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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NUMBER 2 TO
FORM 10-KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2004
(Commission File No.) 333-62690
-----------
CYBERADS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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Nevada 65-1000634
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
370 Amapola Avenue, Suite 202, Torrance, CA 90501
--------------------------------------------------------
(Address of principal executive office) (Zip Code)
(888) 288-7466
----------------
(Issuer's telephone number)
Securities Registered Under Section 12 (B) of the Act: None
Securities Registered Under Section 12 (G) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation SB contained in this form and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB |X|.
Revenues for the year ended December 31, 2004: $303,120
The aggregate market value of voting stock held by nonaffiliates of
CyberAds, Inc. ("CYAD") common stock, as of April 8, 2005 was approximately
$5,569,672 (based on the last sale price of such stock as reported by OTCBB).
The number of shares outstanding of the registrant's common stock, as of April
8, 2005 was 32,762,777
Documents incorporated by reference. None
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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TABLE OF CONTENTS
PAGE
PART I 3
Item 1. Description of Business 3
Item 2. Description of Property 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II 4
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis or Plan of Operation 5
Item 7. Financial Statements 8
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 8
PART III 8
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act 8
Item 10. Executive Compensation 9
Item 11. Security Ownership of Certain Beneficial Owners and Management 11
Item 12. Certain Relationships and Related Transactions 12
Item 13. Exhibits,Lists and Reports on Form 8-K 13
Item 14. Principal Accountant Fees and Services 14
Signatures 15
Certifications 16
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
CyberAds, Inc., a Florida corporation ("CYAD" or the "Company"), was
organized on April 12, 2000, under the laws of the State of Florida. We
initially compiled member lists through an Internet based opt in email list and
marketed cellular phone services through an affiliate program. Our affiliate
program works by paying participating third party web sites commissions for
referring cellular phone customers to our "freecellular.com" website. A third
party website will receive a commission if a customer it refers to us purchases
a cellular phone or cellular service.
All of our revenues during 2004 were derived from our cellular phone
marketing services.
In December 2004, we determined that our previously announced acquisition of a
22% interest in The Vineyards Country Club ("The Vineyards") would not be
completed due to due diligence items discovered during our review that
management determined were too risky and not in the best interest of our over
business development strategy.
During 2004, we focused on reviewing potential business models in both
the Internet and real estate sectors for the possible acquisition of a business
opportunity. After considerable review, we determined our Internet business
model on cellular phones was not profitable and we discontinued active marketing
via third party affiliate web sites. We have remained in the cellular phone
business through a telemarketing agreement with a third party affiliate that is
compensated only on sales of cellular services after confirmation by our third
party fulfillment center. The telemarketing agreement model has reduced our
liability on cancellations and returns as we now are paid on net sales after the
termination period has passed.
During 2004, we became involved with the extreme sports industry
through an affiliation with Aqua Xtremes Inc. and their product XBoard to assist
with development of Aqua Xtremes web site for consumers and Distributors. Aqua
Xtremes designs, manufactures and markets personal water sports equipment. Its
most notable product is the Xboard, a jet-powered personal watercraft. During
the course of our investigation and research for the web site, we developed a
sales and marketing plan that has subsequently been adopted by Aqua Xtremes. We
have entered into a letter agreement with Aqua Xtremes to provide sales and
marketing support both online and for the development of the distribution
network in North America. We plan to develop a network of distributors and
dealers for Aqua Xtremes and implement a strategic marketing plan that we expect
will provide revenues as Aqua Xtremes begins delivery of the XBoard. To maximize
this opportunity, we will expect to enter into contracts with consultants for
the representation and recruitment of distributors and dealers. We anticipate
that we will involved in the development of additional product lines and
services for extreme sports market.
GOVERNMENT REGULATION
At present, there are no specific regulations or approvals required by
or from the Federal Government or state agencies for marketing the cellular
services we offer. We are aware of no proposed regulations that may have an
effect upon our business as a seller of cellular phone services.
3
Laws and regulations that apply to Internet communications, commerce
and advertising are becoming more prevalent. These regulations could affect the
cost of communicating on the Internet and negatively affect the demand for our
direct marketing solutions or otherwise harm business. Laws and regulations may
be adopted covering issues such as user privacy, pricing, libel, acceptable
content, taxation, and quality of products and services. This legislation could
hinder growth in the use of the Internet generally and decrease the acceptance
of the Internet as a communications, commercial, and direct marketing medium.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. This may impose additional burdens on companies conducting
business over the Internet.
PERSONNEL
As of the date of this report, we have one full time employee as well
as a number of part time relationships with contractors for certain services.
None of CYAD's personnel are covered by collective bargaining agreements.
ITEM 2. PROPERTIES
During 2004, we relocated our offices to a 2,000 square foot facility
located at 370 Amapola, Suite 202, Torrance, California We do not own any real
property.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of our security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
The principal United States market for our common stock is the OTC
Bulletin Board. The following are the high and low closing sale prices for our
common stock for each quarter during the previous two years
HIGH LOW
-------- --------
FISCAL 2004
Fourth Quarter (through December 31, 2004) $ 2.10 $ 0.85
Third Quarter (through September 30, 2004) $ 1.50 $ 0.27
Second Quarter (through June 30, 2004) $ 0.51 $ 0.02
First Quarter (through March 31, 2004) $ 0.13 $ 0.04
FISCAL 2002
Fourth Quarter (through December 31, 2003) $ 0.19 $ 0.02
Third Quarter (through September 30, 2003) $ 0.50 $ 0.06
Second Quarter (through June 30, 2003) $ 2.60 $ 0.25
First Quarter (through March 31, 2003) $ 3.60 $ 1.00
The above prices presented are bid prices that represent prices between
broker-dealers and do not include retail mark-ups and markdowns for any
commissions paid to the dealer. These prices may not reflect actual
transactions.
