10QSB 1 q301.txt U. S. Securities and Exchange Commission Washington, D. C. 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 March 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- --------------- Commission File No. 0-26913 CYBERTEL COMMUNICATIONS CORP. ----------------------------- (Name of Small Business Issuer in its Charter) NEVADA 86-0862532 ------ ---------- (State or Other Jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 4275 Executive Square, Suite 510 La Jolla, California 92037 --------------------------- (Address of Principal Executive Offices) Issuer's Telephone Number: (858) 646-7410 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. (1) Yes X No (2) Yes X No --- --- --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Not applicable. APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 6,456,432 March 31, 2001 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The Financial Statements of the Registrant required to be filed with this 10-QSB Quarterly Report were prepared by management, and commence on the following page, together with Related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant. CYBERTEL COMMUNICATIONS CORP. CONSOLIDATED BALANCE SHEET March 31, 2001
ASSETS Current Assets Cash $ 125,873 Marketable securities 1,326,874 Accounts receivable 289,509 Other current assets 29,374 ----------- Total Current Assets 1,771,630 ----------- Equipment, net of $272,058 accumulated depreciation 422,639 Deposits 23,796 ----------- TOTAL ASSETS $ 2,218,065 =========== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt $ 14,025 Accounts payable 388,047 Brokerage margin accounts payable 230,798 Accrued expenses 264,925 Dividends payable 144,518 ----------- Total Current Liabilities 1,042,313 Long-term Debt 18,196 ----------- Total Liabilities 1,060,509 ----------- STOCKHOLDERS' EQUITY Convertible preferred stock, $.001 par value, 5,000,000 shares authorized, 2,150 shares issued and outstanding 2 Common stock, $.001 par value, 20,000,000 shares authorized, 6,456,432 shares issued and outstanding 6,456 Paid in capital 9,802,641 Comprehensive income 818,989 Deficit (9,470,532) ----------- TOTAL STOCKHOLDERS' EQUITY 1,157,556 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,218,065 ===========
CYBERTEL COMMUNICATIONS CORP. CONSOLIDATED INCOME STATEMENTS For the Three Months Ended March 31, 2001 and 2000
2001 2000 --------- ----------- Revenues $ 369,575 $ 86,604 Cost of sales 384,884 22,909 --------- ----------- Gross Margin ( 15,309) 63,695 --------- ----------- Operating Expenses Selling 119,777 49,895 General and administrative 844,072 757,681 Research and development 44,664 Depreciation 50,306 17,901 Interest income ( 1,949) ( 13,571) Interest expense 11,875 605,102 Minority interest in net loss (income) of a subsidiary 4,048 Gain on sale of marketable securities (643,820) --------- ----------- Total Operating Expenses 428,973 1,417,008 --------- ----------- Net Loss from Continuing Operations (444,282) (1,353,313) Preferred dividend requirements ( 34,025) Loss from discontinued operation, net ( 55,000) --------- ----------- NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $(533,307)$(1,353,313) ========= =========== NET LOSS (excludes preferred dividend requirements) $(499,282) Unrealized loss on marketable securities (352,253) --------- NET COMPREHENSIVE LOSS $(851,535)$(1,353,313) ========= =========== Net (loss) per common share - from continuing operations $(0.08) $(0.30) - from discontinued operations $(0.01) Weighted average common shares outstanding 6,338,547 4,518,309
CYBERTEL COMMUNICATIONS CORP. STATEMENTS OF CONSOLIDATED CASH FLOWS For the Three Months Ended March 31, 2001 and 2000
2001 2000 --------- ----------- CASH FLOWS USED BY OPERATING ACTIVITIES Net comprehensive loss $(533,307)$(1,353,313) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 50,307 17,901 Gain on sale of marketable securities (643,820) Issuance of stock for services 22,000 Writedown of investment in subsidiaries 4,048 Changes in: Accounts receivable 271,056 9,813 Other current assets 5,556 25,000 Accounts payable (239,540) ( 102,550) Accrued expenses 121,141 ( 56,066) Accrued dividends 34,026 --------- ----------- NET CASH USED BY OPERATING ACTIVITIES (908,533) (1,459,215) --------- ----------- CASH FLOWS USED BY INVESTING ACTIVITIES Proceeds from sale of marketable securities 643,820 Purchase of equipment ( 6,600) ( 24,212) Note receivable ( 150,000) Construction in progress ( 303,108) --------- ----------- NET CASH USED BY INVESTING ACTIVITIES 637,220 ( 477,320) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from brokerage margin loan 230,798 Repayment of short-term private debt placement ( 390,238) Proceeds from sale of preferred stock, net of costs of fundraising 2,830,125 Proceeds from sale of common stock, net of costs of fundraising 13,000 1,187,199 Proceeds from new installment debt Payments on installment debt ( 4,773) ( 21,299) Net change in credit lines ( 417) Net change in accrued officer salary ( 1,000) --------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES 239,025 3,604,370 --------- ----------- NET INCREASE (DECREASE)IN CASH ( 32,288) 1,667,835 --------- ----------- CASH BALANCES - Beginning of period 158,161 643,952 --------- ----------- - End of period $ 125,873 $ 2,311,787 ========= ===========
