- Quarterly Report (10-Q)

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 December 31, 2008
[_]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____.

 

Commission File No.: 0-13992

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, Hauppauge, New York		11788
(Address of principal executive offices)		(Zip Code)

Issuer's telephone number: [phone]

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 February 24, 2009: 33,529,813 shares of Common Stock; par value $.006666 per share.

PART 1. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

CYBER DIGITAL, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
					December 31, 2008		March 31, 2008
ASSETS					(Unaudited)		(Audited)
Current Assets
	Cash and cash equivalents			$	182,864	$	311,992
	Marketable securities				193,920		250,4800
	Accounts receivable, net				440,572		352,686
	Inventories				248,996		248,996
	Prepaid and other current assets				393,969		177,661
			Total Current Assets		1,460,321		1,341,815
Property and Equipment, net
	Equipment			$	409,298	$	406,401
	Furniture and Fixtures				64,355		64,355
	Vehicle				37,814		37,814
	Leasehold Improvements				4,786		4,786
				$	516,253	$	513,356
	Accumulated depreciation				474,505		459,473
			Total Property and Equipment	$	41,748	$	53,883
Other assets					2,333		9,333
Customer contracts					932,954		1,426,876
Other intangible assets					276,250		287,500
TOTAL ASSETS				$	2,713,606	$	3,119,407
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
	Accounts payable, accrued expenses, and taxes			$	3,324,653	$	2,642,243
	Accrued interest				803,744		659,703
	Officer/ shareholder notes payable				1,529,700		1,606,300
	Accrued dividend payable				54,219		44,844
	Equipment loan payable- current portion				7,301		7,301
	Convertible note payable-current portion				835,490		475,395
	Deferred revenue				65,950		84,824
			Total Current Liabilities		6,621,057		5,520,610
Long Term Liabilities
	Equipment loan payable				3,185		8,371
	Convertible note payable				0		713,094
	Other liabilities				600,604		600,604
Total Liabilities					7,224,846		6,842,679
Shareholders' Equity (Deficit)
Preferred stock - $.05 par value; cumulative, convertible and
	Participating; authorized 10,000,000 shares
	Series C; issued and outstanding - 310 shares at
	December 31, 2008 and March 31, 2008				16		16
	Series E; issued and outstanding -50 shares at
	December 31, 2008 and March 31, 2008				3		3
Common stock - $.0066667 par value; authorized 450,000,000 shares;
	issued and outstanding 33,529,813 and 33,529,813
	shares at December 31, 2008 and March 31, 2008, respectively				223,533		223,533
Additional paid-in-capital					19,182,648		19,164,062
Accumulated other comprehensive loss					(81,080)		(24,520)
Accumulated deficit					(23,836,360)		(23,086,366)
		Total Shareholders' Equity (Deficit)			(4,511,240)		(3,723,272)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY				$	2,713,606	$	3,119,407
The accompanying notes are an integral part of these statements.

 

CYBER DIGITAL, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
				(Unaudited)
						Three months ended December 31,
						2008			2007
Net Sales					$	739,877		$	1,160,649
Cost of Sales						487,039			865,630
			Gross Profit			252,838			295,019
Operating Expenses
	Selling, general and administrative expenses				$	413,459		$	626,223
	Research and development					10,769			10,769
	Depreciation and amortization					175,735			134,573
			Total Operating Expenses			599,963			771,565
			Profit (Loss) from Operations			(347,125)			(476,546)
Other Income (Expense)
	Interest expense					(72,661)			(83,789)
	Other income					0			6,000
			Total Other Income (Expense )			(72,661)			(77,789)
Net Profit (Loss)						(419,786)			(554,335)
Preferred Stock Dividend						3,125			3,125
Income Available to Common Shareholders					$	(422,911)		$	(557,460)
Net Profit (Loss) Per Share of Common Stock
		Profit (Loss) from Operations - Basic			$	0.013		$	(0.016)
		Diluted			$	0.013		$	(0.016)
		Net Profit (Loss) - Basic			$	0.013		$	(0.016)
		Diluted			$	0.013		$	(0.016)
Weighted average number of common shares outstanding						33,529,813			33,521,868
The accompanying notes are an integral part of these statements.

