SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2005
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
for the transition period from __________ to __________.
Commission File Number: 000-31451
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CYBERADS, INC.
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(Exact name of small business issuer as specified in its charter)
Florida 65-1000634
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
370 Amapola Ave. # 202, Torrance, California 90501
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(Address of principal executive office) (Zip Code)
(561) 672 2193
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(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
-------- --------
As of May 18, 2005, the number of outstanding shares of the issuer's
34c881o777mmon stock, $.001 par value, was 22,925,777 shares.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes [ ] No [X]
1
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS ............................................... 3
Consolidated Unaudited Balance Sheet as of June 30, 2005............ 3
Consolidated Unaudited Statements of Operations for the
Quarters ended June 30, 2005 and June 30, 2004............. 4
Consolidated Unaudited Statements of Cash Flows for the
Quarter ended June 30, 2005................................ 5
Notes to Consolidated Financial Statements.......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .............................................. 10
ITEM 3. CONTROLS AND PROCEDURES............................................. 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K..................................... 12
SIGNATURES................................................................... 15
2
CYBERADS, INC.
Consolidated Balance Sheets
March 31, December 31,
2005 2004
----------------- -----------------
Assets
Current asset -
Cash $ 10,927 $ -
Property and equipment, net 14,171 14,171
Marketing rights 145,000 -
Deposits 8,585 8,585
-------------- --------------
$ 178,683 $ 22,756
============== ==============
Liabilities and Net Capital Deficiency
Current liabilities:
Note payable $ 294,192 $ 294,192
Accounts payable 824,220 829,222
Accrued payroll & payroll related liabilities 614,143 614,143
Accrued liabilities 38,993 38,993
Unearned revenue 10,000 -
Payable to related parties 786,555 786,555
Loans payable - convertible debentures 60,000 60,000
-------------- --------------
Total current liabilities 2,628,103 2,623,105
Payable to stockholder 185,644 -
Commitments & contingencies
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 836 836
Common stock; $.001 par value; authorized 50,000,000 shares;
issued and outstanding 32,137,777 shares in 2005
(23,225,777 shares in 2004) 32,138 23,226
Common stock to be issued 440,050 440,050
Additional paid in capital 18,234,173 16,170,085
Retained deficit (21,342,261) (19,234,546)
-------------- --------------
Net capital deficiency (2,635,064) (2,600,349)
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$ 178,683 $ 22,756
============== ==============
See accompanying notes.
4
CYBERADS, INC.
Consolidated Statements of Operations
Three months ended March 31
2005 2004
------------------ -----------------
Revenues $ - $ 303,120
Operating expenses:
Marketing 695,000 -
General and administrative 1,412,715 104,842
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Net income (loss) from operations (2,107,715) 198,278
Other income - 4,847
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Net income (loss) before provision for income taxes (2,107,715) 203,125
Provision for income taxes - -
------------- ----------
Net income (loss) $ (2,107,715) $ 203,125
============== ==========
Net income (loss) per common share $ (.079) $ .011
============== ==========
See accompanying notes.
4
CYBERADS, INC.
Consolidated Statements of Cash Flows
Three months ended March 31
2005 2004
---------------- ------------------
Cash flows from operating activities:
Net income (loss) $ (2,107,715) $ 203,125
Adjustment to reconcile net income (loss) to net
cash used in operating activities:
Unearned revenue 10,000 -
Common stock issued in exchange for services 2,073,000 -
Changes in assets and liabilities:
Receivables - 20,380
Outstanding checks in excess of cash in bank - 13,567
Accounts payable (5,002) (28,300)
Accrued liabilities - (224,772)
------------- ----------
(29,717) (16,000)
Cash flows from investing activities -
Purchase of marketing rights (145,000) -
Cash flows from financing activities:
Principal repayments of note payable - (11,000)
Advances received from stockholder 185,644 27,000
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185,644 16,000
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Net change in cash 10,927 -
Cash at beginning of period - -
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Cash at end of period $ 10,927 $ -
============= ==========
See accompanying notes.
5
CYBERADS, INC.
Notes to Consolidated Financial Statements
March 31, 2005
1. Summary of significant accounting policies
------------------------------------------
Business: CyberAds, Inc. ("CyberAds") was incorporated in the state of
Florida on April 12, 2000. In 2004, the Company earned commissions from
selling approved contracts to subscribers for cellular telephone
service. In 2005, management of the Company has devoted their attention
toward seeking profitable products.
