U.S. 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 June 30, 2003
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number: 333-62690
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CYBERADS, INC.
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(Exact name of Small Business Issuer as specified in its Charter)
Florida 65-1000634
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6001 Park of Commerce Boulevard, Boca Raton, Florida 33487
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(Address of principal executive offices)
(561) 338-9399
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(Issuer's telephone number)
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(Former Name, former address and former fiscal year, if changed
since last Report.)
Check mark whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 16,049,777 shares of Common
Stock, par value $.0001, as of May 1, 2002.
INDEX
Page
----
PART I. FINANCIAL INFORMATION 3
---------------------
Item 1. Condensed Financial Statements (unaudited) 3
Balance Sheets 3
Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6-11
Item 2. Management's Discussion and Analysis and Plan of Operations 12
PART II. OTHER INFORMATION 14
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Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 16
Item 4. Submissions of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
2
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CYBERADS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE, 2003
ASSETS
------
CURRENT ASSETS 30-Jun-03
------------------
Cash 28,609.27
Accounts Receivable - net 139,061.92
Inventory 18,027.00
------------------
Total Current Assets 185,698.19
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PROPERTY AND EQUIPMENT - NET 152,468.85
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OTHER ASSETS
Deposits 49,974.42
Intangible Assets 75,000.00
Other Assets 28,695.20
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Total Other Assets 153,669.62
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TOTAL ASSETS 491,836.66
==================
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES
Cash Overdraft -
Accounts Payable 738,608.92
Advances from Related Parties 762,823.87
Accounts Payable _ Related Parties 807,713.00
Accrued Expenses 651,231.34
Defferred Commission Revenue 216,620.00
Factor Payable - net 1,017,278.57
Due to Officers 54,000.00
Loan Payable - Convertible Deventures 60,000.00
------------------
Total Current Liabilities 4,308,275.70
STOCKHOLDER'S DEFICIENCY
Convertible Preferred Stock, $.001 par value, 5,000,000 shares authorized
none issued and outstanding
Common Stock, $.001 par value, $50,000,000 shares authorized, 16,049,777 -
shares issued and outstanding 16,049.50
Additional Paid In Capital 13,682,441.40
Accumulated Deficit (17,514,929.94)
------------------
Total Stockholder's Deficiency (3,816,439.04)
------------------
Deferred Costs Financing
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY 491,836.66
==================
3
CYBERADS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF JUNE 30, 2003
(UNAUDITED)
For the three For the three For the six For the six
month ended month ended month ended month ended
Jun 30 2003 Jun 30 2002 Jun 30 2003 Jun 30 2002
------------------------------------------------------------------------
NET REVENUES 1,115,845 2,110,368 3,576,874.37 4,240,529
COST OF REVENUES (9,611) 1,080,582 986,615.86 1,882,107
------------------------------------------------------------------------
GROSS PROFIT 1,125,456 1,029,786 2,590,259 2,358,422
------------------------------------------------------------------------
OPERATING EXPENSES
Selling & Advertising 448,449 878,637 1,062,887 1,499,521
Payroll Expenses 203,735 605,291 604,948 1,163,314
General and Administrative 246,014 594,985 980,538 1,302,132
------------------------------------------------------------------------
Total Expenses 898,197 2,078,913 2,648,373 3,964,967
------------------------------------------------------------------------
GAIN (LOSS) FROM OPERATIONS 227,258 (1,049,127) (58,114) (1,606,545)
OTHER INCOME (EXPENSES)
Gain on theft of assets 1,203 1,203
Interest Expense (10,653) (71,631) (29,257) (121,142)
Loss on Reduction of Inventory
Loss on Idle Equipment (52,314)
Other Income 1,965 2,972
Interest Income
------------------------------------------------------------------------
Total Other Income (8,688) (70,428) (78,599) (119,939)
NET GAIN (LOSS) 218,570 (1,119,555) (136,713) (1,726,484)
========================================================================
NET GAIN (LOSS) PER COMMON SHARE
EQUIVALENT - BASIC AND DILUTED 0.014 (0.078) (0.010) (0.120)
4
CYBERADS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
(UNAUDITED)
For the six For the six
months ended months ended
Jun 30 2003 Jun 30 2002
