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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
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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, 2005
(Commission File No.) 333-62690
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CYBERADS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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Nevada 65-1000634
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
370 Amapola Avenue, Suite 202, Torrance, CA 90501
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(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, 2005: $0
The aggregate market value of voting stock held by nonaffiliates of
CyberAds, Inc. ("CYAD") common stock, as of May 17, 2006 was approximately
$2,820,000 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 May
17, 2006 was 132,846,915
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, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities 4
Item 6. Management's Discussion and Analysis or Plan of Operation 5
Item 7. Financial Statements 9
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 9
Item 8a Controls and Procedures 9
PART III 9
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act 9
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial Owners and Management 11
Item 12. Certain Relationships and Related Transactions 11
Item 13. Exhibits 11
Item 14. Principal Accountant Fees and Services 12
Signatures 12
Certifications
2
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. On August 10, 2005
the Company changed domiciles to Nevada. 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 worked by paying
participating third party web sites commissions for referring cellular phone
customers to our "freecellular.com" website. A third party website would 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. As of 2005 we discontinued marketing of cellular
phones. 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 be involved in the development of additional product lines and
services for extreme sports market.
During 2005, we expanded our involvement with extreme sports products and
secured relationships with Rhino Off Road Industries, and Planet X TV. These
relationships provide for the Company to market and develop distribution,
dealers, and advertisers, and are compensated through commissions based on
successful recruiting of Distributors, Dealers and Advertisers to each company.
During 2005 we were focused on development stage activities on both Rhino and
Planet X. As of December 31, 2005 XBoard has not been released for sale to
consumers or Distributors.
GOVERNMENT REGULATION
At present, there are no specific regulations or approvals required by or from
the Federal Government or state agencies for marketing the extreme sports
products we offer over the Internet. We are aware of no proposed regulations
that may have an effect upon our business as a seller of extreme sports
products.
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 two 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 2005, our offices were located in 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 Effective August 19,
2005, the Registrant amended its Articles of Incorporation to increase its
authorized capital stock to 500 million shares of common stock. In addition,
effective August 10, 2005, the Registrant changed its state of incorporation
from Florida to Nevada. These actions were taken pursuant to the consent action
of the holder of the majority voting power of the Registrant. An Information
Statement pursuant Regulation 14C under the Securities Exchange Act of 1934. was
furnished to all of the Company's shareholders in connection with the consent
action taken.
PART II
ITEM 5. Market for Common Equity, 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
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FISCAL 2005
Fourth Quarter (through December 31, 2005) $ 0.09 $ 0.02
Third Quarter (through September 30, 2005) $ 0.22 $ 0.05
Second Quarter (through June 30, 2005) $ 0.27 $ 0.09
First Quarter (through March 31, 2005) $ 0.56 $ 0.06
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
4
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.
The Company has not paid any dividends
There are 72 shareholders of record as May 17, 2006 holding 132,846,915 shares
of common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis contains various forward-looking statements
within the meaning of the Securities and Exchange Act of 1934. These statements
consist of any statement other than a recitation of historical fact and can be
identified by the use of forward looking terminology such as "may", "expect",
"anticipate", "estimates", or "continue" or use of negative or other variations
of comparable terminology. We caution that these statements are further
qualified by important factors that could cause actual results to differ
materially from those contained in our forward looking statements, that these
forward looking statements are necessarily speculative, and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in our forward looking statements.
Management's discussion and analysis should be read in conjunction with the
financial statements and the notes thereto.
OVERVIEW
CyberAds did not record revenues during 2005. We discontinued the third party
affiliate sales of Cellular phones and services during 2004, and discontinued
all cellular sales in 2005 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. During 2005 we focused
on developing a new business plan in the extreme sports sector and marketing of
its lifestyle. We engaged with three primary products during 2005, XBoard,
Rhino, and Planet X TV.
RELATED PARTIES AND RELIANCE ON CERTAIN PROVIDERS We rely on the manufacturers
of XBoard, Rhino, and Planet X TV for the inventory and production of products
specific to our reselling rights.
RECENT EVENTS
As noted above we entered into relationships with Aqua Xtremes, Inc., and its
products XBoard, whereby the company was provided exclusive rights to resell
distribution and dealers within a defined territory. During 2005 we developed a
resell relationship with Rhino Off Road Industries whereby the company would
recruit and demonstrate the Rhino product line to Distributors, Dealers, and
consumers. During 2005 we developed a relationship with Planet X TV whereby the
company would be compensated for recruiting advertisers and sponsors for the
Planet X TV shows.