4
The Company has not paid any dividends
There are 73 shareholders of record as April 8, 2005 holding 32,762,777
shares of common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
CyberAds received its revenue of $303,120 specifically from the
Cellular business. We discontinued the third party affiliate sales of Cellular
phones and services in the first quarter of 2004 due to the financial losses
inherent with the commission structure paid to third party affiliates. The
affiliates commission was earned on "leads" provided, rather than on sales made,
therefore the cancellations and returns on cellular phones were not recouped
from the third party affiliate and the losses became CyberAds expense.
CYBERADS CELLULAR OPERATIONS
DIRECT SUPPLIERS
On March 10th, 2003, CyberAds, Inc entered into an agreement with
Inphonic, Inc that allows CyberAds to utilize all of Inphonic's cellular
agreements. They include AT&T, Cingular, T-Mobile, Verizon and Alltel. This in
effect increased the coverage area and provides our customers greater choices
when selecting cellular service.
As a result of this agreement CyberAds, Inc. will no longer continue a
direct relationship with the carriers. Instead we will work as a sales agent of
Inphonic. Inphonic will be responsible for all order fulfillment including
shipping, customer care, sales and verification. They will also provide
Marketing and Creative support if required.
CELLULAR PHONE INVENTORY
As a result of the agreement with Inphonic we are no longer required to
purchase Phones or maintain inventory. Inphonic assumes that responsibility.
RELATED PARTIES AND RELIANCE ON CERTAIN CELLULAR PROVIDERS
We rely on Inphonic as our provider for equipment for all of the
carriers they have an affiliation with.
RECENT EVENTS
As noted above we entered into a partnership with Inphonic, Inc. on
March 10, 2003 to handle all order fulfillment, sales, customer service,
verification and marketing. As a result of this agreement, CyberAds was able to
reduce staffing levels , and reduce payroll.
In December 2003 we agreed to acquire a 22% interest in The Vineyards
Country Club ("The Vineyards"), a real estate development project located
adjacent to Palm Springs, California. Our investment in The Vineyards was being
acquired by our wholly owned subsidiary, The Vineyards, LLC. The Vineyards is a
luxury motor coach facility including a recently completed clubhouse, swimming
pool, tennis court, and nine-hole regulation size golf course.
In December 2004 we determined our previously announced acquisition of
a 22% interest in The Vineyards Country Club ("The Vineyards") would not be
completed due to due diligence items discovered during our review that
management determined were too risky and not in the best interest of our
companies development. Subsequently we filed an 8 K information statement
announcing our cancellation of this announced acquisition.
5
During 2004 we engaged in multiple negotiations with Internet and Real
Estate companies on merger and acquisition discussions, as of December 31, 2004
we were not party to any binding letter of intents.
PATENTS AND PROPRIETARY RIGHTS
We do not hold any trademark, copyright or patent protection.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004 AND 2003
We reported revenues of $303,120.and $4,197,128 for the years ending
December 31, 2004 and 2003, respectively, losses of $509,704 and $767,528 during
the years ended December 31, 2004 and 2003, respectively. The reduction in
revenue from 2004 to 2003 is attributed to the change in revenue associated to
the Inphonic agreement whereby the Company receives a net commission instead of
the revenue for each phone and our discontinuance of cellular phone sales
through affiliates. The decrease in losses for 2004 was the direct result of
reduction in expenses and Salaries attributed to the agreement with Inphonic
that allowed the Company to rely on the fulfillment processes at Inphonic
reducing the requirement of employee related expenses at the Company.
LIQUIDITY AND CAPITAL RESOURCES
CYAD has not been profitable and has experienced negative cash flow
from operations due to its development stage, substantial ongoing investment in
research and development efforts. Consequently, CYAD has been dependent on the
sales of equity to fund cash requirements.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of CYAD are included (with an index listing
all such statements) in a separate financial section at the end of the Annual
Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between us and and our certifying
auditors on any matter of accounting principals or practices, financial
statement disclosure, or auditing scope or procedure..
ITEM 8A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange of 1934,
within 90 days prior to the filing of this report, we carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out under the supervision and with the
participation of our management, principally our President and Chief Executive
Officer. Based on that evaluation, we concluded that our disclosure controls and
procedures are effective. There have been no significant changes in our internal
controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rule and form. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports is accumulated and communicated to
management.
6
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our directors hold office until the next succeeding annual meeting of
shareholders, or until there successors have been elected and qualified.
Our directors, executive officers and significant employees are as
follows:
NAME AGE POSITION
---- --- --------
Walter Tatum 47 President / Secretary
Director and Executive Officers
Walter Tatum has served as our President, Secretary and sole director
since December 2003. Prior to joining Cyberads, Mr. Tatum was Vice President of
Sales for DMX Music, a subsidiary of Liberty Media, for 9 years.
The Company's Bylaws currently authorize up to seven directors. Each
director is elected for one year at the annual meeting of stockholders and
serves until the next annual meeting or until a successor is duly elected and
qualified. Executive officers serve at the discretion of our board of directors.
There are no family relationships among any of the directors and executive
officers.
CODE OF ETHICS.
Effective February 24, 2004, the Board of Directors adopted a Code of
Ethics for Senior Financial Officers. The Code of Ethics was adopted pursuant to
the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations
of the Securities and Exchange Commission thereunder. A copy of the Code of
Ethics will be made available upon request at no charge. Requests should be
directed in writing to the Company at 370 Amapola, Suite 202, Torrance, CA.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to salary we paid
during the past fiscal year to our chief executive officer; and to each of our
executive officers that earned more than $100,000 during the fiscal year ended
December 31, 2004. Other than salary and stock options, we paid no other form of
compensation to our executive officers and directors. No stock options were
exercised during the fiscal year ended December 31, 2004.