 

 

CYBER DIGITAL, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
				(Unaudited)
						Nine months ended December 31,
						2008			2007
Net Sales					$	2,446,492		$	2,843,384
Cost of Sales						1,512,146			1,872,502
			Gross Profit			934,346			970,882
Operating Expenses
	Selling, general and administrative expenses				$	1,424,867		$	1,436,153
	Research and development					30,769			23,269
	Depreciation and amortization					527,203			316,893
			Total Operating Expenses			1,982,839			1,776,315
			Profit (Loss) from Operations			(1,048,493)			(805,433)
Other Income (Expense)
	Interest expense					(225,878)			(209,950)
	Other income					533,754			14,000
			Total Other Income (Expense )			307,876			(195,950)
Net Profit (Loss)						(740,617)			(1,001,383)
Preferred Stock Dividend						9,375			9,375
Income Available to Common Shareholders					$	(749,992)		$	(1,010,758)
Net Profit (Loss) Per Share of Common Stock
		Profit (Loss) from Operations - Basic			$	(.022)		$	(.030)
		Diluted			$	(.022)		$	(.030)
		Net Profit (Loss) - Basic			$	(.022)		$	(.030)
		Diluted			$	(.022)		$	(.030)
Weighted average number of common shares outstanding						33,529,813			33,521,868
The accompanying notes are an integral part of these statements.

 

 

CYBER DIGITAL, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
		(Unaudited)
				Nine months ended, December 31,
				2008			2007
Cash Flows from Operating Activities
Net loss			$	(740,617)		$	(1,001,383)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation			15,032			18,454
	Amortization intangible assets			505,172			296,870
	Stock based compensation			18,586			7,190
	Accrued interest			144,041			151,884
	Other Assets			7,000			314
	Deferred revenue			(18,874)			(31,448)
	(Increase) decrease in operating assets:
	Accounts receivable			(87,886)			20,336
	Prepaid expenses			(216,308)			(77,031)
	Increase (decrease) in operating liabilities:
	Accounts payable, accrued expenses and taxes			682,410			535,644
	Net Cash Provided by (Used in) Operating Activities			308,556			(79,170)
Cash Flows from Investing Activities
	Purchase of equipment		$	(2,898)		$	(1,271)
	Cash portion of acquisition			0			175,547
	Net Cash Provided by (Used in) Investing Activities		$	(2,898)		$	174,276
Cash Flows from Financing Activities
	Principal payments on convertible debt		$	(352,999)		$	0
	Equipment loan payable			(5,187)			(5,113)
	Loan Proceeds (Paid) from officer/ shareholder			(76,600)			75,000
	Net Cash Provided by (Used in) Financing Activities			(434,786)			69,887
Net Increase (Decrease) in Cash and Cash Equivalents				(129,128)			164,993
Cash and Cash Equivalents at Beginning of Period				311,992			33,506
Cash and Cash Equivalents at End of Period			$	182,864		$	198,499
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
	Interest		$	105,317		$	0
Supplemental Disclosure of Non Cash Investing and Financing Activities
	Acquisition financed through issuance of convertible debt		$	0		$	1,307,338
The accompanying notes are an integral part of these statements.

CYBER DIGITAL, INC. and Subsidiaries

NOTES TO CONSOLIDATED 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 nine months ended December 31, 2008 are not necessarily indicative of the results that may be expected for the year ending March 31, 2009. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-KSB, for the year ended March 31, 2008.

Note 2. Marketable Securities

At December 31, 2008, marketable securities consist of 808,000 shares of Pervasip Corp. received as part of the acquisition of NRT and TSI. The shares have been classified as available for sale.

Market value	$193,920
Cost	275,000
Unrealized loss	$ (81,080)

Note 3. Intangible Assets

Intangible assets consists of the following:

	Useful Life	Carrying Amount	Accumulated Amortization	Net Amount
Customer contracts	3 years	$ 1,975,674	$ 1,042,720	$ 932,954
FCC and state licenses	20 years	300,000	23,750	276,250
Total		$ 2,275,674	$ 1,066,470	$ 1,209,204

Note 4. Comprehensive Income

The Company has classified the marketable securities it received as part of its acquisition of NRT and TSI as available for sale. In accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" unrealized holding gains and losses are excluded from earnings. Under SFAS No. 130, Reporting Comprehensive Income, unrealized holding gains and losses on the Company's available for sale equity securities are to be reported as components of comprehensive income.