5
During 2005 we engaged in multiple negotiations with Internet and Extreme Sports
/ Lifestyle companies on merger and acquisition discussions, as of December 31,
2005 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, 2005 AND 2004
We reported revenues of $0 and $303,120 for the years ending December 31, 2005
and 2004, respectively, losses of $7,783,970 and $520,520 during the years ended
December 31, 2005 and 2004, respectively. The reduction in revenue from 2005 to
2004 is attributed to the change in business plan, and our effort to develop
into an extreme sports and lifestyle sector company. The Increase in losses was
due to the developmental stage of the company, and the delay in delivering
XBoard to the market in 2005.
RESULTS OF OPERATIONS
---------------------
Twelve months ended December 31, 2005 compared to the twelve months ended
December 31, 2004.
--------------------------------------------------------------------------------
Decrease
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Revenue $ 0 $ 303,120 $ 303,120 - 100%
============== ============== ============ ==============
Revenue for the twelve months ended December 31, 2004 resulted from the sale of
Cellular phone plans through Inphonic. In 2005 we discontinued marketing of
cellular phones. The Company did not recognize revenue in 2005 for the sales of
XBoard, Rhino, or Planet X. In 2005, all efforts were put towards the sales and
marketing of XBoard, Rhino, and Planet X, and the recruitment of extreme sports
oriented product distribution for which no revenue has been obtained to date.
Decrease
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2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
G&A Expenses $ 681,731 $ 812,824 $ 131,093 16%
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G & A Expenses for the twelve months ended December 31, 2005 resulted from the
sale of the XBoard distribution, recruitment of new products, and expenses for
consultants and management relating to the extreme sports segment. G&A expenses
decreased in 2005 vs 2004 as a result of the discontinuance of sales of cellular
phone plans, specifically the cost of administrating the sales.
6
Increase
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2005 2004 Amount Percentage
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Marketing
Expenses $ 5,605,613 $ 0 $ 5,605,613 100%
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Marketing Expenses for the twelve months ended December 31, 2005 increased due
to efforts on securing distribution for XBoard, Rhino, and Planet X TV.
Marketing costs include production of TV spots, trade shows, product
demonstrations, consultants, and efforts toward recruitment of extreme sports
products for the company to resell.
Increase
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Selling
Expenses $ 1,412,253 $ 0 $ 1,412,253 100%
============== ============== ============ ==============
Selling Expenses for the twelve months ended December 31, 2005 increased as a
result of additional management and consulting expenses primarily in an effort
to represent additional business opportunities, and present distribution
opportunities of XBoard, Rhino, and Planet X.
Increase
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Other Income $ 5,430 $ 4,847 $ 583 12%
============== ============== ============ ==============
Other Income for the twelve months ended December 31, 2005 was derived by a
marketing activity related to a promotion on a product line.
Increase
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Gain on Forgiveness
of debt $ 2,500 $ 0 $ 2,500 100%
============== ============== ============ ==============
Gain on Forgiveness of debt for the twelve months ended December 31, 2005 was
provided through forgiveness of debt by note holder at time of conversion.
7
Increase
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2005 2004 Amount Percentage
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Interest Expense $ 78,132 $ 15,663 $ 62,469 398%
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Interest expense for the twelve months ended December 31, 2005 increased to
$78,132 versus $15,663 in 2004. The increase of $62.469 was attributable to
interest on notes to related parties, and advances from stockholder.
Increase
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Loss on Abandonment $14,171 $0 $14,171 100%
Of Assets
============== ============== ============ ==============
Loss on Abandonment of Assets for the twelve months ended December 31, 2005
increased by $14,171 over year end 2004. The Company abandoned fixtures,
furnishings and equipment in its Florida offices upon its relocation to offices
in California. The equipment abandoned was miscellaneous desks, computer
equipment and filing type cabinets.
FINANCIAL POSITION & LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2005 compared to December 31, 2004:
As of December 31, 2005 Increase
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Marketing rights $ 210,000 $ 0 $ 210,000 100%
============== ============== ============ ==============
Marketing rights increased as a result of the Company's purchase of rights to
resale X-Board dealerships to others.
As of December 31, 2005 Increase
------------------------------ ----------------------------
2005 2004 Amount Percentage
-------------- -------------- ------------ --------------
Deferred net $ 172,453 $ 0 $ 172,453 100%
Revenue
============== ============== ============ ==============
Deferred net revenue consisted of the resale of X-Board dealerships, net of
commissions. The X-Board product has not yet come to market. Accordingly, the
Company has not recorded the sales as revenue.