Name and Principal
Position Year Annual Compensation Long Term Compensation
-------- ---- ------------------- ----------------------
Walter Tatum, 2004 $250,000 None
President
7
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
On November 1, 2001, we adopted a 2001 Incentive and Non-Qualified
Stock Option Plan. We have reserved 500,000 shares of our common stock for
issuance under the Plan. The Plan authorizes the granting of awards of up to
500,000 shares of common stock to our key employees, officers, directors and
consultants. Awards consist of stock options (both nonqualified options and
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986), restricted stock awards, deferred stock awards,
stock appreciation rights and other stock-based awards, as described in the
Plan.No stock options are outstanding under the Plan at this time
The plan is administered by our board of directors which determines the
persons to whom awards will be granted, the number of awards to be granted and
the specific terms of each grant, including their vesting schedule, subject to
the provisions of the plan.
In connection with incentive stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of our outstanding stock). The aggregate fair market value
of shares for which incentive stock options are exercisable for the first time
by an employee during any calendar year may not exceed $100,000. Nonqualified
stock options granted under the plan may be granted at a price determined by the
board of directors, not to be less than the fair market value of the common
stock on the date of grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth information known to us, as of the date
of this report, relating to the beneficial ownership of shares of common stock
by: each person who is known by us to be the beneficial owner of more than five
percent of the outstanding shares of common stock; each director; each executive
officer; and all executive officers and directors as a groupWe believe that all
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as being owned by them.
Name and Address of Amount of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
Common Stock Walter Tatum 250,000 *
1681 Loma Roja Drive
Santa Ana, CA 92705
All officers and directors
(one person) 250,000 *
* Less than one percent
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 2004, the amount due on various loans from
previously related parties is approximately $800,000.This amount is secured by
the company's assignment of its agreement with its fulfillment provider.
8
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Document
-----------------------------------------------
3.1(a) * Articles of Incorporation
3.1(b) * Articles of Amendment
3.1(c) * Designation of Series A Convertible Preferred Stock
3.2 * Bylaws
4.0 * Form of Stock Certificate
* Incorporated by reference
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the period covered by this
report.
January 6, 2004 Item 1. Changes in Control of Registrant;
Item 7. Financial Statements and Exhibits
January 23, 2004 Item 2. Acquisition or Disposition of Assets;
Item 7. Financial Statements and Exhibits
January 26, 2004 Item 2. Acquisition or Disposition of Assets;
Item 7. Financial Statements and Exhibits
ITEM 14. PRINCIPAL ACCOUNTANT FEES FOR SERVICES
2004 2003
------ ------
Audit fees 29,600 27,900
9
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Torrance, CA on January 30, 2006.
CYBERADS, INC.
By:/s/ JEFF CRISWELL
Jeff Criswell
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1934, this
amended report has been signed by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ JEFF CRISWELL President and 01/30/06
Jeff Criswell Chief Executive Officer
10
CYBERADS, INC.
Years ended December 31, 2004 and 2003 (restated)
CONTENTS
Page
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Report of Independent Auditor's.................................. F-2
Consolidated Financial Statements:
Balance sheets................................................ F-3
Statements of operations...................................... F-4
Statements of net capital deficiency.......................... F-5 - F-6
Statements of cash flows...................................... F-7 - F-8
Notes to consolidated financial statements.................... F-9 - F-20
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of CyberAds, Inc.
We have audited the accompanying consolidated balance sheets of CyberAds, Inc.
as of December 31, 2004 and 2003 and the related consolidated statements of
operations, net capital deficiency and cash flows for each of the years in the
two-year period ended December 31, 2004. These consolidated financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CyberAds, Inc. as of
December 31, 2004 and 2003, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company had a loss from operations of
$520,520 and a working capital deficiency of $2,623,105. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As described in Note 15 to the consolidated financial statements, the Company
incorrectly reported in 2003 the acquisition of an investment in real estate
aggregating $10,700,000 and common stock to be issued aggregating $440,000 in
transactions that had not yet been completed.
/s/ TIMOTHY L. STEERS, CPA, LLC
April 7, 2005, except with respect to Note 15
as to which the date is January 24, 2006
Portland, OR
F-2
CYBERADS, INC.
Consolidated Balance Sheets
December 31
-------------------------------------
2004 2003
----------------- -----------------
(restated)
ASSETS
------
Current asset -
Accounts receivable $ - $ 20,380
Property and equipment, net 14,171 14,171
Deposits 8,585 8,585
----------------- -----------------
$ 22,756 $ 43,136
================= =================
LIABILITIES AND NET CAPITAL DEFICIENCY
--------------------------------------
Current liabilities:
Outstanding checks in excess of cash in bank $ - $ 1,207
Note payable 294,192 120,000
Accounts payable 869,222 737,748
Accrued liabilities 653,136 944,658
Unearned revenue - 130,960
Advances from related parties 1,186,555 1,186,555
Loans payable - convertible debentures 60,000 60,000
----------------- -----------------
Total current liabilities 3,063,105 3,181,128
Advances from stockholder - 157,634
Commitments
Net capital deficiency:
Preferred stock, $.001 par value, authorized 5,000,000
shares, of which 1,000,000 shares has been designated
as Series A Convertible, issued and outstanding 835,660
shares in 2004 (no shares in 2003) 836 836
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding 23,225,777 shares in
2004 (18,325,777 shares in 2003) 23,226 18,326
Common stock to be issued 50 -
Additional paid-in capital 16,170,085 15,399,238
Accumulated deficit (19,234,546) (18,714,026)
----------------- -----------------
Total stockholders' equity (deficit) (3,040,349) (3,295,626)
----------------- -----------------
$ 22,756 $ 43,136
================= =================
See accompanying notes.
F-3
CYBERADS, INC.