----------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Gain (Loss) (136,713.00) (1,726,484)
Provision for doubtful accounts 172,151
Depreciation 19,493.50 13,225
Impairment Fix Assets 98,645.57
Amortization of deferred Consulting Fees - 100,000
Amortization of deferred Interest 7,014.64 2,904
Stock and options issued for service - 142,298
Gain on theft of assets (1,203)
(Increase) decrease in:
Accounts Receivable 934,698 588,964
Prepaid expenses (3,909) -
Inventory 138,207 223,805
Deposits 27,277 (60,762)
Increase (decrease) in:
Accounts Payable (793,447) 129,836
Accounts Payable - Related Parties (362,246) -
Cash overdraft (112,649)
Accrued expenses, payroll and payroll taxes (4,381) 257,078
----------------------------------
Net Cash Used in Operating Activities (188,010) (158,188)
CASH FLOW FROM INVESTING ACTIVITIES
Good faith deposit on future adquisition - (75,000)
Puerchases of property and equipment (301,473)
----------------------------------
Net Cash Used in Investing Activities - (376,473)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of Common Stock, net of offering costs 55,000
Proceeds from issuance of convertible debentures 60,000
Advances from third parties- Inphonic 216,620 (125,000)
Prepayments to third parties, net 274,826.00
Advances from factor, net 270,724
----------------------------------
Net Cash Provided by Financing Activities 216,620 535,550
----------------------------------
NET INCREASE IN CASH 28,609 889
CASH- BEGINNING OF PERIOD - 39,968
----------------------------------
CASH- END OF PERIOD 28,609 40,857
==================================
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying interim unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules and
regulations of the Securities and Exchange commission for the interim
financial information. Accordingly, they do not include all of the
information necessary for a comprehensive presentation of financial
position and results of operations.
In management's opinion, however, all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for
a fair financial statement presentation. The results of the interim
period are not necessarily indicative of the results to be expected for
the year.
For further information, refer to the consolidated financial statements
and footnotes for the year ended December 31, 2002 included in Form
10-KSB of the Company as filed on May 16, 2003.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("'FASB")
issued Statements of Financial Accounting Standards ("SFAS") No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The changes in SFAS
No. 149 improve financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly. This statement
is effective for contracts entered into or modified after June 30, 2003
and all of its provisions should be applied prospectively.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." The Statement improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as
equity. The new Statement requires that those instruments be classified
as liabilities in statements of financial position.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable
shares, which the issuing company is obligated to buy back in exchange
for cash or other assets. A second type, which includes put options and
forward purchase contracts, involves instruments that do or may require
the issuer to buy back some of its shares in exchange for cash or other
assets. The third type of instruments that are liabilities under this
Statement is obligations that can be settled with shares, the monetary
value of which is fixed, tied solely or predominantly to a variable
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(UNAUDITED)
such as a market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a
financial instrument that is not a derivative in its entirety.
In addition to its requirements for the classification and measurement
of financial instruments in its scope, SFAS No. 150 also requires
disclosures about alternative ways of settling the instruments and the
capital structure of entities, all of whose shares are mandatorily
redeemable. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. For private companies, mandatorily
redeemable financial instruments are subject to the provisions of this
Statement for the fiscal period beginning after December 15, 2003.
Management does not expect the impact from the pronouncements in these
statements to have a material impact on the Company's consolidated
financial position or results of operations.
NOTE 3 IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment under Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." Long-lived assets to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell. An impairment loss of
$52,313 was recognized in the quarter ended March 31, 2003 for assets
that became idle as a result of further staff reductions.