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of CyberAds and it's wholly owned
subsidiary IDS. All significant intercompany balances have been
eliminated in consolidation. The operations of IDS are currently
dormant.
Interim reporting: The Company's year-end for accounting and tax
purposes is December 31. In the opinion of Management, the accompanying
consolidated financial statements as of March 31, 2005 and 2004 and for
the three months then ended, consisting of only normal recurring
adjustments, except as noted elsewhere in the notes to the consolidated
financial statements, necessary to present fairly its financial
position, results of its operations and cash flows. The results of
operations for the three months ended March 31, 2005 and 2004 are not
necessarily indicative of the results to be expected for the full year.
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.
Marketing rights: Marketing rights are stated at cost and will be
amortized over 10 years, the term of the rights.
Revenue recognition: In 2004, the Company recorded revenue on a "net"
basis when contracts were submitted to master dealers. The phones were
shipped from the dealers to the subscriber and the Company did not bear
the risk of loss on the cellular phone.
Share based payments: 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.
Net income (loss) per common share: Net income (loss) per common share
is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. The weighted
average number of common stock shares outstanding was 26,594,865 for
the three months ended March 31, 2005 (18,325,777 for the three months
ended March 31, 2004). Convertible debentures, convertible preferred
stock, common stock options, and common stock to be issued
6
CYBERADS, INC.
Notes to Consolidated Financial Statements
March 31, 2005
1. Summary of significant accounting policies (continued)
------------------------------------------------------
Net income (loss) per common share (continued): 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
----------
During the three months ended March 31, 2005, management of the Company
negotiated to purchase rights to market the Xboard(TM), a jet-powered
personal watercraft. The Company, in turn, has been reselling those
rights to distributors of water sports products. During the three
months ended March 31, 2005, the Company collected $10,000 from the
resale of those rights.
Management also plans to continue restructuring debt, seeking
profitable products, reducing operating expenses, and seeking
additional capital and debt financing until operations achieve
profitability. Management of the Company believes the 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 as of March 31, 2005 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. Marketing rights
----------------
During the three months ended March 31, 2005, the Company committed to
purchase rights to market the Xboard(TM), a jet-powered personal
watercraft, from Aqua Xtremes, Inc. aggregating $5,000,000. The term of
the rights are for 10 years from the time the Xboard(TM) is available
for market. During the three months ended March 31, 2005, the Company
paid $145,000 toward the purchase agreement.
4. Note payable
------------
The note payable was due in installments of $5,000 on January 15, 2004
and February 15, 2004, plus interest at the rate of 10% per annum.
Final payment was due March 15, 2004. The note is secured by all of the
Company's accounts receivable, inventories, and computer hardware and
software and is guaranteed by two former officers of the Company. The
Company is currently in default with respect to the agreement.
7
CYBERADS, INC.
Notes to Consolidated Financial Statements
March 31, 2005
5. Accrued liabilities
-------------------
Accrued expenses consisted of the following at:
March 31, December 31,
2005 2004
------------ ----------------
Interest $ 3,993 $ 3,993
Professional fees 35,000 35,000
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$ 38,993 $ 38,993
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6. Payable to related parties
Payable to related parties consisted of the following at:
March 31, December 31,
2005 2004
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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
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$ 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 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
agreements. The notes are convertible into the Company's common stock
at a conversion rate of 75% of the closing bid price of the Company's
common stock one trading day prior to conversion.
8. Payable to stockholder
The payable to stockholder consists of advances from Novanet Media,
Inc. for working capital purposes. The advances are unsecured,
non-interest bearing and due on demand; however, Novanet Media, Inc.
has agreed not to demand repayment of the advances before June 2006 and
unless cash is available from a merger, capital stock exchange, asset
acquisition, or other business combination, or from operations.
8
CYBERADS, INC.
Notes to Consolidated Financial Statements
March 31, 2005
9. Contingencies
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The Company is non-compliant with respect to certain federal and state
payroll related taxes. Included in accrued payroll and payroll related
liabilities for 2005 and 2004 is approximately $540,800 of unpaid
payroll taxes.
10. Common stock transactions
-------------------------
During the three months ended March 31, 2005, the Company issued an
aggregate of 8,912,000 shares of its common stock in exchange for
marketing, management, and consulting services. The share based
payments were valued at the fair value of the services received.