Consolidated Statement of Operations
Years ended December 31
2004 2003
---------------- -----------------
Net revenues $ 303,120 $ 4,197,128
Cost of revenues - 1,177,111
---------------- -----------------
Gross profit 303,120 3,020,017
Selling expenses - 1,845,967
General and administrative expenses 812,824 1,941,578
---------------- -----------------
Loss from operations (509,704) (767,528)
Other income (expenses):
Impairment of property and equipment - (265,961)
Other income, net 4,847 16,176
Interest expense and financing costs, net (15,663) (183,798)
---------------- -----------------
Total other expenses (10,816) (433,583)
---------------- -----------------
Net loss $ (520,520) $ (1,201,111)
================ =================
Net loss per common share $ (.026) $ (.084)
================ =================
See accompanying notes.
F-4
CYBERADS, INC.
Consolidated Statement of Net Capital Deficiency
Years ended December 31, 2004 and 2003 (restated)
Convertible
preferred stock Common stock Common Additional Deferred Net
-------------------- ----------------------- stock to paid-In Accumulated financing capital
Shares Amount Shares Amount be issued capital deficit costs deficiency
---------- --------- ------------ ---------- ----------- ------------- -------------- ----------- -------------
Balance at
December 31,
2002 - $ - 14,774,777 $ 14,775 $ - $13,818,415 $(17,512,915) $ (7,015) $(3,686,740)
Shares issued in
exchange for debt 835,660 836 1,250,000 1,250 - 921,074 - - 923,160
Amortization of
deferred financing
costs - - - - - - - 7,015 7,015
Shares issued in
exchange for
services - - 2,275,000 2,275 - 606,475 - - 608,750
Shares issued for
interest on
convertible
debentures - - 26,000 26 - 53,274 - - 53,300
Net loss - - - - - - (1,201,111) - (1,201,111)
---------- --------- ------------ ---------- ----------- ------------- -------------- ----------- -------------
Balance at
December 31,
2003 (restated) 835,660 $ 836 18,325,777 $ 18,326 $ - $15,399,238 $(18,714,026) $ - $(3,295,626)
========== ========= ============ ========== =========== ============= ============== =========== =============
Continued on next page.
F-5
CYBERADS, INC.
Consolidated Statement of Net Capital Deficiency (continued)
Years ended December 31, 2004 and 2003 (restated)
Convertible
preferred stock Common stock Common Additional Deferred Net
-------------------- ----------------------- stock to paid-In Accumulated financing capital
Shares Amount Shares Amount be issued capital deficit costs deficiency
---------- --------- ------------ ---------- ----------- ------------- -------------- ----------- -------------
Balance at
December 31,
2003 (restated) 835,660 $ 836 18,325,777 $ 18,326 $ - $15,399,238 $(18,714,026) $ - $(3,295,626)
Shares issued for
debt
Options exercised - - 500,000 500 - 64,500 - - 65,000
Shares issued in
exchange for
payable to
stockholder - - 2,000,000 2,000 - 212,297 - - 214,297
Shares issued in
exchange for
Settlement - - 50,000 50 50 109,900 - - 110,000
Shares issued in
exchange for
compensation &
services - - 2,350,000 2,350 - 384,150 - - 386,500
Net loss - - - - - - (520,520) - (520,520)
---------- --------- ------------ ---------- ----------- ------------- -------------- ----------- -------------
Balance at
December 31,
2004 835,660 $ 836 23,225,777 $ 23,226 $ 50 $16,170,085 $(19,234,546) $ - $(3,040,349)
========== ========= ============ ========== =========== ============= ============== =========== =============
See accompanying notes.
F-6
CYBERADS, INC.
Consolidated Statement of Cash Flows
Years ended December 31
2004 2003
---------------- -----------------
(restated)
Cash flows from operating activities:
Net loss $ (520,520) $ (1,201,111)
Adjustments to reconcile net loss to net cash provided by
used in operating activities:
Provision for doubtful accounts - 382,217
Impairment of long-lived assets - 265,961
Impairment of inventories - 120,879
Depreciation - 19,494
Amortization of deferred financing costs - 7,015
Common stock issued for compensation and services 496,500 608,750
Common stock issued for interest 9,663 53,300
Changes in assets and liabilities:
Accounts receivable 20,380 671,163
Inventories - 35,355
Deposits - 68,666
Other assets - 24,785
Outstanding checks in excess of cash in bank (1,207) 1,207
Accounts payable (175,757) (1,390,089)
Accrued liabilities 69,941 289,046
Unearned revenue - 130,960
---------------- -----------------
(101,000) 87,598
Cash flows from investing activities -
Capital expenditures - (13,967)
---------------- -----------------
- (13,967)
Cash flows from financing activities:
Cash overdraft - (112,649)
Net proceeds from factored accounts receivable - 342,237
Principal repayments of note payable (11,000) -
Advances from related parties 47,000 -
Advances from related parties - (314,603)
Repayments to officers - (146,250)
Net advances from stockholder 157,634
Proceeds from sale of common stock 65,000 -
---------------- -----------------
101,000 (73,631)
---------------- -----------------
Cash at end of year $ - $ -
================ =================
Continued on next page.
F-7
CYBERADS, INC.
Consolidated Statement of Cash Flows (continued)
Years ended December 31
2004 2003
---------------- -----------------
(restated)
Supplemental disclosure of cash flow information -
cash paid during the year for interest and financing costs $ - $ 206,697
================ =================
Supplemental disclosure of non-cash investing and financing activities:
Factor payable renegotiated into notes payable $ - $ 120,000
================ =================
Preferred stock issued in exchange for factor payable $ - $ 835,660
================ =================
Common stock issued or to be issued in exchange for debt $ 204,634 $ 87,500
================ =================
Accounts payable to supplier converted to note payable $ 185,192 $ -
================ =================
See accompanying notes.
F-8
CYBERADS, INC.