The components of comprehensive (loss), net of related tax, are as follows:

	Nine months ended December 31,
	2008	2007
Net (loss)	$ (740,617)	$ (1,001,383)
Change in unrealized gain (loss) on securities	(81,080)	(85,120)
Comprehensive (loss)	$ (821,697)	$ (1,086,503)

At December 31, 2008, accumulated other comprehensive loss consisted solely of unrealized holding losses on marketable securities.

Note 5. Other Income

The Company estimates its liabilities for certain state and local taxes as well as other trade liabilities. In September 2008, the Company determined these estimates to be in excess of the amounts required to settle these liabilities. The Company has recorded other income of $0 and $533,754 for the quarter ended December 31, 2008 and for the nine months ended December 31, 2008, respectively, as a result of the reduction of these estimated liabilities. This change in estimate will not affect future periods.

Note 6. Stock Options and Warrants

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R (SFAS No. 123R) which requires that stock options and warrants issued for compensation or services be recorded at their estimated fair value using option pricing models. The Company uses the Black-Scholes model to value its stock option and warrants. The Company used an interest rate of 4.31% and expected volatility of 4.6% in valuing its stock options.

A summary of option and warrant activity as of December 31, 2008 is as follows:

	Shares	Weighted Average Exercise Price $	Average Remaining Life
Outstanding, April 1, 2008	27,931,130	0.29	4.82
Granted options	1,570,000	0.08
Expired	255,000	0.50
Outstanding, December 31, 2008	29,246,130

Note 7. Petition for Relief under Chapter 11

On September 23, 2008, New Rochelle Telephone Co. ("NRT" or the "debtor"), a wholly owned subsidiary, filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the eastern district of New York. Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petition under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in-possession. These claims are reflected in the December 31, 2008, balance sheet of NRT as "Liabilities subject to compromise." Additional claims (liabilities subject to compromise) may arise subsequent to the filing date from determination by the court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the Debtor's assets ("secured claims") also are stayed, although the holders of such claims have the right to move the court for relief from the stay. Secured claims are secured by liens on all of the Company's assets, excluding intellectual property.

NRT will incur additional liabilities, not subject to compromise, for goods or services provided to it as Debtor-in-possession after the petition date. These goods and services include any costs as a result of the reorganization such as attorneys or court costs.

On January 9, 2009, NRT's petition for relief under Chapter 11 was converted to Chapter 7, which is liquidation and winding down of NRT's business. As of February 6, 2009, all employees of NRT were discharged by the U.S. Trustee and the business ceased to operate. All of the Company's stock in NRT has been pledged as security for the convertible note payable. As a result, all proceeds received by the Trustee will be used to reduce the amount due on the convertible note. The Company does not expect to derive any value from it's investment in NRT.

The liquidation of NRT is expected to reduce the convertible note payable to approximately $400,000. The lender, under the convertible note agreement, will still have a security interest in all of the Company's remaining assets, except intellectual property.

In accordance with SFAS No. 144, the results of operation for NRT are shown as continuing up until conversion to a Chapter 7 liquidation in January 2009.

As of December 31, 2008, the condensed balance sheet and condensed statement of operations of NRT were as follows:

 

New Rochelle Telephone Corp.
(Debtor - in - Possession)
Condensed Balance Sheet
ASSETS
Current Assets
	Cash and cash equivalents					$	31,318
	Accounts receivable, net						357,314
	Prepaid and other current assets						182,046
			Total Current Assets				570,678
Property and Equipment, net							21,117
TOTAL ASSETS						$	591,795
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE
Current Liabilities
	Accounts payable and accrued expenses					$	188,170
	Deferred revenue						48,664
			Total Current Liabilities				236,834
LIABILITIES SUBJECT TO COMPROMISE
	Accounts payable and accrued expenses						3,208,880
			Total Liabilities Subject to Compromise				3,208,880
TOTAL LIABILITIES							3,445,714
TOTAL SHAREHOLDERS' DEFICIT							(2,853,919)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT						$	591,795

 

New Rochelle Telephone Corp.
(Debtor - in - Possession)
				Condensed Statement of Operations
Net Sales								$	1,649,150
Cost of Sales									1,510,937
			Gross Profit						138,213
General and Administrative Expenses								$	1,360,554
Other Income (Expense)
	Reorganization Costs								(119,202)
Net Loss									(1,341,543)

Note 8. Management Agreement

In December 2008, the Company entered into an agreement with another telecommunications provider to manage substantially all aspects of the Company's telecommunications business. Pursuant to the agreement, the Company will receive a percentage of net cash collections as defined.