NOTE 4 IMPAIRMENT OF INVENTORY
During the quarter ended March 31, 2003, the Company changed its
business model whereby it will no longer maintain an inventory of
cellular phones. For the cellular phone subscriptions obtained in the
future, the phones shall be shipped either directly by the carrier or
from a fulfillment company. Thus, the Company will not be responsible
for delivering cellular phones to subscribers and revenue shall be
recognized solely on a net basis going forward. As a result, the
Company recognized an impairment charge on the remaining inventory in
the amount of $120,879, which is included in cost of revenues.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(UNAUDITED)
NOTE 5 STOCKHOLDERS' DEFICIENCY
(A) Stock Issued for Services
-----------------------------
On March 10, 2003, the Company entered into a marketing and
distribution agreement whereby the Company will provide customer names
and contact information (that it obtains through its marketing efforts)
to the other party who will provide fulfillment, activation and
customer service for cellular phone service and other communications
products and services. The Company is paid a commission for each
activation and can be charged back for activations that are prematurely
terminated by the customer. During the three months ended March 31,
2003, the Company received $150,000 in advances (pre-paid commissions)
from the other party. The agreement provides for repayment of these
pre-paid commissions via commissions earned on specific types of sales.
As of March 31, 2003, the $150,000 in advances has been offset against
the commission accounts receivable. The Company has placed 1,250,000
restricted shares of its common stock in escrow as collateral in the
event that the agreement is terminated for any reason prior to the time
that the pre-paid commissions have been fully earned or repaid. As
further consideration for performance of this agreement, a warrant will
be issued to the Company for the purchase of 62,500 shares of common
stock of the other party. Subsequent to March 31, 2003, the Company
received an additional $200,000 in advances.
(B) Common Stock Options
------------------------
On November 1, 2001, the Company adopted the 2001 Stock Option Plan,
(the "Plan") which authorized the issuance of up to 500,000 shares of
common stock to employees, consultants, representatives, officers and
directors of the Company. As of March 31, 2003, no shares have been
issued under the Plan.
During the three months ended March 31, 2003, the Company granted
225,000 stock options to certain employees. The Company applies APB
Opinion No. 25 and related interpretations in accounting for stock
options issued to employees. Accordingly, compensation cost is
recognized for options issued to employees only for the intrinsic value
of those options. Had compensation cost been determined based on the
fair market value at the grant date, consistent with SFAS 123, the
Company's net loss for the period ended March 31, 2003 would have
changed to the pro-forma amount indicated below.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model in accordance with SFAS
123 with the following weighted average assumptions: dividend yield of
zero; expected volatility of 195% to 234%; risk-free interest rate of
2.0%, and expected lives of two years.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(UNAUDITED)
March 31,
2003
----------------------
Net Gain As Reported $ 218,570
$
Basic and Diluted Net Loss Per
Share As Reported $ (0.14)
$
The effect of applying Statement No. 123 is not likely to be
representative of the effects on reported net loss for future years due
to, among other things, the effects of vesting.
A summary of the Company's stock options as of June 30, 2003, and the
changes since December 31, 2002 is presented below:
June 30, 2003
--------------------------
Weighted
Average
Exercise
Fixed Options Shares Price
---------------------------------------- ----------- ----------
Outstanding at beginning of period 8,150,000 $ .82
Granted
Forfeited - -
Expired (100,000) .25
Exercised - -
----------- ----------
Outstanding at end of period 8,050,000 $ .82
=========== ==========
Options exercisable at end of period 8,050,000
===========
Weighted average fair value of options
granted to employees during the period $ 0.03
===========
Options Outstanding Options Exercisable
----------------------------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Price March 31, 2003 Life Price March 31, 2003 Price
----------------- --------------- ------------ ------------ --------------- -----------
$ 0.00 - 0.99 2,225,000 1.89 $ 0.35 2,225,000 $ 0.35
$ 1.00 - 1.99 5,825,000 3.55 1.01 5,825,000 1.01
----------------- --------------- ------------ ------------ --------------- -----------
$ 0.00 - 1.99 8,050,000 3.09 $ 0.82 8,050,000 $ 0.82
=============== ============ ============ =============== ===========
(C) Common Stock Warrants
-------------------------
In June 2000, the Company issued to an officer of the Company a
five-year warrant to purchase up to 50,000 common shares at an exercise
price of $1.00 per share as consideration for assistance with the sale
of the Company's stock. The Company accounts for the warrants under APB
25. Accordingly, no direct offering costs or compensation expenses were
recognized.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(UNAUDITED)
NOTE 6 SEGMENT INFORMATION AND DISCONTINUED OPERATIONS
In January 2002, Cyad was formed and the Company received 80% of the
shares issued at Cyad's inception. The Company began developing the
business of wholesaling cellular phones. In August 2002, the Company
chose to discontinue Cyad's operations. As of March 31, 2003, there
were no assets or liabilities related to Cyad.