Notes to Consolidated Financial Statements
December 31, 2004
1. Business and summary of significant accounting policies
-------------------------------------------------------
BUSINESS: CyberAds, Inc. ("CyberAds") was incorporated in the state of
Florida on April 12, 2000. The Company earns commissions from selling
approved contracts to subscribers for cellular telephone service.
Commissions are received either from master dealers or cellular phone
service providers, not the subscriber. Applications for cellular
telephone services are obtained from advertising banners placed at
various websites. The Company does business with cellular phone service
providers as well as master dealers that have contracted with various
other carriers and with several website hosts, who receive a commission
for each completed contract for cellular phone service. The Company has
been idle during 2004 and management has devoted their attention toward
restructuring debt and seeking profitable products.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements for 2004 include the accounts of CyberAds and its wholly
owned subsidiaries IDS Cellular, Inc. ("IDS") and The Vineyards, LLC.
All significant intercompany transactions and balances have been
eliminated in consolidation. The operations of IDS The Vineyards, LLC
are currently idle.
CASH AND CASH EQUIVALENTS: For purposes of the cash flow statement, the
Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided for over the
estimated useful life of the assets of five to seven years. Leasehold
improvements are amortized over the lesser of the original term of the
related lease or their estimated useful life.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company discloses certain
information about the fair value of financial instruments as required
by SFAS 107, "Disclosure About Fair Value of Financial Instruments".
Accounts receivable, accounts payable, accrued expenses, factor payable
and loans and advances payable to related and non-related parties are
reflected in the financial statements at fair value because of the
short-term maturity of the instruments.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company assesses the
recoverability of long-lived assets under SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" by determining whether the
depreciation and amortization of the asset's balance over its remaining
life can be recovered through projected undiscounted future cash flows.
The amount of impairment, if any, is measured based on fair value and
charged to operations in the period in which the impairment is
determined by management. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to
sell.
The Company recorded an impairment loss of approximately $266,000
during 2003 for assets that became idle as a result of staff
reductions.
F-9
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
REVENUE RECOGNITION: The Company recorded revenue on a "net" basis when
contracts are submitted to master dealers. The phones are shipped from
the dealers to the subscriber and the Company does not bear the risk of
loss on the cellular phone. Revenue is recognized when the master
dealer ships the phones to the subscriber.
In 2003 the also Company recorded revenue on a "gross" basis when
contracts are submitted directly to cellular phone service providers.
The phones are shipped from the Company to the subscriber and the
Company bears the risk of loss on the cellular phone. Under the gross
method commission and related cost of goods sold for the cellular phone
is recognized when the Company ships the phones.
ADVERTISING COSTS: The Company expenses the cost of advertising as
incurred as selling expenses. Advertising expenses were approximately
$9,500 for 2003.
STOCK OPTIONS AND WARRANTS: The Company uses a fair value based method
of accounting for stock based compensation to employees. The Company
also accounts for stock options and warrants issued to non-employees
for services under the fair value method of accounting.
WEBSITE DEVELOPMENT COSTS: The Company accounts for website development
costs under Emerging Issues Task Force ("EITF") Issue No. 00-2,
"Accounting for Web Site Development Costs". Under EITF 00-2, costs
that involve design of the web page that do not change the content are
capitalized and amortized over there estimated useful life. Costs
incurred in operating a web site that has no future benefits are
expensed in the current period. The Company accounts for costs incurred
in operating their website under the American Institute of Certified
Public Accountants Statement of Position ("SOP") No. 98-1. Under SOP
98-1, costs that have a future benefit are capitalized and amortized
over the estimated future periods that are expected to benefit from
website changes.
INCOME TAXES: The Company files a consolidated tax return that includes
CyberAds and IDS. The consolidated tax liability, determined without
taking credits into account, is allocated based on each company's
contribution to consolidated taxable income. Tax credits are allocated
on a pro rata basis equal to each company's contribution to the
consolidated tax credits determined to be available each year.
Income taxes are determined using the liability method whereby deferred
tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases and
reported amounts of assets and liabilities. Deferred tax assets and
liabilities are computed using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities from a
F-10
1. Business and summary of significant accounting policies (continued)
-------------------------------------------------------------------
change in tax rates is recognized in income in the period that includes
the enactment date. The Company provides a valuation allowance for
certain deferred tax assets, if it is more likely than not that the
Company will not realize tax assets through future operations.
REPORTING CONSOLIDATED COMPREHENSIVE INCOME (LOSS): The Company reports
and displays consolidated comprehensive income (loss) and its
components as separate amounts in the consolidated financial statements
with the same prominence as other financial statements. Consolidated
comprehensive income (loss) includes all changes in equity during the
year that results from recognized transactions and other economic
events other than transactions with owners. There were no components of
consolidated comprehensive income to report for the years ended
December 31, 2004 and 2003.
SEGMENT REPORTING: The Company and its subsidiary reports information
about operating segments and related disclosures about products and
services, geographic areas and major customers under SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information".
Operating segments are defined as components of an enterprise for which
separate financial information is available that is evaluated regularly
by management in deciding how to allocate resources and in assessing
performance. The Company views its operations and manages its business
in principally one segment, obtaining cellular phone applications.
NET LOSS PER COMMON SHARE: Net loss per common share is computed by
dividing net loss by the weighted average number of common shares
outstanding during the period as defined by SFAS 128, "Earnings Per
Share". The weighted average number of common stock shares outstanding
was $20,128,515 for 2004 (16,074,986 for 2003). Convertible debentures,
convertible preferred stock, common stock options, and common stock to
be issued are considered common stock equivalents. Common stock
equivalents have not been included in the computation of diluted loss
per share as the effect on net loss per common share would be
anti-dilutive.
USE OF ESTIMATES: The process of preparing financial statements in
conformity with accounting principles generally accepted in the United
States of America requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
2. Operations
----------
Management of the Company plans to continue to restructure debt, seek
profitable products, reduce operating expenses, and seek additional
capital and debt financing until operations achieve profitability.