PART 1

ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Statements contained in this Report on Form 10-QSB that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding industry trends, strategic business development, pursuit of new markets, competition, results from operations, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "intends", "plans", "anticipates", "believes", "expect to", or words of similar import. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, marketing success, product development, production, technological difficulties, manufacturing costs, changes in economic conditions, competition, the ability to obtain financing on acceptable terms, future profitability, future profitability of acquired businesses or product lines, and those included in our company's Annual Report of Form 10KSB for the fiscal year ended March 31, 2008. Our company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.

Overview

We are a designer, software developer and manufacturer of a range of unique distributed digital-voice-switching and Internet Protocol (IP) broadband infrastructure equipment as well as a communications service provider through our subsidiaries. Our technology division produces Class 5 local digital central office switches, Class 4 regional tandem digital central office switches, IP soft-switches, routers, gateways, firewalls, voice-over IP (VoIP) and virtual private network (VPN) systems for public-switched-telephone-network (PSTN) operators and Internet Service Providers (ISP) worldwide. Our communication service provider subsidiaries provide services to small businesses and residential subscribers in the states of New York, New Jersey and Pennsylvania.

On June 1, 2007, we acquired two CLECs, New Rochelle Telephone Corp., ("NRT") and Telecarrier Services, Inc. ("TSI"), based in White Plains, New York. These acquisitions have allowed us to expand our market presence in New York, New Jersey and Pennsylvania.

Results of Operations

For Three Months Ended December 31, 2008

Net sales

Net sales for the quarter ended December 31, 2008 was $739,877 as compared to $1,160,649 for the quarter ended December 31, 2007. Net sales consist of local and long distance telephone service provided by our subsidiaries, NRT and TSI. Revenues are generated on a recurring monthly basis from services provided to both small businesses and residential customers. The average revenue per user (ARPU) is approximately $46 per month.

Cost of Sales

Cost of sales for the quarter ended December 31, 2008 was $487,039 as compared to $865,630 for the quarter ended December 31, 2007. Cost of sales predominantly consists of purchasing communication services from Verizon and Qwest on a resale basis. We also include in our cost of sales the materials and labor used, subcontractor costs and overhead incurred in the manufacture of our systems as well as any change in the valuation of our inventory, which was $0 for both quarters ended December 31, 2008 and 2007. There were no manufacturing costs for the periods.

Gross Profit

Gross profit for the quarter ended December 31, 2008 was $252,838 as compared to $295,019 for the same quarter ended December 31, 2007. Gross profit as a percentage of sales was 34% for the quarter ended December 31, 2008 as compared to 25% for the same quarter ended December 31, 2007.

Selling, general and administrative

Selling, general and administrative expenses for the quarter ended December 31, 2008 was $413,459 as compared to $626,223 for the same quarter ended December 31, 2007. The stock based compensation expense in the quarter ended December 31, 2008 was $6,218 as compared to $0 for the same quarter ended December 31, 2007.

Research and development

Research and development expenses remain unchanged from $10,769 in the quarter ended December 31, 2007 to $10,769 in the quarter ended December 31, 2008. All development costs are expensed in the period incurred.

Net Income (loss) from operations

Loss from operations in the quarter ended December 31, 2008 was $(419,786) or $0.013 per share as compared with a loss of $(554,335) or $(0.016) per share in the quarter ended December 31, 2007.

Net income (loss) available to Common Stockholders

Preferred stock dividend was $3,125 and $3,125 in the quarters ended December 31, 2008 and 2007, respectively. As a result of the foregoing, the net income (loss) available to common stockholders in the quarter ended December 31, 2008 was $(422,911) or $0.013 per share as compared to a net loss of $(557,460) or $(0.016) per share in the quarter ended December 31, 2007.