Since the Company's only remaining segment is the Cellular Phone
Contracts segment, segment information is not presented and the income
statement has been updated to reflect the discontinued operations.
NOTE 7 GOING CONCERN
The Company plans to raise additional funds through loans from third
parties and the sale of common stock for cash. The Company is of the
opinion that the cash generated from their resources will be sufficient
to provide adequate liquidity and capital resources.
The ability of the Company to continue as a going concern is dependent
on the Company's ability to raise additional capital and implement its
business plan. Management believes that when it accomplishes the steps
outlined above that the Company would have sufficient liquidity to
remain viable for at least twelve months following the date of these
condensed consolidated financial statements.
NOTE 8 COMMITMENTS AND CONTINGENCIES
On February 7, 2003, the Company entered into a one-year agreement to
make a health card available to its customers, whereby its customers
are entitled to receive savings on purchases of goods and services from
program participants. The Company receives a commission on each card
activated and the other party handles fulfillment, activation and
customer service. The agreement will automatically renew for terms of
one-year each unless mutually terminated.
On February 10, 2003, the Company entered into a one-year agreement to
make prepaid bank cards available to its customers, whereby its
customers "load" their account with funds which they can the use via
the bank card. The Company receives a commission on each card activated
and the second party to the agreement handles card fulfillment,
activation and customer service. The agreement will automatically renew
for successive one-year terms.
On March 14, 2003, the Company entered into a settlement agreement with
a company owned by the former Chief Technology Officer. The other party
is entitled to market the Company's customer list and the Company
agrees to compensate the other party 50% of the revenue generated from
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(UNAUDITED)
the list for revenue it claims it lost as a result of the marketing and
distribution agreement referred to above. The compensation is limited
to $15,000. As part of the settlement, the Company also provided the
other party with used office furniture and equipment with an estimated
market value of $3,680.
On April 8, 2003, the Company renegotiated the lease for the building
occupied by the corporate headquarters. The Company relinquished one of
the two bays that it was occupying and reduced the leased space to
approximately one-half of what was previously occupied. Rent expense
was reduced accordingly. It was also agreed that the landlord would
apply $35,000 of the $65,000 security deposit towards rent that was
previously deferred. The lease amendment extends the lease term through
February 28, 2006.
As of May 8, 2003, the Company's subsidiary, IDS Cellular, Inc., is
being sued by a vendor for non-payment of goods delivered to IDS
Cellular, Inc. in 2003. The Company's attorney believes the likelihood
of loss is probable, therefore the Company has appropriately accrued
$80,895 for the loss in 2003.
11
Item 2. Management Discussion and Analysis
General
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.
Overview
CyberAds, Inc. began operations in the fourth quarter of 2000 and began
generating revenues in December 2000. Through our wholly-owned subsidiary, IDS
Cellular, Inc., we generate revenues by marketing cell phone services to
potential consumers we are introduced to through our internet affiliate program
and other third party telemarketing services.
Commencing in the fourth quarter 2001, we began operating as a direct
reseller of cellular phone service. This new operation provides us with
increased revenues as well as a requirement to provide cellular telephones with
each sale and maintaining an inventory of cellular telephones.
Management notes that a comparison of results of operations may be
misleading as our operations were in its infancy during the first quarter of
2001.