8
LIQUIDITY AND CAPITAL RESOURCES
CYAD has not been profitable and
has experienced negative cash flow from operations due to its development stage,
and substantial ongoing investment in 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
Effective January 4, 2006, the Registrant's terminated
the services of its certifying auditors, Timothy L. Steers, CPA, LLC ("Steers
"). During the period of engagement from December 2003, through January 4, 2006,
there were no disagreements between the Registrant and Steers on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Steers would
have caused Steers to make reference to the matter in its reports on the
Registrant's financial statements, had any such reports been issued. During the
period of engagement from December 2003 through September 20, 2005, there were
no reportable events as the term described in Item 304(a)(1)(iv) of Regulation
S-B. Effective January 6, 2006, the Registrant has engaged Williams & Webster,
P.S. Certified Public Accountants, Spokane, Washington, as the Registrant's
certifying auditors.
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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
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
---- --- --------
Jeff Criswell 42 President, Director
Walter Tatum 47 Secretary, Chairman of the Board of
Directors
August A. DeAngelo 35 Director
9
DIRECTORS AND EXECUTIVE OFFICERS
Walter Tatum has served as our Secretary and 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.
Jeff Criswell has served as our President and director since April 2005. Prior
to joining CyberAds, Mr. Criswell was Vice President of Sales for a cashable
voucher company.
August A. DeAngelo has served as a director of CyberAds since April 2005. Mr.
DeAngelo is employed as President of Styles For Less, a women's retail chain
headquartered in California.
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.
Position Year Annual Compensation Long Term Compensation
-------- ---- ------------------- ----------------------
Walter Tatum, 2005 $300,000 None
Secretary,
Chairman of the Board
Jeff Criswell, 2005 $120,000 None
President, Director
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
10
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 group. We 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.
Common Stock Walter Tatum 250,000 *
1681 Loma Roja Drive
Santa Ana, CA 92705
Common Stock Jeff Criswell 0 *
1451 SW 150 Hwy
Lee Summit, MO 64082
Common Stock August A. DeAngelo 0 *
19162 Mesa Dr.
Villa Park, CA 92861
All officers and directors
(three persons) 250,000 *
* Less than one percent
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 2005, Walter Tatum, the Company's Secretary and Chairman of
the Board of Directors, advanced to the Company a total of $32,500. The funds
advanced were used by the Company for working capital purposes.
ITEM 13. EXHIBITS
Exhibits
Exhibit No. Description of Document
---------- ----------------------------
3.1(a) * Articles of Incorporation
3.1(b) * Articles of Amendment
3.2 * Bylaws
4.0 * Form of Stock Certificate
4.1 * Certificate of Designation of Series B Convertible Preferred Stock
4.2 * Certificate of Designation of Series C Convertible Preferred Stock
* Incorporated by reference
11
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
2005 2004
------- -------
Audit fees $33,944 $29,600
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 May 31, 2006.
CYBERADS, INC.
By:/s/ JEFF CRISWELL
Jeff Criswell
President
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 May 31, 2006
Jeff Criswell
CYBERADS, INC.
Years ended December 31, 2005 and 2004 (restated)
12
CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm dated
May 17, 2006..................................................... F-2
Letter From Timothy L. Steers, CPA, LLC to Williams & Webster,
P.S.............................................................. F-3
Report of Independent Registered Public Accounting Firm dated
April 7, 2005.................................................... F-4
Consent of Independent Registered Public Accounting Firm......... F-5
Consolidated Financial Statements:
Balance sheets................................................ F-6
Statements of operations...................................... F-7
Statements of net capital deficiency.......................... F-8
Statements of cash flows...................................... F-9
Notes to consolidated financial statements.................... F-10
F-1
Board of Directors
Cyberads, Inc.
Torrance, California
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of Cyberads, Inc. (a
development stage company) as of December 31, 2005 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the year then
ended and for the period from January 1, 2005 (inception of the current
development stage) through December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Cyberads, Inc. as of December 31, 2004, were audited by other
auditors whose report dated April 7, 2005, except with respect to Note 15 of the
December 31, 2004 amended financial statements as to which the date is January
24, 2006, included an explanatory paragraph that described the conditions
present which raised substantial doubt about the Company's ability to continue
as a going concern.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides 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, 2005 and the results of its operations, stockholders' deficit
and its cash flows for the year then ended and for the period from January 1,
2005 (inception of the current development stage) through December 31, 2005 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
financial statements, the Company has suffered recurring losses and has an
accumulated deficit at December 31, 2005. These factors raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ WILLIAMS & WEBSTER, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
May 17, 2006
F-2
TIMOTHY L. STEERS o The River Forum o Phone: 503/274-6296
Certified Public 4380 S.W. Macadam, Suite 210 Fax: 503/274-6297
Accountant,LLC Portland, Oregon 97239-6404 Web: www.steerscpa.com
May 31, 2006
Williams & Webster, P.S.