For Nine Months Ended December 31, 2008

Net sales

Net sales for the period ended December 31, 2008 was $2,446,492 as compared to $2,843,384 for the period ended December 31, 2007. Net sales consist of local and long distance telephone service provided by our subsidiaries, NRT and TSI. Revenues are generated on a recurring monthly basis from services provided to both small businesses and residential customers. The average revenue per user (ARPU) is approximately $46 per month.

Cost of Sales

Cost of sales for the period ended December 31, 2008 was $1,512,146 as compared to $1,872,502 for the period ended December 31, 2007. Cost of sales predominantly consists of purchasing communication services from Verizon and Qwest on a resale basis. We also include in our cost of sales the materials and labor used, subcontractor costs and overhead incurred in the manufacture of our systems as well as any change in the valuation of our inventory, which was $0 for both periods ended December 31, 2008 and 2007. There were no manufacturing costs for the periods.

Gross Profit

Gross profit for the period ended December 31, 2008 was $934,346 as compared to $970,882 for the same period ended December 31, 2007. Gross profit as a percentage of sales was 38% for the period ended December 31, 2008 as compared to 34% for the same period ended December 31, 2007.

Selling, general and administrative

Selling, general and administrative expenses for the period ended December 31, 2008 was $1,424,867 as compared to $1,436,153 for the same period ended December 31, 2007. The stock based compensation expense in the period ended December 31, 2008 was $18,586 as compared to $7,190 for the same period ended December 31, 2007.

Research and development

Research and development expenses increased from $23,269 in the period ended December 31, 2007 to $30,769 in the period ended December 31, 2008, representing an increase of $7,500 or approximately 32%. All development costs are expensed in the period incurred.

Net Income (loss) from operations

Loss from operations in the period ended December 31, 2008 was $(740,617) or $(0.022) per share as compared with a loss of $(1,001,758) or $(0.030) per share in the period ended December 31, 2007.

Net income (loss) available to Common Stockholders

Preferred stock dividend was $9,375 and $9,375 in the periods ended December 31, 2008 and 2007, respectively. As a result of the foregoing, the net income (loss) available to common stockholders in the period ended December 31, 2008 was $(749,992) or $(0.022) per share as compared to a net loss of $(1,010,758) or $(0.030) per share in the period ended December 31, 2007.

Liquidity and Capital Resources

Our ability to generate cash adequate to meet our needs results primarily from sale of preferred and common stock, cash flow from operations, issuance of debt, and cash advances in the form of loan from our Chief Executive Officer and a shareholder. We believe that our current sources of liquidity are sufficient to meet our near-term needs. However, we need additional capital to pursue more acquisitions and research and development activities to support our future growth needs. We have no off-balance sheet arrangements.

Cash and cash equivalents were $182,864 and $198,499 for the periods ended December 31, 2008 and 2007, respectively.

Marketable securities were $193,920 and $189,880 for the periods ended December 31, 2008 and 2007, respectively.

Net cash provided by (used in) operating activities were $308,556 and $(79,170) for the periods ended December 31, 2008 and 2007, respectively.

Net cash provided by (used in) investing activities were $(2,898) and $174,276 during the periods ended December 31, 2008 and 2007, respectively.

Net cash provided by (used in) financing activities were $(434,786) and $69,887 for the periods ended December 31, 2008 and 2007, respectively.

As of the periods ended December 31, 2008 and 2007, our company has received cash advances of $1,214,700 and $1,256,300, respectively, from our Chief Executive Officer. These cash advances in the form of a note are secured by all assets of the Company. As of the periods ended December 31, 2008 and 2007, our company has received cash advances of $315,000 and $350,000 from a shareholder, respectively.