Management of the Company believes the
F-11
2. Operations (continued)
----------------------
above actions, along with other plans, will allow them to continue
operations and ultimately achieve profitability. Until then, the
Company is dependent upon its ability to obtain additional capital and
debt financing. The consolidated financial statements do not reflect
adjustments relating to the recorded asset amounts, or the amounts of
liabilities that would be necessary should the Company not be able to
continue in existence.
3. Property and equipment
----------------------
Property and equipment consisted of the following at December 31:
2004 2003
------------ ------------
Furniture and fixtures $ 2,598 $ 2,598
Leasehold improvements 20,085 20,085
Computer equipment 19,551 19,551
------------ ------------
42,234 42,234
Less accumulated depreciation (28,063) (28,063)
------------ ------------
$ 14,171 $ 14,171
============ ============
4. Notes payable
-------------
Notes payable consisted of the following at December 31:
2004 2003
----------- -----------
Note payable; was due in installments of
$5,000 on January 15, 2004 and February
15, 2004 with final payment due March
15, 2004, plus interest at 10% per
annum; secured by all of the Company's
accounts receivable, inventories, and
computer hardware and software and is
personally guaranteed by two former
officers of the Company. $ 109,000 $ 120,000
Note payable to cellular phone service
provider; due in installments of $92,596
payable on January 2, 2005 and August 2,
2005, plus interest at 1 1/2% per month. 185,192 -
----------- -----------
Total notes payable $ 294,192 $ 120,000
=========== ===========
The Company is currently in default with the repayment terms of the
installment note.
F-12
5. Accrued expenses
----------------
Accrued expenses consisted of the following at December 31:
2004 2003
----------- -----------
Payroll and payroll related liabilities $ 614,143 $ 548,195
Commission charge-backs - 361,463
Accrued interest 3,993 -
Professional fees 35,000 35,000
----------- -----------
$ 653,136 $ 944,658
=========== ===========
The Company is non-compliant with respect to certain federal and state
payroll related taxes. Included in accrued payroll and payroll related
liabilities is approximately $540,800 of unpaid payroll taxes.
6. Advances from related parties
-----------------------------
Advances from related parties consisted of the following at December
31:
2004 2003
------------ --------------
Advance due to a corporation owned by a former officer
of the Company, bearing interest at 10% per annum,
due on demand and unsecured. $ 54,000 $ 54,000
Advance due to a former officer of the Company, bearing
interest at 10% per annum, due on demand and
unsecured 732,555 732,555
------------ --------------
$ 786,555 $ 786,555
============ ==============
7. Loans payable - convertible debentures
--------------------------------------
Loans payable - convertible debentures consists of unsecured loans from
two individuals whereby the principal of the note is convertible into
the Company's common stock at the option of the holder. Interest on
borrowings is payable quarterly at a rate of 20% per annum.
The notes were originally convertible on or after May 13, 2003 at a
conversion rate of 75% of the closing bid price of the Company's common
stock one trading day prior to conversion. The beneficial conversion
feature of the convertible debentures was valued at $20,000 on the date
of issuance and was amortized over the original one-year life of the
debentures.
The due date of the convertible debentures was extended to February 13,
2004. In consideration for the extension, the repayment of one of the
notes was increased by $5,000 representing additional interest and the
Company issued the holders an aggregate of 26,000 shares of its common
stock for unpaid interest.
F-13
7. Loans payable - convertible debentures (continued)
--------------------------------------------------
The notes were due in installments of $15,000 on November 13, 2003,
$13,750 on December 13, 2003 and January 13, 2004, with final payment
due February 13, 2004. The Company is currently in default with respect
to the agreement.
Interest expense was approximately $4,000 for the year ended December
31, 2004 ($3,300 for 2003).
8. Advances from stockholder
-------------------------
Notes payable to stockholder consisted of advances from Novanet Media,
Inc. for working capital purposes. The advances were unsecured,
non-interest bearing and due on demand.
On September 2, 2004, the Company issued 2,000,000 share of its common
stock to a major shareholder in exchange for $204,634 of working
capital advances. The shares were valued at $.107 per share which
represented a 68% discount from the closing bid price of the common
stock on the date of issuance. Management of the Company estimated the
value the shares issued based on the closing bid price of the Company's
common stock at the date of issuance, the historical trend of the
trading prices for its common stock and the volume of shares traded.
The Company also recorded imputed interest of $9,663 as a result of the
exchange.
9. Commitments and contingencies
-----------------------------
The Company is non-compliant with respect to certain federal and state
payroll related taxes. Included in accrued payroll and payroll related
liabilities at September 30, 2004 and December 31, 2003 is
approximately $540,800 of unpaid payroll taxes.
In April 2004, the Company agreed to indemnify a former officer of the
Company for any loss he sustained in a settlement reached with a
cellular phone service provider against IDS and him personally. Under
the indemnification, the Company was obligated to pay an aggregate of
$72,261 in installments of $5,000 each on or before August 1, 2004 and
September 1, 2004 with the balance due October 1, 2004. The
indemnification had no effect on the accompanying financial statements
as the amount owed to the cellular phone service provider was
previously recorded as accounts payable in the records of IDS.
The Company is currently in negotiations with an individual who has
threatened a lawsuit against the Company, a former officer and a
cellular phone service provider. The Company has offered to issue the
individual 250,000 shares of common stock to settle any claims he may
have against the Company. This individual has verbally accepted the
settlement offer. The offer had no effect on the accompanying
consolidated financial statements as consulting services totaling
$27,500 owed this individual was previously recorded as accounts
payable in the records of Cyberads.
F-14
9. Commitments and contingencies (continued)
-----------------------------------------
The Company has reserved 250,000 shares of common stock to be issued
under this settlement offer.