Certified Public Accountants
601 W. Riverside, Suite 1940
Spokane, WA
Enclosed is an originally signed copy of our Report of Independent Registered
Public Accounting Firm regarding our audit of the consolidated financial
statements of Cyberads, Inc. as of December 31, 2004 and for the year then
ended. We are re-issuing our audit report in connection with your audit of the
consolidated financial statements of Cyberads, Inc. as of December 31, 2005 and
for the year then ended.
Also is a Consent of Independent Registered Public Accounting Firm for the use
of our report in Cyberads, Inc. filing on form 10-KSB for the year ended
December 31, 2005.
We also wish to inform you that our firm is independent with respect to
Cyberads, Inc. for the period from the date of our report to the date of this
letter in accordance with the SEC Independence Rule 2-01 (c)(4)9i) of S-X.
Sincerely,
/s/ TIMOTHY L. STEERS, CPA, LLC
Timothy L. Steers,
Certified Public Accountant, LLC
F-3
TIMOTHY L. STEERS o The River Forum o Phone: 503/274-6296
Certified Public 4380 S.W. Macadam, Suite 210 Fax: 503/274-6297
Accountant,LLC Portland, Oregon 97239-6404 Web: www.steerscpa.com
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-4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Annual Report on Form
10-KSB of CyberAds, Inc. of our report dated April 7, 2005, except with respect
to Note 15 as to which the date is January 24, 2006, on our audit of the
consolidated balance sheets of CyberAds, Inc. as of December 31, 2004 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended.
/s/ TIMOTHY L. STEERS, CPA, LLC
May 31, 2006
Portland, OR
TIMOTHY L. STEERS
Certified Public Accountants, LLC
F-5
CYBERADS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------------------------------------
December 31
---------------------------------
2005 2004
--------------- ---------------
ASSETS
CURRENT ASSETS
Loan receivable $ 7,500 $ -
Deposits 15,000 8,585
--------------- ---------------
Total Current Assets 22,500 8,585
--------------- ---------------
PROPERTY AND EQUIPMENT, NET - 14,171
--------------- ---------------
TOTAL ASSETS $ 22,500 $ 22,756
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,063,251 $ 869,222
Bank overdrafts 15,108 -
Accrued liabilities 971,762 653,136
Deferred revenue 172,453 -
Notes payable 294,192 294,192
Convertible debt - 60,000
Notes payable - related parties 1,226,161 1,186,555
--------------- ---------------
Total Current Liabilities 3,742,927 3,063,105
--------------- ---------------
COMMITMENTS AND CONTINGENCIES - -
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 5,000,000 shares authorized
Series A - 835,660 shares issued and outstanding 836 836
Series B - 1,000,000 and 0 shares issued and outstanding, respectively 1,000 -
Common stock, $.001 par value; 500,000,000 shares authorized,
123,351,777 and 23,225,777 shares issued and oustanding,
respectively 123,352 23,226
Additional paid-in capital 23,172,901 16,170,135
Accumulated deficit prior to current development stage (19,234,546) (19,234,546)
Accumulated deficit in development stage (7,783,970) -
--------------- ---------------
Total Stockholders' Equity (Deficit) (3,720,427) (3,040,349)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 22,500 $ 22,756
=============== ===============
The accompanying Notes are an Integral part of these financial statements
F-6
CYBERADS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------------------------------------------------------
From
inception of
development
stage
January 1,
2005
to
Years Ended December 31 December 31
-----------------------------------
2005 2004 2005
-------------- -------------- ---------------
REVENUES $ - $ 303,120 $ -
-------------- -------------- ---------------
OPERATING EXPENSES
General and administrative 681,731 812,824 681,731
Marketing expenses 5,605,613 - 5,605,613
Selling expenses 1,412,253 - 1,412,253
-------------- -------------- ---------------
TOTAL OPERATING EXPENSES 7,699,597 812,824 7,699,597
-------------- -------------- ---------------
LOSS FROM OPERATIONS (7,699,597) (509,704) (7,699,597)
-------------- -------------- ---------------
OTHER INCOME (EXPENSES)
Other income 5,430 4,847 5,430
Gain on forgiveness of debt 2,500 - 2,500
Interest expense (78,132) (15,663) (78,132)
Loss on abandonment of assets (14,171) - (14,171)
-------------- -------------- ---------------
TOTAL OTHER INCOME (EXPENSES) # (84,373) (10,816)# (84,373)
-------------- -------------- ---------------
LOSS BEFORE TAXES (7,783,970) (520,520) (7,783,970)
INCOME TAXES - - -
-------------- -------------- ---------------
NET LOSS $ (7,783,970) $ (520,520) $ (7,783,970)
============== ============== ===============
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.14) $ (0.03)
============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES
OUTSTANDING, BASIC AND DILUTED 55,789,056 20,020,000
============== ==============
The accompanying Notes are an Integral part of these financial statements
F-7