Results of Operations
Total revenues were $1,115,845 for the three months ended June 30, 2003
and $2,110,368 for the three months ended June 30, 2002. The $994,523 decrease
in revenues in the three months ended June 30, 2003 as compared to June 30, 2002
primarily reflects the change in operations. Since March, 2003 our main source
of revenue is from direct commissions from InPhonic, eliminating completely the
Cost of Goods Sold. As a result, our Gross profit is approximately 100% gross
sales.
The Company did not have Cost of Revenues for the three months ending
June 30, 2003, and the (9,611) are returns of purchases. The gross profit for
this period was $1,125,456 or approximately 100%.
12
Total expenses for the three months ended June 30, 2003 were $898,197
as compared to $2,078,913 three months ended June 30, 2002. Selling and
advertising expenses for the three month period ended June 30, 2003 decreased to
$430,188 as compared to $878,637 for the same period in 2002. The decrease in
selling expenses in 2003 as compared to 2002 is primarily attributable to the
decrease in our sales personnel. Payroll expense for the three month period
ended June 30, 2003 decreased to $203,735 or 18.3 % of sales as compared to
$605,291 or 28.7% of sales for the same period in 2002. The decrease is due to a
significant reduction of personnel.
General and administrative expenses for the three-month period ended
June 30, 2003 decreased to $246,014 or 22.05% of sales as compared to $594,985
or 28.20% of sales for the same period in 2002. The decrease in general and
administrative expenses in 2003 as compared to 2002 is primarily attributable to
the decrease in professional fees, office expenses and miscellaneous expenses
directly related to decrease in personnel.
Our Gain from operations for the three months ended June 30, 2003
increased by $1,276,68. Gain from operation from the Second Quarter, 2003 was
$227,258, as compared to a loss of $1,049,127 for the same quarter of 2002. Our
Net Gain for the three months ended June 30, 2003 increased by $1,338,125. Net
Gain for the three months ended June 30, 2003 was $218,570 as compared to
$1,119,555 Net Loss for the same period of 2002 The increase in net Gain was due
to an increase of our Gross Profit and a decrease in our Operating and Other
Expenses.
Management believes that our increasing revenues and cost reductions
should improve our operating performance for future periods.
Liquidity and Capital Resources
As of June 30, 2003 had an accumulated deficit of $17,514,930 and cash
in the bank of $28,609. We had a working capital deficit June 30, 2003 of
$3,816,439. The deficit was funded during the three-month period June 30, 2003
by advances from third parties.
Accounts receivable increased $35,679 from $ 103,383 Net Receivables as
of March 31, 2003 to $139,062 Net Receivable as of June 30, 2003. This increase
is a result decrease in the allowance for charge-back during the current period.
Since our inception we have experienced negative cash flow and have met
our cash requirements by issuing, through a private placement, our common stock
and by issuing stock as compensation for services provided. We have also funded
current obligations through the issuance of common stock and related party
loans. We generated additional funds through borrowings from a related party.
As a result of improved operating results and increasing revenues, we
anticipate that cash generated from our operations should be sufficient to
satisfy our contemplated cash requirements for the next 12 months. We believe if
the trend of increasing revenues remains consistent, cash generated will be
sufficient to support operations over the next 12 months. After such time, we
anticipate that we will need to raise additional funds through private or public
offerings or additional borrowings.
While our auditors have expressed substantial doubt as to our ability
to continue as a going concern, we anticipate that funds received from loans and
cash generated from our operations should be sufficient to satisfy our
contemplated cash requirements for the next 12 months. We intend to take several
steps that will provide the capital resources required to insure our viability
over the next 12 months. These steps include the reduction of operating costs
including rent, payroll and factoring expenses. These saving adding to the
benefits of the Inphonic's contract should provide all the liquidity the company
requires.
13
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
On January 5, 2002, we issued 50,000 shares of common stock and options
to purchase 50,000 shares of our common stock exercisable at $1.00 to Atlas
Pearlman, P.A. as consideration for legal services provided to our company. The
securities were issued under an exemption from registration pursuant to Section
4(2) of the Securities Act. The securities issued contain a legend restricting
their transferability absent registration or an available exemption. Atlas
Pearlman, P.A. had access to information about our company and had the
opportunity to ask questions about our company.
