790,196)
------------ ------------
Net Loss Per Share of Common Stock
Net Loss-Basic $ (0.05) $ (0.04)
============ ============
Net Loss-Diluted $ (0.05) $ (0.04)
============ ============
Weighted average number of common shares outstanding 19,399,391 18,016,873
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
CYBER DIGITAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (911,801) $ (790,196)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 37,009 35,873
Amortization 170 170
(Increase) decrease in operating assets:
Accounts receivable 211 -0-
Inventories (15,459) (10,332)
Prepaid expenses 4,786 1,465
Other assets (8,374) -0-
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (51,014) 42,604
----------- -----------
Net Cash Used in Operating Activities $ (944,472) $ (720,416)
----------- -----------
Cash Flows from Investing Activities
Purchase of equipment $ (15,715) $ (5,466)
Purchase of furniture and fixtures (2,327) -0-
----------- -----------
Net Cash Used in Investing Activities $ (18,042) $ (5,466)
----------- -----------
Cash Flows from Financing Activities
Issuance of preferred stock $ -0- $ 3,010,000
Redemption of preferred stock (686,400) -0-
Preferred Stock Dividends (23,819) -0-
Issuance of common stock 75,000 257,600
----------- -----------
Net Cash (Used) Provided by Financing Activities $ (635,219) $ 3,267,600
----------- -----------
Net Decrease in Cash and Cash Equivalents $(1,597,733) $ 2,541,718
Cash and Cash Equivalents at Beginning of Period 1,650,801 246,832
----------- -----------
Cash and Cash Equivalents at End of Period $ 53,068 $ 2,788,550
=========== ===========
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-
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
6
<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 six months ended September 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:
September 30, 2000 March 31, 2000
------------------ --------------
Raw Materials $ 548,257 $ 528,221
Finished Goods 59,327 63,904
------ ------
$ 607,584 $ 592,125
======= =======
PART 1
7
<PAGE>
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Overview
Cyber Digital, Inc. (the "Company") is a manufacturer, software developer and
provider of a vast array of high performance Internet infrastructure equipment
such as routers, gateways, firewalls and servers for the creation of
distributive digital broadband and virtual private network (VPN) services. Cyber
Digital, Inc. is also a manufacturer and software developer of advanced software
driven distributive digital voice switching equipment employing SS7 or C7
signaling for private and public switched voice network operators worldwide,
especially for developing countries. The Company's mission is to become the
leading provider of distributive digital broadband products and services, and
distributive digital voice switching products.
During the year ended March 31, 2000 ("Fiscal 2000"), the Company 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 Cyber
Digital's Internet Protocol (IP) Frame Relay and Private Line based "broadband"
technology. This "broadband" technology was used by the Company to rapidly
develop its (a) Cyber Business Internet Gateway (CBIG), a unique gateway in the
industry that combines all the functions and features required by the customer
in one box, and (b) Cyber Internet Access Network (CIAN), a high performance
distribution router, providing multiple business customers simultaneous network
access. The Company developed its products to piggyback on AT&T's rapid
deployment of Internet Protocol (IP) Frame Relay and Private Line based
"broadband" Internet backbone.
In August 2000, Cyber Digital expanded the "firewall" or data security
capabilities of its CBIG, from IP packet filtering, IP masquerading and IP
tunneling to include IPSec, an industry-wide standard for assuring the privacy,
integrity and authenticity of information crossing public IP networks. CBIG
IPSec provides a cost-effective way of creating an enterprise-wide virtual
private network (VPN) by enabling secure use of the Internet, based on the
Company's proprietary technology that is compatible with any provider's
standards-based IP backbone, including AT&T's rock solid IP backbone. CBIG's
IPSec-based VPN capability eliminates the need for using expensive leased lines
between businesses and corporate to branch offices. Cyber Digital's IPSec-based
security offerings will also help accelerate the secure access and
implementation of VPNs for B2B e-commerce companies. CBIG IPSec makes Internet
"wiretapping" entirely impractical. According to International Data Corporation
(IDC), the U.S. IP VPN market is estimated to grow from $0.2 billion in 1998 to
$2.0 billion in 2002. The CBIG IPSec product is available from Cyber Digital,
Inc. as well as its distributors, resellers, and system integrators under the
Company's alliance partner program.