CYBERADS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During
Convertible Preferred StoCommon Stock Paid-in Development
-------------------------------------------
Shares Amount Shares Amount Capital Stage Totals
---------- -------- ----------- -------- ---------- ------------ ------------
Balance, December 31, 2003 835,660 $ 836 # 18,325,777 $ 18,326 $15,399,238 $(18,714,026) (3,295,626)
Options exercised - - 500,000 500 64,500 - 65,000
Shares issued in exchange for payable
to shareholer - - 2,000,000 2,000 212,297 - 214,297
Shares issued in exchange for settlement - - 100,000 100 109,900 - 110,000
Shares issued in exchange for compensation
& services - - 2,300,000 2,300 384,200 - 386,500
Net loss for year ending December 31, 2004 - - - - - (520,520) (520,520)
---------- -------- ----------- -------- ---------- ------------ ------------
Balance, December 31, 2004 835,660 836 23,225,777 23,226 16,170,135 (19,234,546) (3,040,349)
Shares issued for consulting expense - - 99,626,000 99,626 6,846,766 - 6,946,392
Shares issued for debt - - 500,000 500 57,000 - 57,500
Shares issued in exchange for
compensation 1,000,000 1,000 - - 99,000 - 100,000
Net loss for year ending December 31, 2005 - - - - - (7,783,970) (7,783,970)
---------- -------- ----------- -------- ---------- ------------ ------------
Balance, December 31, 2005 1,835,660 $ 1,836 123,351,777 $123,352 $23,172,901 $(27,018,516) $(3,720,427)
========== ======== =========== ======== ========== ============ ============
The accompanying Notes are an Integral part of these financial statements
F-8
CYBERADS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------------------------
From
inception of
development
stage
January 1,
2005
to
Years Ended December 31, December 31
---------------------------------------
2005 2004 2005
------------------ ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,783,970) $ (520,520) $ (7,783,970)
Stock issued for accrued wages 100,000 496,500 100,000
Common stock issued for compensation and services 6,946,392 - 6,946,392
Common stock issued for interest - 9,663 -
Forgiveness of debt (2,500) - (2,500)
Loss on abandonment of assets 14,171 - 14,171
Adjustments to reconcile net loss to net cash
used by operating activities:
Decrease in accounts receivable - 20,380 -
Increase in deferred revenue 172,453 - 172,453
Increase in accrued liabilities 318,626 69,941 318,626
Increase (decrease) in accounts payable 194,029 (175,757) 194,029
--------------- ------------- ------------------
Net cash used by operating activities (40,799) (99,793) (40,799)
--------------- ------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loan receivable (7,500) - (7,500)
Increase in deposits (6,415) - (6,415)
--------------- ------------- ------------------
Net cash used by investing activities (13,915) - (13,915)
--------------- ------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related parties 39,606 47,000 39,606
Increase in bank overdrafts 15,108 (1,207) 15,108
Payment of notes payable - (11,000) -
Proceeds from sale of common stock - 65,000 -
--------------- ------------- ------------------
Net cash provided by financing activities 54,714 99,793 54,714
--------------- ------------- ------------------
Change in cash - - -
CASH, BEGINNING OF PERIOD - - -
-------------
CASH, END OF PERIOD $ - $ - $ -
=============== ============= ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,502 $ - $ 5,502
=============== ============= ==================
Income taxes paid $ - $ - $ -
=============== ============= ==================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for debt $ 57,500 $ 214,297 $ 57,500
=============== ============= ==================
The accompanying Notes are an Integral part of these financial statements
F-9
CYBERADS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
Cyberads, Inc, was incorporated on April 12, 2000 in the State of Florida. On
August 10, 2005 the Company changed domicile from Florida to Nevada.
The Company provides management and sales support to businesses focused in the
Extreme Sports/Lifestyle market segment. The Company earns commissions/fees on
securing distribution for the businesses and products it represents.
Additionally, the Company will earn commissions when product deliveries are made
through the distribution channel. The Company and its management has devoted
their attention toward restructuring debt and seeking profitable products in
2005. The Company's year-end is December 31.
As of January 1, 2005, the Company abandoned its previous business plan of
marketing cellular phone services and began a new development stage where it
intends to provide management and sales support to businesses focused in the
Extreme Sports/Lifestyle market segment.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
This summary of significant accounting policies of Cyberads, Inc, is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United States of
America, and have been consistently applied in the preparation of the financial
statements.