Effective June 1, 2007, we acquired two telephone companies, NRT and TSI, from eLEC. These companies were acquired on cashless basis through the issuance of secured convertible note in the principal amount of approximately $1.3 million with an accredited institutional investor. The note is due July 1, 2010 and bears interest at prime plus 2% but no less than 9%. All or portion of the outstanding principal and interest due under the note may be converted into shares of our common stock upon satisfaction of specified conditions. The note is convertible into shares of our common stock at a fixed price of $0.50 per share, provided however, (i) the average closing price of our common stock for the 5 trading days prior to conversion is greater than or equal to $0.58, and (ii) specified trading volume conditions are met. Otherwise, we must make the monthly principal and interest payments in cash. The note is secured by a lien on substantially all our assets, other than intellectual property assets. In connection with the note, we entered into a Registration Rights Agreement with the institutional investor to register the shares of our common stock issuable upon conversion of the note. The Registration Rights Agreement was declared effective by Securities Exchange Commission on October 18, 2007 for the issuance of up to 3,200,000 shares of our common stock pursuant to terms of the convertible note. In addition to our purchase agreement, we also received 808,000 restricted shares of common stock of eLEC Communications Corp., which is included as marketable securities for the fiscal year 2008.

In December 2007, it came to our attention that NRT evidently had not been receiving telephone usage data from Verizon for the immediately preceding seven months, depriving NRT of the ability to bill its customers accordingly. Under our Wholesale Advantage Services Agreement with Verizon, we believe Verizon is obligated to provide this billing data. We also believe, among other things, that we had overpaid Verizon with respect to some of the months prior to that seven-month period, that Verizon failed to correctly apply current payments to current charges and instead continued to apply payments to past disputed amounts prior to 2007, that Verizon wrongly billed us for late charges, that Verizon billed NRT for usage with respect to which NRT was never provided the corresponding data , and that Verizon improperly charged us for ISP-bound traffic pursuant to FCC rules set forth in 16 FCC Red 9151 (2001). We have been discussing the foregoing matters with Verizon and believe we can reach an amicable resolution with Verizon of each of these disputes. However, there can be no assurance that these disputes will be resolved amicably or, if and when resolved, that they will be resolved in our favor, although if these disputes are not resolved in our favor, we believe eLEC may, in certain circumstances, be obligated to indemnify us for our resulting damages pursuant to the terms of the stock purchase agreement between us and eLEC pursuant to which we agreed to acquire NRT. However, there can be no assurance that eLEC will provide any such indemnification to us, and any adverse resolution of one or more of these disputes with Verizon could have a material and adverse effect on our company.

On or about July 28, 2008, Verizon imposed a services embargo on all service requests from NRT except for disconnects. This disallows NRT to add new customers. Hence on September 23, 2008, NRT filed a voluntary petition for relief under Chapter 11 of Title 11 of the U.S. Code before the U.S. Bankruptcy Court, Eastern District of New York. The filing is intended to facilitate an orderly process to re-organize NRT's pre-petition debts, reduce costs and loan outstanding to the accredited institutional investor. On January 9, 2009, NRT's petition for relief under Chapter 11 was converted to Chapter 7, which is liquidation and winding down of NRT's business. As of February 6, 2009, all employees of NRT were discharged by the U.S. Trustee and the business ceased to operate.

In December 2008, the company entered into a five-year agreement with another telecommunications provider to manage substantially all aspects of the company's telecommunications service business, specifically pertaining to TSI. Pursuant to the agreement, the company will receive a percentage of net cash collections as defined.

Additional financing will be needed to support our growth plans and there can be no assurance that such capital will be available at terms and conditions acceptable to us.

Impact of Inflation

Inflation has historically not had a material effect on our operations.

ITEM 3. Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures were designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms. In addition, based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-QSB.

PART II

ITEM 1 - Legal Proceedings

The Company is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion, of management, the amount of any liability is not likely to have a material effect on the financial statements. However, one of the Company's subsidiary, NRT filed a voluntary petition for relief under Chapter 11 of Title 11 of the U.S. Code before the U.S. Bankruptcy Court, Eastern District of New York. The filing is intended to facilitate an orderly process to re-organize NRT's pre-petition debts, reduce costs and loan outstanding to an accredited institutional investor.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A) Exhibits

31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

B) Reports on Form 8-K

On October 13, 2008, the Registrant filed a report on Form 8-K.

 

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.

DATED: February 27, 2009		CYBER DIGITAL, INC
		By: /s/ J.C. Chatpar Chairman of the Board, President Chief Executive Officer and Chief Financial Officer