A claim against the Company of approximately $500,000 has been
threatened by the Creditors Committee of World Com. The Company does
not believe that they owe the amount and intends to vigorously defend
the claim. The claim has not been recorded in the accompanying
consolidated financial statements due to the uncertainty of the matter.
10. Capital stock transactions
--------------------------
On May 19, 2004, the Company issued 50,000 shares of its common stock
to a former officer of the Company in lieu of compensation. The shares
were valued at $1.59, the closing bid price of the Company's common
stock on the date of issuance. The Company recorded compensation
expense of $79,500 as a result of the issuance.
On August 31, 2004, the Company issued 2,000,000 shares of its common
stock to a major shareholder of Novanet Media, Inc. in exchange for
consulting services. The shares were measured at the value of the
services received because management of the Company considered that
value to be a more reliable measure than the fair value of the common
stock issued. The Company recorded professional fees of $250,000 as a
result of the issuance.
On November 1, 2004, the Company issued 300,000 shares of its common
stock in exchange for consulting services. The shares were measured at
the value of the services received because management of the Company
considered that value to be a more reliable measure than the fair value
of the common stock issued. The Company recorded professional fees of
$57,000 as a result of the issuance.
In October 2003 and in connection with the Debt Paydown Agreement, the
Company designated 1,000,000 shares of its preferred stock as Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock
is non-voting and dividends accrue at a rate of 10% per annum payable
quarterly. Unpaid accrued dividends are cumulative. The Series A
Convertible Preferred Stock is convertible all or in part into the
number of shares of the Company's common stock equal to 115% of the
value of the preferred stock plus any cumulative dividends.
On March 7, 2003, the Company issued 1,250,000 shares of its common
stock in exchange for debt of $87,500 owed to the provider of its
cellular phone service.
F-15
10. Capital stock transactions (continued)
--------------------------------------
On April 4, 2003, the Company issued 25,000 shares of its common stock
to an investment-banking firm for services. The shares were measured at
the value of the services received because management of the Company
considered that value to be a more reliable measure than the fair value
of the common stock issued. The Company recorded professional fees
aggregating $1,250 during 2003 as a result of the issuance.
On September 30, 2003, the Company issued 1,000,000 shares of its
common stock to a major shareholder of Novanet Media, Inc. in exchange
for management services. The shares were measured at the value of the
services received because management of the Company considered that
value to be a more reliable measure than the fair value of the common
stock issued. The Company recorded professional fees aggregating
$300,000 during 2003 as a result of the issuance.
On December 31, 2003, the Company issued 250,000 shares of its common
stock to an investment-banking firm for services. The shares were
measured at the value of the services received because management of
the Company considered that value to be a more reliable measure than
the fair value of the common stock issued. The Company recorded
professional fees aggregating $287,500 for 2003 as a result of the
issuance.
11. Stock based compensation
------------------------
During 2003, the Company issued 1,000,000 shares of its common stock to
a former officer as compensation for services through September 14,
2003. The weighted average issuance price of the shares was $.02 per
share. Compensation expense of $20,000 was recorded for 2003 for the
intrinsic value of the services rendered.
Had compensation cost been determined based on the fair market value at
the grant date, consistent with SFAS 148, the Company's net loss would
have changed to the following pro-forma amount for the years ended
December 31:
2003
--------------
Net loss as reported $ (1,201,111)
Pro-forma effect (280,000)
--------------
Pro-forma net loss $ (1,481,111)
==============
Basic and diluted net loss per share as reported $ (.084)
Pro-forma effect (.006)
--------------
Pro-forma basic and diluted net loss per share $ (.090)
==============
F-16
12. Stock options
-------------
The Company's stock option activity for options granted to employees
and non-employees is summarized as follows for the years ended December
31:
Fixed Plan
-----------------------------------------------------------
Weighted Weighted
average average
exercise Shares exercise
Shares price exercisable price
--------------- ----------- --------------- -----------
Outstanding at
January 1, 2003 8,150,000 $ .82 8,150,000 $ .82
=============== ===========
Expired (225,000) .70
Cancelled (5,000,000) -
---------------
Outstanding at
December 31, 2003 2,925,000 .48 2,925,000 $ .48
=============== ===========
Exercised (500,000) .13
Expired (300,000) 1.04
Cancelled (225,000) .25
---------------
Outstanding at
December 31, 2004 1,900,000 $ .51 1,900,000 $ .51
=============== =========== =============== ===========
The Company's stock option outstanding and exercisable at December 31,
2004 is summarized as follows:
Fixed Plan
--------------------------------------------------------------------------------------------------------------
Options outstanding Options exercisable
------------------------------------------------------------------------- -----------------------------------
Weighted average
----------------------------- Weighted
Range remaining exercise average
of prices Shares life price Shares exercise price
--------------- --------------- -------------- ------------- --------------- -----------------
$.04 - $.99 1,200,000 1 yr. 5 mo. $ .27 1,200,000 $ .27
=============== ============== ============= =================
$.99 - $1.25 700,000 1 yr. 2 mo. $1.03 700,000 $ 1.03
=============== --------------- ============== ============= --------------- =================
$.04 - $1.25 1,900,000 2 years $ .51 1,900,000 $ .51
=============== =============== ============== ============= =============== =================
13. Income taxes
------------
Deferred income taxes consisted of the following at December 31:
2004 2003
---------------- ---------------
Deferred tax asset - net operating loss carryovers $ 6,539,600 $ 6,362,600
Valuation allowance for deferred tax asset (6,539,600) (6,362,600)
---------------- ---------------
Net deferred income taxes $ - $ -
================ ===============
F-17
13. Income taxes (continued)
------------------------
As a result of the Company's continued losses and uncertainties
surrounding the utilization of the net operating loss carryovers,
management has determined that the realization of deferred tax assets
is uncertain. Accordingly, a valuation allowance equal to the net
deferred tax asset amount has been recorded as of December 31, 2004 and
2003.