During the three months ended March 31, 2002, we issued an aggregate of
124,000 shares of common stock for an aggregate amount of $90,400. These shares
were issued to two option holders pursuant to the exercise of options with
exercise prices ranging from $.60 to $1.00. The shares were issued under an
exemption from registration pursuant to Section 4(2) of the Securities Act. The
shares issued contain a legend restricting their transferability absent
registration or an available exemption. The option holders had access to
information about our company and had the opportunity to ask questions about our
company.
On January 6, 2002, we entered into a business consulting agreement
with Gene Foland, under which Mr. Foland will provide our company with business
consulting services. Mr. Foland received options to purchase 1,300,000 shares of
our common stock exercisable at $1.00 per share in exchange for these services.
The options are exercisable for a six- month period commencing on the date of
the agreement. The options were issued under an exemption from registration
pursuant to Section 4(2) of the Securities Act. The options issued contain a
legend restricting their transferability absent registration or available
exemption. Mr. Foland had access to information about our company and had the
opportunity to ask questions about our company.
On January 6, 2002, we entered into a product and sales development
consulting agreement with James L. Ricketts, under which Mr. Ricketts received
options to purchase 200,000 shares of our common stock exercisable at $1.00 per
share and options to purchase 1,100,000 shares of our common stock exercisable
at $2.00 per share in exchange for these services. The options are exercisable
for a six-month period commencing on the date of the agreement. The options were
issued under an exemption from registration pursuant to Section 4(2) of the
Securities Act. The options issued contain a legend restricting their
transferability absent registration or available exemption. Mr. Ricketts had
access to information about our company and had the opportunity to ask questions
about our company.
14
On January 6, 2002, we entered into a product and sales development
consulting agreement with James L. Copley, under which Mr. Copley received
options to purchase 300,000 shares of our common stock exercisable at $2.00 per
share in exchange for these services. The options are exercisable for a
six-month period commencing on the date of the agreement. The options were
issued under an exemption from registration pursuant to Section 4(2) of the
Securities Act. The options issued contain a legend restricting their
transferability absent registration or available exemption. Mr. Copley had
access to information about our company and had the opportunity to ask questions
about our company.
On January 7, 2002, we issued an option to purchase 50,000 shares
exercisable at $1.00 per share to our controller. Our controller received these
options for services performed. The options were issued under an exemption from
registration pursuant to Section 4(2) of the Securities Act. The options issued
contain a legend restricting their transferability absent registration or
available exemption. Our controller had access to information about our company
and had the opportunity to ask questions about our company.
On January 8, 2002, we issued options to purchase an aggregate of
125,000 shares of our common stock exercisable at $1.00 per share to our current
officers and directors. The options were issued under an exemption from
registration pursuant to Section 4(2) of the Securities Act. The options issued
contain a legend restricting their transferability absent registration or
available exemption.
On January 8, 2002, we issued an option to purchase 5,000,000 shares of
our common stock exercisable at $1.00 per share to Lawrence Levinson. This
option was issued in consideration for the advances that Mr. Levinson and his
affiliates have made to our company and personal guarantees Mr. Levinson has
made in favor of our company. The options were issued under an exemption from
registration pursuant to section 4(2) of the Securities Act. The options issued
contain a legend restricting their transferability.
On January 21, 2002, we issued 625,000 shares of series A convertible
preferred stock to Lawrence Levinson as consideration for a $625,000 promissory
note made by Mr. Levinson in favor of our company. The note is repayable in ten
years. Interest for the term of the note is payable annually on the anniversary
date of the note at an annual rate of 4.5%. Each share of the series A
convertible preferred stock is convertible into one share of our common stock.
These shares were issued under an exemption from registration pursuant to
Section 4(2) of the Securities Act. The shares issued contain a legend
restricting their transferability absent registration or available exemption.