Accounting Method
-----------------
The Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
Advertising Expenses
--------------------
Advertising expenses consist primarily of costs incurred in the design,
development, and printing of Company literature and marketing materials. The
Company expenses all advertising expenditures as incurred. The Company's
advertising expenses were $2,337 and $0 for the years ended December 31, 2005
and December 31, 2004, respectively.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid investments and short-term debt instruments with original maturities of
three months or less to be cash equivalents.
Derivative Instruments
----------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (hereinafter "SFAS No. 133"), as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", and SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities".
These statements establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. They require that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
F-10
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
At December 31, 2005 and 2004, the Company has not engaged in any transactions
that would be considered derivative instruments or hedging activities.
Development Stage Activities
The Company has been in the development stage since its inception of the current
development stage which was January 1, 2005 and has not realized any revenue
from operations. It will be engaged by various companies to provide management
and sales support to businesses focused in the Extreme Sports/Lifestyle market
segment.
Earnings Per Share
------------------
The Company has adopted Statement of Financial Accounting Standards No. 128,
which provides for calculation of "basic" and "diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing net
income (loss) available to common shareholders by the weighted average common
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution of securities that could share in the earnings of an entity
similar to fully diluted earnings per share. Although there are common stock
equivalents outstanding, they were not included in the calculation of earnings
per share because they would have been considered anti-dilutive for the periods
presented. At December 31, 2005 and 2004, the Company had 1,900,000 and
2,400,000 potentially dilutive securities outstanding.
Going Concern
-------------
As shown in the accompanying financial statements, the Company had negative
working capital of approximately $3,720,000 and an accumulated deficit of
approximately $27,018,000 incurred through December 31, 2005. The Company is
currently putting business plans in place which will, if successful, mitigate
these factors which raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.
Management has established plans designed to increase the sales of the Company's
products and decrease debt. These plans will include providing management and
sales support to businesses focused in the Extreme/Lifestyle market segment
where the Company anticipates earning commissions/fees on securing distribution
from business and products it represents.
An estimated $2 million is believed necessary to continue operations and
increase development through the next fiscal year. The timing and amount of
capital requirements will depend on a number of factors, including demand for
products and services and the availability of opportunities for international
expansion through affiliations and other business relationships. Management
intends to seek new capital from new equity securities issuances to provide
funds needed to increase liquidity, fund internal growth, and fully implement
its business plan.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments as defined by Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," include cash, trade accounts receivable, and accounts payable and
accrued expenses. All instruments are accounted for on a historical cost basis,
which, due to the short maturity of these financial instruments, approximates
fair value at December 31, 2005 and December 31, 2004.
F-11
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements for 2005 include the accounts
of Cyberads and its wholly owned subsidiary IDS Cellular, Inc. ("IDS"). All
significant transactions and balances among the companies included in the
consolidated financial statements have been eliminated. The operations of IDS
are currently idle.
Provision for Taxes
-------------------
Income taxes are provided based upon the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Under this approach, deferred income taxes are recorded to reflect the
tax consequences in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year-end. A
valuation allowance is recorded against deferred tax assets if management does
not believe the Company has met the "more likely than not" standard imposed by
SFAS No. 109 to allow recognition of such an asset. See Note 4.
Recent Accounting Pronouncements
--------------------------------
In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets, an Amendment of FASB Statement No. 140," (hereinafter "SFAS No. 156).
This statement requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract in any of the following situations: a
transfer of the servicer's financial assets that meets the requirements for sale
accounting; a transfer of the servicer's financial assets to a qualifying
special-purpose entity in a guaranteed mortgage securitization in which the
transferor retains all of the resulting securities and classifies them as either
available-for-sale securities or trading securities; or an acquisition or
assumption of an obligation to service a financial asset that does not relate to
financial assets of the servicer or its consolidated affiliates. The statement
also requires all separately recognized servicing assets and servicing
liabilities to be initially recorded at fair value, if practicable and permits
an entity to choose either the amortization or fair value method for subsequent
measurement of each class of servicing assets and liabilities. The statement
further permits, at its initial adoption, a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights, without calling into question the treatment of other
available-for-sale securities under Statement No. 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entity's exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value and
requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets and
servicing liabilities. This statement is effective for fiscal years beginning
after September 15, 2006, with early adoption permitted as of the beginning of
an entity's fiscal year. Management believes the adoption of this statement will
have no immediate impact on the Company's financial condition or results of
operations.