Reconciliation of income taxes computed at the Federal statutory rate
of 34% to the provision for income taxes is as follows for the years
ended December 31:
2004 2003
------------ -----------
Tax at statutory rates $ (176,977) $(408,378)
Differences resulting from:
Non-deductible and other items (23) 178
Change in deferred tax valuation allowance 177,000 408,200
------------ -----------
Provision for income taxes $ - $ -
============ ===========
At December 31, 2004, the Company had net operating loss carryovers of
approximately $19,234,000 available to offset future Federal taxable
income, if any, expiring through 2024. The utilization of the net
operating loss carryovers could be limited due to restrictions imposed
under Federal tax laws upon a change in ownership. The amount of the
limitation, if any, has not been determined at this time.
14. Settlements
-----------
The Company entered into a consulting agreement in September 2002 for
advisory, investor relations and public relations services. The
consulting firm and the Company have taken the position that the other
is in default of the agreement. The Company and the consulting firm
reached a settlement in April 2004 whereby the Company agreed to issue
100,000 shares of its common stock granted to the consulting firm under
the original consulting agreement; however, the consulting firm was
restricted from reselling the shares. Under the terms of the settlement
agreement the consulting firm could resell no more than 3,000 share of
the Company's common stock per week and no more than an aggregate of
50,000 shares over a period of 120 days from the date of the
settlement. They were further restricted from reselling the Company's
common stock until September 13, 2004 at which time they could resell
no more than 3,000 shares of the Company's common stock per week and no
more than an aggregate of 50,000 shares over a period of 120 days. The
Company recorded settlement expenses aggregating $110,000 as a result
of the agreement in April 2004.
F-18
14. Settlements (continued)
-----------------------
Management of the Company valued the shares issued at $1.10 per share,
the closing bid price of the Company's common stock on the date of the
agreement. Management of the Company estimated the value of the
Company's shares granted after considering the historical trend of the
trading prices for its common stock and the limited volume of shares
being traded.
On April 27, 2004 the Company issued 50,000 shares of its common stock
in accordance with the terms of the settlement. The Company has
reserved an additional 50,000 shares of its common stock for issuance
under the settlement.
In April 2004, the Company agreed to indemnify a former officer of the
Company for any loss he sustained in a settlement reached with a
cellular phone service provider against IDS and him personally. Under
the indemnification, the Company is obligated to pay an aggregate of
$72,261 in installments of $5,000 each on or before August 1, 2004 and
September 1, 2004 with the balance due October 1, 2004. The
indemnification had no effect on the accompanying financial statements
as the amount owed to the cellular phone service provider was
previously recorded as accounts payable in the records of IDS.
15. Prior period adjustments
------------------------
In 2003 the Company incorrectly reported the acquisition of an
investment in real estate aggregating $10,700,000 that had not yet been
completed. In 2004, management determined that it was not in the best
interest of the Company to acquire that real estate by issuing its
common stock. The adjustment resulted in an decrease in previously
reported total assets and net capital deficiency by $10,700,000. The
adjustment did not have any effect on previously reported net loss, net
loss per share, or the statement of cash flows.
In 2003 the Company incorrectly reported common stock to be issued in
exchange for accounts payable of $440,000 in a transaction that had not
yet been completed. The debtors agreed to accept common stock of the
Company in exchange for their payable however have not yet demanded
issuance of the common stock. The adjustment resulted in an increase of
$440,000 in previously reported current liabilities, a decrease of
$440,000 in previously reported net capital deficiency, and a decrease
of $440,000 of previously reported net cash provided by operating
activities. The adjustment did not have any effect on previously
reported net loss or net loss per share.
16. Recently issued pronouncements
------------------------------
In December 2004, the FASB issued a revision to SFAS 123, "Share-Based
Payment, an amendment of FASB Statements Nos. 123 and 95," that
addresses the accounting for share-based payment transactions in which
a Company receives
F-19
16. Recently issued pronouncements (continued)
------------------------------------------
employee services in exchange for either equity instruments of the
Company or liabilities that are based on the fair value of the
Company's equity instruments or that may be settled by the issuance of
such equity instruments. This statement would eliminate the ability to
account for share-based compensation transactions using the intrinsic
method and generally would require that such transactions be accounted
for using a fair-value-based method and recognized as expense in the
consolidated statement of operations. The effective date of this
standard is for periods beginning after June 15, 2005. The Company
previously adopted the fair-value-based method of valuing share-based
payments and management does not expect any further impact of this new
standard to have a material effect on its financial position, results
of operations and cash flows.
In July 2004, the Emerging Issues Task Force issued a draft abstract
for EITF Issue No. 04-08, "The Effect of Contingently Convertible Debt
on Diluted Earnings per Share" ("EITF 04-08"). EITF 04-08 reflects the
Task Force's tentative conclusion that contingently convertible debt
should be included in diluted earnings per share computations
regardless of whether the market price trigger has been met. If
adopted, the consensus reached by the Task Force in this Issue will be
effective for reporting periods ending after December 15, 2004. Prior
period earnings per share amounts presented for comparative purposes
would be required to be restated to conform to this consensus and the
Company would be required to include the shares issuable upon the
conversion of its convertible notes payable in the diluted earnings per
share computation for all periods during which the convertible notes
payable are outstanding. Management does not expect the implementation
of this new standard to have a material impact on its computation of
diluted earnings per share.
In December 2004, the Financial Accounting Standards Board Statement
issued SFAS No. 153, "Exchanges of Non-monetary Assets, an amendment of
APB Opinion No. 29", by eliminating the exception for non-monetary
exchanges of similar productive assets and replaces it with a general
exception for exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No.151 is effective for
a fiscal year beginning after June 15, 2005, and implementation is
prospectively. Management does not expect the implementation of this
new standard to have a material impact on its financial position,
results of operations and cash flows.
F-20