In October 2000, the Company launched a new division, GoCyberWeb.com, to enter
into lucrative web hosting business using its products in already established
data centers in Hauppauge, NY, Woburn, MA, and Manhattan, NY. The Company's
distributive digital broadband based web hosting business compliments its
high-speed Internet access business by utilizing unused bandwidth during early
years of deployment of products and services. The synergy created by combination
of products and services substantially lowers the Company's capital investment
in building a new distributive digital broadband infrastructure. According to
Forrester Report, web hosting revenue is expected to grow from $1.4 billion in
1999 to $19.8 billion by 2004.
In October 2000, the Company signed a building access agreement with U.S.
RealTel, Inc. to provide advanced digital broadband services. Under the terms of
the agreement, Cyber Digital is permitted to offer its digital broadband
services including high-speed Internet and data, web hosting, e-mail,
video-conferencing, streaming video and multi-media services as well as secured
VPN services, to more than
8
<PAGE>
850 buildings in top 10 states. U.S. RealTel has master leased more than 8,000
properties from property owners, including prime commercial and industrial
buildings for telecommunications services.
During the quarter ended September 30, 2000, as part of continuing research and
development efforts, the Company enhanced its digital "broadband" products, CIAN
and CBIG for local transport applications. 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 (LANs) and PCs to IP
backbone.
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. The Company is engaged in
three out of six of these emerging new technology driver markets. These
accomplishments by the Company are significant, especially when viewed from the
standpoint of rapid development of its proven products and services. The Company
is an early mover and it intends to take advantage of this position in a
controlled manner.
The Company's business model was proven in last quarter of fiscal year 2000 when
it rolled out its digital broadband services in Boston area and began generating
recurring monthly revenues. As planned, it rolled its services in New York City
in the summer of year 2000. It intends to implement a scalable nationwide
network over the next 3 years, instead of previous plans over 10 years. The
rollout will continue into 31 additional markets beginning in the spring of
2001. Ultimately, the Company expects to provide service in 33 of the nation's
largest metropolitan areas, which contain 60% of the nation's local area
networks.
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 referred 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
For Three Months Ended September 30, 2000
9
<PAGE>
Net sales for the quarter ended September 30, 2000 were $13,828 as compared to
zero for the quarter ended September 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 for the quarter ended September 30, 2000 was 40% of net
sales as compared to zero for the quarter ended September 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 $22,265 or 6% in the quarter ended September
30, 2000 as compared to the quarter ended September 30, 1999, primarily due to
increases in marketing expenses. Research and development expenses for the
quarter ended September 30, 2000 were $99,133 as compared to $130,730 for the
quarter ended September 30, 1999. Net loss for the quarter ended September 30,
2000 was $(424,857) or $(.02) per share as compared to $(472,349) or $(.03) per
share for the quarter ended September 30, 1999.
For Six Months Ended September 30, 2000
Net sales for the six month period ended September 30, 2000 were $26,082 as
compared to zero for the period ended September 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 for the six month period ended September
30, 2000 was 35% of net sales as compared to zero for the period ended September
30, 1999. Selling, general and administrative expenses increased $163,888 or 28%
in the period ended September 30, 2000 as compared to the period ended September
30, 1999. Research and development expenses for the period ended September 30,
2000 were $227,631 as compared to $217,149 for the period ended September 30,
1999. Net loss for the period ended September 30, 2000 was $(911,801) or $(.05)
per share as compared to $(790,196) or $(.04) per share for the period ended
September 30, 1999.
Liquidity and Capital Resources
Total working capital decreased $1,536,257 to $481,505 for the quarter ended
September 30, 2000 from $2,017,762 for the period ended March 31, 2000. The
current ratio decreased to 3.1 to 1 as at September 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
September 30, 2000. The Company expects to finance its operations through the
exercise of options and warrants and together with the issuance of additional
stock. 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.
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
10
<PAGE>
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 a purchase 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.
ITEM 3 - Defaults on Senior Securities.
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
11
<PAGE>
CYBER DIGITAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS IN FORM 8-K
A) Exhibits
3. Articles of Incorporations and By-Laws
10. Material Contracts
11. Computation of Loss Per Share
27. Financial Data Schedule.
B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant for the three months
ended September 30, 2000.
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: November 13, 2000 By: \s\ J.C. Chatpar
----------------
Chairman of the Board,
President, Principal Financial
Officer and Chief Executive
Officer