Management estimated the fair value based on the closing bid price of
the Company's common stock on the date of issuance, the historical
trend of the trading prices for its common stock, and the volume of
shares traded. The Company recorded expenses aggregating $2,073,000 as
a result of the share based payments.
11. Stock options
-------------
The Company's stock option activity for options granted to employees
and non-employees is summarized as follows for the three months ended
March 31, 2005:
Fixed Plan
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Weighted Weighted
average average
exercise Shares exercise
Shares price exercisable price
--------------- ----------- --------------- -----------
Outstanding at January 1, 2005 1,900,000 $ .513 1,900,000 $.513
===== ============ ====
Expired (50,000) $ 1.00
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Outstanding at March 31, 2005 1,850,000 $ .50 1,850,000 $ .50
============ ===== ============ ====
The Company's stock option outstanding and exercisable at March 31,
2005 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 - $.50 1,200,000 1 yr. 1 mo. $ .21 1,200,000 $ .21
============ =========== ====== ======
$1.00 - $1.15 650,000 9 mo. $ 1.04 650,000 $ 1.04
/============ ------------ ===== ==== ------------ ====
$.04 - $1.15 1,850,000 10 mo. $ .50 1,850,000 $ .50
============ ========= ====== ====== ========= ======
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Management's discussion and analysis should be read in conjunction with the
financial statements and the notes thereto.
RESULTS OF OPERATIONS
Three months ended March 31, 2005 compared to the three months ended March 31,
2004:
During the three months ended March 31, 2005, the Company was actively
seeking companies in which to merge or invest as well as reselling rights to
market the Xboard(TM), a jet-powered personal watercraft.
There were no revenues for the three months ended March 31, 2005
compared to revenues of $145,000 for the three months ended March 31, 2004.
Revenues for 2004 consisted of commissions earned from selling contracts to
subscribers for cellular telephone service, however, the Company is no longer
engaged in that business. During the three months ended March 31, 2005, the
Company resold rights to market the Xboard(TM) and collected $10,000, however,
the equipment is not yet available. Accordingly, the Company has reported those
sales as unearned revenue.
Marketing expenses for the three months ended March 31, 2005 aggregated
$695,000 compared to no marketing expenses for the three months ended March 31,
2004. Marketing expenses for 2005 were share based payments relating to the
resale of rights to market the Xboard(TM). General & administrative expense for
the three months ended March 31, 2005 aggregated $1,412,715 compared to $104,842
for the three months ended March 31, 2004. The difference of $1,307,873
consisted of share based payments of $1,378,000 in 2005 for consulting and
management expenses incurred in connection with the Company seeking other
companies in which to merge or invest.
FINANCIAL POSITION & LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005 compared to December 31, 2004:
The Company's total assets as of March 31, 2005 were $178,683 compared
to $22,756 as of December 31, 2004. The increase of $155,927 consisted of the
acquisition of $145,000 of rights to market the Xboard(TM) and cash received
from the resale of those marketing rights.
The Company's current liabilities as of March 31, 2005 were $2,628,103
compared to $2,623,105 as of December 31, 2004. However, total liabilities
aggregated $2,813,744 compared to $2,623,105 as of December 31, 2005. The
increase of $185,644 was due entirely to advances received from a shareholder
for cash flow purposes and to acquire the rights to market the Xboard(TM). The
shareholder who provided the advances has agreed not to demand repayment before
June 2006 and unless cash is available from a merger, capital stock exchange,
asset acquisition, or other business combination, or from operations.
10
ITEM 3. CONTROLS AND PROCEDURES
As of September 30, 2004 the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and President, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that
eva1uation, these principal executive officers and principal financial officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company, including
its consolidated subsidiaries, required to be included in the Company's periodic
SEC filings. There have been no significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
3.1(a) Articles of Incorporation (Incorporated by reference)
3.1(b) Amendment to Articles of Incorporation (Incorporated by reference)
3.2 ByLaws (Incorporated by reference)
4.0 Description of Series A Convertible Preferred Stock (Incorporated by
reference)
31 Rule 13a-14(a)/15d-14(a) Certification
32 Section 1350 Certification
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 19, 2005 CYBERADS, INC.
By: /s/ JEFF CRISWELL
--------------------------
Jeff Criswell, President
12