CYBERTEL COMMUNICATIONS CORP. NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Cybertel Communications Corporation have been prepared in accordance with generally accepted accounting principles and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's latest Annual Report filed with the SEC on From 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2000 as reported in Form 10-KSB, have been omitted. Item 2. Management's Discussion and Analysis or Plan of Operation. -------------------------------------------------------------------- Plan of Operation. ------------------ Subject to receipt of sufficient funding, in the next 12 months, we intend to employ 56 IP Gateways throughout the United States in order to transport long-haul Voice Over the Internet traffic, both domestically and internationally. Voice Over the Internet, or "VOIP," is long distance voice traffic transported as digital electronic data packets over the internet. On March 8, 2001, we entered into a Letter of Intent with Capital Growth Resources of El Cajon, California. The Letter of Intent profides for Capital Growth to conduct a private offering of a minimum of 100,000 units and a maximum of 2,000,000 units. The offering is to be conducted on a "best efforts all or none basis" as to the minimum offering amount, and on a "best efforts" basis thereafter. The minimum offering amount must be raised within 120 days. If the parties agree, the offering may be extended for an additional 60 days. Each unit is to be offered and sold at a price of $1.00, and is to consist of one "unregistered" and "restricted" share of our common stock and one warrant to purchase one additional share for $2.00. The Letter of Intent provides for the shares underlying the warrants to be registered with the Securities and Exchange Commission at our expense. The warrants are to be exercisable for one year from the date of issuance and may be called by us at the rate of one cent ($0.01) per warrant for all warrants not exercised within 30 days after our shares of common stock trade at an average closing bid price of $3.00 or more for five consecutive days. As compensation for its services, the Letter of Intent provides for us to issue to Capital Growth: warrants to purchase 10,000 "unregistered" and "restricted" shares of our common stock at a price of $0.01 per share upon completion of the minimum offering; warrants to purchase an additional 250,000 such shares upon completion of the maximum offering; and warrants to purchase one "unregistered" and "restricted" share of our common stock for every 10 warrants exercised by the subscribers under the offering. All warrants granted to Capital Growth are to expire 12 months after the date of issuance. Capital Growth intends to share these warrants with its sales personnel; this sharing may be based upon the number of shares sold in the offering by any participating sales person. Subject to the completion of the minimum offering, Capital Growth is to be paid a sales commission of 10% of the gross proceeds of the offering (excluding gross proceeds derived from the exercise of warrants), together with: 2% of the gross proceeds as a wholesaling fee; 2% of the gross proceeds as a "due diligence" fee; and 2% of the gross proceeds as an unaccountable expense allowance. In addition, Capital Growth is to receive: a wholesaling fee of 1%; a "due diligence" fee of 1%; a commission of 5%; and an unaccountable expense allowance of 1% of the gross proceeds derived from the exercise of investor Warrants. As of the date of this Report, we have not commenced any private offering pursuant to the Letter of Intent. We expect to begin such an offering during the second quarter of our calendar year. However, we can not assure you that we will be able to undertake any such offering or that, if we do, we will be able to raise sufficient funds. If we do not succeed in this regard, our plans to expand our IP Gateway network may be significantly delayed. As discussed in our 10-KSB for the year ended December 31, 2000, our agreements with Bell Atlantic, Qwest and Intermedia and Level 3 Communications allow us to collocate our Gateway equipment and terminate traffic in areas that we have not or do not intend to locate Gateways. We have very actively begun to employ our affinity group marketing strategy and have added three new affinity groups: Association of Naval Aviation; Changewave.com; and the Federation of Public and Private Employees. Management expects that our marketing efforts will be financed through our fundraising efforts. We have also contracted with the Tailhook Association; Miles