In February 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Financial
Instruments, an Amendment of FASB Standards No. 133 and 140," (hereinafter SFAS
No. 155). This statement established the accounting for certain derivatives
embedded in other instruments. It simplifies accounting for certain hybrid
financial instruments by permitting fair value remeasurement for any hybrid
instrument that contains an embedded derivative that would otherwise require
F-12
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
bifurcation under SFAS No. 133 as well as eliminating a restriction on the
passive derivative instruments that a qualifying special-purpose entity may hold
under SFAS No. 140. This statement allows a public entity to irrevocably elect
to initially and subsequently measure a hybrid instrument that would be required
to be separated into a host contract and derivative in its entirety at fair
value (with changes in fair value recognized in earnings) so long as that
instrument is not designated as a hedging instrument pursuant to the statement.
SFAS No. 140 previously prohibited a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. This statement is effective
for fiscal years beginning after September 15, 2006, with early adoption
permitted as of the beginning of an entity's fiscal year. Management believes
the adoption of this statement will have no immediate impact on the Company's
financial condition or results of operations.
In May 2005, the Financial Accounting Standards Board, issued Statement of
Financial Accounting Standards ("SFAS No. 154"), "Accounting Changes and Error
Corrections," which replaces Accounting Principles Board Opinion No. 20,
"Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements -- An Amendment of APB Opinion No. 28". SFAS No. 154
provides guidance on accounting for and reporting changes in accounting
principle and error corrections. Management believes the adoption of SFAS No.
154 was reported properly in the financial statements ending December 31, 2005.
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153, "Exchange of Nonmonetary Assets an
amendment of ARB Opinion No. 29." This statement addresses the measurement of
exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting
for Nonmonetary Transactions," is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that opinion, however, included certain exceptions to
that principle. This statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. Management believes the adoption of this statement had no
immediate impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued to Statement
of Financial Accounting Standards No. 123 (R), "Accounting for Stock Based
Compensation" (hereinafter "SFAS No. 123 (R)"). This statement supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. This statement establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS No. 123. This statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." The Company has
determined that there was no impact to its financial statements from the
adoption of this statement, as the Company has been reporting its option grants
under SFAS No. 123 (R).
F-13
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
In November 2004, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 151, "Inventory Costs-- an amendment of ARB
No. 43, Chapter 4." This statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs may be so abnormal as to require treatment as
current period charges. . . ." This statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. Management does not believe the adoption
of this statement will have any immediate material impact on the Company as the
Company maintains no inventory.
Reclassifications
-----------------
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit or net losses presented.
Revenue Recognition
-------------------
The Company will recognize revenue from contracts (1) upon actual sale
(disposition) of such contracts and (2) upon actual cash collections for ongoing
contracts. With these two types of revenue sources, revenue will thereby be
recorded when there is persuasive evidence that an arrangement exists, services
have been rendered, the contract price is determinable, and collectibility is
reasonably assured (or, in the case of ongoing contracts, actually collected).
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. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
NOTE 3 - BANK OVERDRAFTS
Bank overdrafts consist of checks written in excess of funds on deposit. The
underlying bank is used as an imprest account with automatic transfers from the
Company's general account as checks are presented.
NOTE 4 - INCOME TAXES
At December 31, 2005, the Company had net deferred tax assets calculated at an
expected rate of 34% of approximately $27,018,516 principally arising from net
operating loss carryforwards for income tax purposes. As management of the
Company cannot determine that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset, a valuation allowance equal
to the net deferred tax asset has been established at December 31, 2005. The
significant components of the deferred tax asset at December 31, 2005 and 2004
were as follows:
F-14
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
December 31, December 31,
2005 2004
---------------------- ----------------------
Net operating loss carryforward: $ 27,018,000 $ 19,234,000
====================== ======================
Deferred tax asset $ 9,148,000 $ 6,539,000
Deferred tax asset valuation allowance (9,148,000) (6,539,000)
---------------------- ----------------------
Net deferred tax asset $ - $ -
====================== ======================
At December 31, 2005, the Company has net operating loss carryforwards of
approximately $27,018,000 which expire in the years 2015 through 2021. The
change in the allowance account from December 31, 2005 and December 31, 2004 was
$2,609,000. For federal income tax purposes certain expenses may be required to
be capitalized and amortized over five years, which would only affect the timing
of the available losses.
NOTE 5 - CAPITAL STOCK
Preferred Stock
---------------
The Company is authorized to issue 5,000,000 shares of preferred stock with a
par value of $0.001. As of December 31, 2005 the company has issued 833,555
shares of preferred A, and 1,000,000 shares of preferred B.
On June 26, 2005, the Company issued 1,000,000 shares of its preferred class B
stock in exchange for partial payment of accrued salary to an officer of the
Company. The shares were measured at $0.10, which was a fair price average
during the period of accrual. The Company recorded a reduction in accrued salary
liability as a result of this issuance. Each share of Series B preferred is
entitled to 100 votes per share.