On January 21, 2002, we filed a certificate of designation designating
625,000 of our 5,000,000 shares of preferred stock as series A convertible
preferred stock. The 625,000 shares of series A convertible preferred stock have
a stated value of $1.00 per share. The shares were issued to our chief executive
officer. The preferred stock has the following rights, preferences and
privileges:
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Conversion. Each share of series A convertible preferred stock is
convertible into one share of our common stock, at the option of the holder. The
conversion rate is subject to adjustment upon the occurrence of certain events,
including the issuance of our stock as a dividend or distribution on our common
stock.
Redemption. The shares are redeemable at our sole option for $1.00 per
share.
Voting. Each share of preferred stock is entitled to eight votes.
Preference on Liquidation. Series A convertible preferred shares will
be entitled to a preference on liquidation.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On April 1, 2002, we entered into a three-year lease agreement with
6001, LLC for new office space to consolidate all of our operating facilities.
Monthly rental under this agreement is $16,667, $18,333 and $20,000 during the
first, second and third year, respectively.
On April 10, 2002, we issued options to purchase an aggregate of 50,000
shares of our common stock to an employee of the Company for services performed.
The options expire five years from the date of issuance and have an exercise
price of $1.00.
On April 17, 2002, we experienced a theft of all our phone inventory
and some computer equipment at our new facilities. We estimate the loss to be
approximately $100,000 and anticipate to recuperate materially all of the loss
through insurance.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
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Exhibit No. Description of Document
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2.2 Stock Purchase Agreement with IDS Cellular and its shareholders(1)
3.1(a) Articles of Incorporation(1)
3.1(b) Articles of Amendment(1)
3.1(c) Designation of Series A Convertible Preferred Stock(2)
3.2 Bylaws(1)
4.0 Form of Stock Certificate(1)
4.2 Loan Agreement with Levinson(1)
4.3 Promissory Note issued by Levinson in favor of CyberAds, dated January 21, 2002(3)
10.1 Employment/Consulting Agreement with Levinson(1)
10.2 Agreements with American Cellular, Inc. and GT Global Communications, Inc.(1)
10.3 Agreement with Triton PCS(1)
10.4 Agreement with Regal Marketing International(1)
10.6 Agreement with Beck Management, Inc.(1)
10.7 Consulting Agreement with Gene Foland(2)
10.8 Consulting Agreement with James L. Ricketts(2)
10.9 Consulting Agreement with James L. Copley(2)
10.10 Sales Agency Agreement with MCI WorldCom Wireless(2)
21.0 Subsidiaries of Registrant(1)
31. Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4)
32. Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4)
(1) Previously filed in Registration Statement on Form SB-2, File No. 333-62690.
(2) Previously filed in Registration Statement on Form SB-2, File No. 333-82104.
(3) Previously filed in the Annual Report on Form 10-KSB for the year ended December 31, 2001.
(4) Filed herewith
(b) Reports on Form 8-K
On January 29, 2002, we filed a current report on Form 8-K disclosing
that on January 22, 2002 we issued 625,000 shares of series A preferred stock to
Lawrence Levinson, our CEO, in consideration for advances in the aggregate of
approximately $350,000 that Mr. Levinson and his affiliates have made to our
company and a personal guarantee that Mr. Levinson has made on behalf of our
company.
On February 6, 2002, we filed an amended current report on Form 8-K/A
to disclose the designation, rights and preferences of the series A preferred
stock that we issued to Lawrence Levinson on January 22, 2002. Each share of
series A preferred stock is convertible into one share of our common stock at
the option of the holder. In addition, the series A preferred shares have super
voting rights.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized officers of the Registrant.
CyberAds, Inc.
DATED: August 18, 2003 By:/s/Lawrence Levinson
----------------------------------
Lawrence Levinson, Chairman and
Chief Executive Officer
DATED: August 18, 2003 By:/s/Robert B. Kline
----------------------------------
Robert B. Kline, Principal Accounting
Officer and Director
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