Ahead Ministries; and the Marine Corps Reserve Officers Association. Each affinity group agreement requires the affinity group to forward a marketing piece to its members. The marketing pieces will recommend a telecommunications plan to the members. These plans will include long distance, toll free service, paging, cellular service, internet access, pre-paid and regular calling cards and other telecommunications services. We will provide each group with a billing summary of all participants' accounts each month and will pay each group a percentage of each participant's net telephone bill. The contracts will be in place for periods of time ranging from 12 months to 36 months, with each group having an option to renew for an additional term. We also intend to build a captive agent network to conduct direct marketing and supplement our affinity group marketing programs. We have begun our telemarketing efforts, through which we contact members of the Marine Corps Reserve Officers Association and the Tailhook Association. Management is also seeking viable acquisition candidates. We intend to make acquisitions that will allow us to offer value-added services and products to our customer base. We may not be successful in locating or acquiring any suitable candidate. Even if we are successful in this regard, we can not assure you that any acquisition will be profitable. We base our projections on the following assumptions and limitations. Our business plan details a stair-step process under which we will lease telecommunications services that can be marketed directly to our primary affinity groups. The combined membership of contracted affinity groups is 200,000 members. Our acceptance rate is about 38% for the "1 plus" service. We are currently in contract discussions with three more affinity groups. We believe this population and our current acceptance rate should provide the revenues detailed in the projections, although we can not make any guarantees. For the 2001 fiscal year, management projects revenues from our affinity group program to be $7,500,000 and flat rate services to be $3,000,000. In arriving at its revenue projections for its affinity groups program, Cybertel assumes that on average each residential customer will use approximately 200 minutes per month at a cost to the customer of approximately $0.069 per minute. We also assume that the number of residential customers will increase from approximately 3,000 in December, 2000, to approximately 60,000 "1 plus" customers by December, 2001. The cost of goods sold currently reflects the cost of a leased network through which we can transmit customer calls. The cost of goods reflects the use of the telephone lines, billing and collections and customer service. The rate used in the projections to reflect these costs is $0.45. To control costs, we have entered into subcontract arrangements to facilitate billing and collections and customer service. Cybertel placed in service its own Internet Protocol Network in October 2000 and terminated 1,300,000 minutes in December of 2000. This business is the flat rate business servicing 500 customers in December of 2000. The projection reflects a modest decrease in the cost of goods sold when the network is operational. We believe that the cost reduction will be more substantial, but are reflecting a modest reduction to be conservative. We believe that our selling, general and administrative costs will be reduced through the subcontracting of significant services such as billing and collections and customer service. The maintenance of our Internet Protocol Network and the marketing to and maintenance of affinity group relationships will be our largest costs. The telecommunication industry is highly competitive and requires abundant capital. We built our own IP Network so that we can control our prices. To build this network, we have sought out internet-compatible technology. The foregoing contains "forward-looking" statements and information, all of which is modified by reference to the following factors: Cybertel's business operations have yet to generate a profit. Our present gross monthly consolidated revenues are approximately $150,000 per month, and are insufficient to cover monthly general and administrative expenses of approximately $200,000. The cost of leased telephone lines is in addition to general and administrative expenses. Sales of "restricted securities" by persons who will have satisfied the required holding period for resale under Rule 144 of the Securities and Exchange Commission in the very near future will substantially increase the number of shares available in the "public float," and to the extent any recent price increases in the trading market for shares of Cybertel's common stock was the result of a greater demand over the supply, these additional shares will have an adverse effect on the trading market for our common stock on the OTC Bulletin Board. Also, the filing of Notices on