Common Stock
------------
The Company is authorized to issue 500,000,000 shares of common stock. All
shares have equal voting rights, are non-assessable and have one vote per share.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
the common stock could, if they choose to do so, elect all of the directors of
the Company.
During the year ended December 31, 2005, the Company issued 99,626,000 shares of
its common stock in exchange for consulting services for approximately
$6,946,000. The services were measured at the fair market value of the shares
received.
During the year ended December 31, 2005, the Company issued 500,000 shares of
its common stock in exchange for debt of $60,000 and recorded a gain to
forgiveness of debt of $2,500 for this exchange. The services were measured at
the fair market value of the shares received.
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.
F-15
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
NOTE 6 - COMMON STOCK OPTIONS
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, 2005 and
2004.
Fixed Plan
Shares Weighted average Shares Weighted average
exercise price exercisable exercise price
------ -------------- ----------- --------------
Outstanding at
December 31,
2003 2,925,000 $ 0.48 2,925,000 $ 0.48
Exercised (500,000) 0.13 - -
Expired (300,000) 1.04 - -
Cancelled (225,000) 0.25 - -
-------------- ------------------ ------------------ -------------------
Outstanding at 1,900,000 0.51 1,900,000 0.51
December 31, 2004
Exercised None - - -
Expired None - - -
Cancelled None - - -
-------------- ------------------ ------------------ -------------------
Outstanding at 1,900,000 $ 0.51 1,900,000 $ 0.51
December 31, 2005
============== ================== ================== ===================
The Company's stock option outstanding and exercisable at December 31, 2005 is
summarized as follows:
Fixed Plan
----------
Options Outstanding Options Exercisable
Weighted Average
Weighted
Exercise Average
Range of Prices Shares Remaining life price Shares exercise price
---------------- --------------- -------------- ------------- -------------- --------------
$0.04 - $0.99 1,200,000 5 months $ 0.27 1,200,000 $ 0.27
0.99 - 1.25 700,000 2 months 1.03 700,000 1.03
--------------- ------------- -------------- ---------------
$0.04 - $1.25 1,900,000 $ 0.51 1,900,000 $ 0.51
=============== ============= ============== ===============
All of the above options will expire at the end of May 2006.
NOTE 7 - 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
December 31, 2005 and 2004 is approximately $560,800 of unpaid payroll taxes.
F-16
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
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. 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
pursued and the Company is not subject to any legal action pursuing this claim.
Any claims would have been offset by counter balancing claims of the Company
concerning funds owed to Cyberads for its prior trade relationship with World
Com. The claim has not been recorded in the accompanying consolidated financial
statements due to the uncertainty of the matter.
NOTE 8 - LOAN PAYABLE
Notes payable consisted of the following at December 31:
2005 2004
------------------ ------------------
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. In default. $ 109,000 $ 109,000
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 libor index. In default. 185,192 185,192
------------------ ------------------
Total Notes Payable $ 294,192 $ 294,192
================== ==================
The Company is currently in default with the repayment terms of the installment
note. As of December 31, 2005, the Company had accrued $12,435 of interest for
notes payable.
F-17
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
NOTE 9 - RELATED PARTY TRANSACTIONS
Related party transactions consisted of the following at December 31:
2005 2004
---- ----
Advance due to a corporation owned by a former officer of
the Company, accruing interest at libor index, due on
demand and unsecured. $ 54,000 $ 54,000
Advance due to a former officer of the Company, bearing
interest at 5% per annum, due on demand and
unsecured 1,139,161 1,132,555
Advance due to a current officer of the Company, bearing
no interest, due on demand, and unsecured 32,500 -
---------------- -----------------
$ 1,226,161 $ 1,186,555
================ =================
As of December 31, 2005, the Company had accrued $60,195 of interest for related
party notes payable.
NOTE 10 - CONVERTIBLE DEBT
Loans payable - convertible debentures consist 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.
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.
These loans were converted to common stock in February 2005.
NOTE 11 - CORRECTION OF AN ERROR
During 2005 the accompanying financial statements for December 31, 2004, were
restated to correct an error in the accounting for an investment in real estate
that was determined not to be in the best interest of the Company . The effect
of the restatement was to decrease previously reported total assets and net
capital deficiency by $10,700,000. They have also been restated to correct an
error in accounting for an issuance of common stock in payment of a payable. The
effect of the restatement was an increase of $440,000 in previously reported
current liabilities, and 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 adjustments did not have any effect on
previously reported net loss or net loss per share.
F-18
CYBERADS, INC
(A Development Stage Company)
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005
--------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENT
Subsequent to December 31, 2005 the Company has issued a total of 9,495,138
shares of stock for consultants and services towards the development of the
extreme sports market sector and business development plan.
F-19