Form 144 can have the effect of a "cap" on the market, until the shares covered thereby are sold. The initial planned 10 IP Gateways of our Internet Protocol Network, estimated to take approximately three months to complete, depending upon funding, will cost approximately $2,500,000, including hardware, software and setup costs. These gateways would allow us to originate telecommunications traffic in 10 cities. A complete Internet Protocol Network throughout the United States would require approximately 56 gateways at a cost of approximately $14,000,000, and, depending upon available funding, as to which we can provide no assurance, would take approximately six months to complete. A completed Internet Protocol Network will not ensure the success of our present or proposed business operations. Any anticipated revenues would not come for several months after completion and until there was a sufficient customer base; or we could wholesale traffic at very low margins, which would substantially alter our projected revenues. Cybertel may not be able to build its Internet Protocol Network with satisfactory technology to attract customers. Targeted affinity group members may choose not to switch long distance carriers, regardless of whether the affinity group to which they belong determines to align with Cybertel; this development would adversely effect our revenue projections and our potential for success. Actual results may differ significantly from those projected in our forward-looking statements. We may not obtain the projected results. Results of Operations. ---------------------- Three months ended March 31, 2001, compared to three months ended March 31, 2000. ----- Revenues for the three month period ended March 31, 2001, increased to $369,575 as compared to $86,604 for the three month period ended March 31, 2000, as the result of the increase in affinity group marketing. General and administrative costs have risen to $844,072 for the three month period ended March 31, 2001, as compared to $757,681 for the three month period ended March 31, 2000. Other general and administrative costs, such as payroll, marketing and legal, have increased as the Company has begun to implement its business plan. Interest expense for the three month period ended March 31, 2001, decreased to $11,875 as compared to $605,102 for the three month period ended March 31, 2000. Liquidity and Capital Resources. -------------------------------- We had cash resources of $125,873, at March 31, 2001. Management believes that our current cash on hand, together with liquid marketable securities of $1,326,874 at March 31, 2001, will be sufficient to meet our expenses during the next 12 months. However, unless we are able to raise substantial additional funding, our plans to expand our IP Gateway may be significantly delayed. PART II - OTHER INFORMATION Item 1. Legal Proceedings. ---------------------------- None; not applicable. Item 2. Changes in Securities and Use of Proceeds. --------------------------------------------------- Recent Sales of Unregistered Securities. ---------------------------------------- Three investment 2/12/01 152,000 Investment advisors advisory services valued at $152,000 Item 3. Defaults Upon Senior Securities. ------------------------------------------ None; not applicable. Item 4. Submission of Matters to a Vote of Security Holders. -------------------------------------------------------------- None; not applicable. Item 5. Other Information. ---------------------------- In May, 2001, which is subsequent to the period covered by this Report, the Company decided to rescind its acquisition of Telenomics, Inc., a California corporation. the Company will return all of the outstanding shares of Telenomics to Telenomics' former stockholders in exchange for the return of all Company shares that the Telenomics stockholders received as part of the acquisition. In addition, the Company is to loan $15,000 to Telenomics, to be repaid at a rate of $1500 per month, beginning August 1, 2001. The Company is also to loan Telenomics $7500, to be repaid on December 31, 2001. We have tentatively agreed that the notes will bear interest at the rate of 8% per annum and will be secured by a personal guarantee of Telenomics' principals. As of the date of this Report, we have not yet effectuated the Telenomics rescission. Item 6. Exhibits and Reports on Form 8-K. ------------------------------------------- (a) Exhibits. None. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. CYBERTEL COMMUNICATIONS CORP. Date: May 14, 2001 By:/s/Richard D. Mangiarelli -------------- ------------------------------------- Richard D. Mangiarelli Chief Executive Officer, President and Director Date: 5/14/01 By:/s/Richard Schmidt -------------- ------------------------------------- Richard Schmidt Chief Financial Officer and Director Date: 5/14/01 By:/s/Paul J. Mills -------------- ------------------------------------- Paul J. Mills Secretary and Director