10QSB 1 form10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2001 [ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------- --------------- Commission File Number 0-26535 VIAVID BROADCASTING, INC. (Exact name of Small Business Issuer as specified in its charter) NEVADA 98-020-6168 --------------------------- ----------- (State or other jurisdiction of (IRS Employer incorporation ) Identification No.) 3955 GRAVELEY STREET, BURNABY, BRITISH COLUMBIA V5C 3T4 ----------------------------------------------- ------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code 604-669-0047 ------------ Indicate by a 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 preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding as of Class August 9, 2001 ----------------------------------- ----------------- Common Stock 10,453,000 shares PART 1 B FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENERAL The Company's unaudited financial statements for the three months ending June 30,2001 are included with this Form 10-QSB. The unaudited financial statements for the three months ending June 30, 2001 include: (a) Consolidated Balance Sheet as of June 30, 2001 ("unaudited") and March 31, 2001 ("audited"); (b) Consolidated Statement of Operations - Cumulative from Incorporation to June 30, 2001, three months ended June 30, 2001 and three months ended June 30, 2000; (c) Consolidated Statement of Shareholders' Equity for the period ending June 30, 2001; (d) Consolidated Statement of Cash Flows - Cumulative from Incorporation to June 30, 2001, three months ended June 30, 2001 and three months ended June 30, 2000; (e) Notes to Consolidated Financial Statements. The unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended June 30, 2001 are not necessarily indicative of the results that can be expected for the year ending March 31, 2002. 2 FINANCIAL STATEMENTS VIAVID BROADCASTING INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN UNITED STATES DOLLARS) (UNAUDITED) JUNE 30, 2001 3 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS (Expressed in United States Dollars) (Unaudited) ============================================================================================================================ June 30, March 31, 2001 2001 ---------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents $ 21,787 $ 51,918 Amounts receivable 33,015 28,330 Prepaid expenses 5,208 9,366 ------------- -------------- Total current assets 60,010 89,614 CAPITAL ASSETS (NOTE 5) 165,189 163,290 ------------- -------------- TOTAL ASSETS $ 225,199 $ 252,904 ============================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities $ 39,487 $ 54,848 Due to related parties (Note 7) 36,567 36,044 ------------- -------------- Total current liabilities 76,054 90,892 ------------- -------------- STOCKHOLDERS' EQUITY Capital stock (Note 6) Authorized 25,000,000 common shares with a par value of $0.001 per share Issued and outstanding 10,453,000 common shares (March 31, 2001 - 8,113,000 common shares) 10,453 8,113 Additional paid-in capital 2,502,445 2,143,074 Share subscriptions received in advance -- 106,000 Deficit accumulated during the development stage (2,363,753) (2,095,175) ------------- -------------- Total stockholders' equity 149,145 162,012 ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 225,199 $ 252,904 ============================================================================================================================ NATURE OF OPERATIONS (Note 1) The accompanying notes are an integral part of these consolidated financial statements.
4 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in United States Dollars) (Unaudited) ============================================================================================================================= Cumulative Amounts From Incorporation on January 20, Three Month Three Month 1999 to Period Ended Period Ended June 30, June 30, June 30, 2001 2001 2000 ----------------------------------------------------------------------------------------------------------------------------- REVENUE Broadcast and web income $ 125,236 $ 37,372 $ 4,689 ------------- ------------- ------------ EXPENSES Amortization 102,257 11,006 11,967 Consulting 909,421 146,573 81,986 Equipment rental 10,266 -- 916 Foreign exchange 13,419 430 7,676 Graphic design 12,737 -- -- Internet fees 90,009 4,179 15,713 Office and miscellaneous 191,265 41,521 16,864 Professional fees 196,595 9,946 11,241 Rent 112,499 11,094 11,506 Salaries and benefits 285,855 30,860 46,250 Stock based compensation 491,298 33,711 17,287 Travel and promotion 86,475 17,322 15,182 ------------- ------------- ------------ 2,502,096 306,642 236,588 ------------- ------------- ------------ LOSS BEFORE OTHER ITEM (2,376,860) (269,270) (231,899) OTHER ITEM Interest income 13,107 692 2,407 ------------- ------------- ------------ LOSS FOR THE PERIOD $ (2,363,753) $ (268,578) $ (229,492) ============================================================================================================================= BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.03) ============================================================================================================================= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 8,898,054 6,772,000 ============================================================================================================================= The accompanying notes are an integral part of these consolidated financial statements.
5 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Expressed in United States Dollars) (Unaudited) ==================================================================================================================================== Deficit Common Stock Sub- Accumulated ----------------------- Additional scriptions During the Number Paid-in Received Development of Shares Amount Capital in Advance Stage Total ------------------------------------------------------------------------------------------------------------------------------------ Shares issued on acquisition (Note 4) 5,100,000 $ 5,100 $ -- $ -- $ -- $ 5,100 Shares issued for cash 500,000 500 4,500 -- -- 5,000 Shares issued for cash 100,000 100 49,900 -- -- 50,000 Shares issued for cash 184,000 184 183,816 -- -- 184,000 Loss for the period -- -- -- -- (71,668) (71,668) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 1999 5,884,000 5,884 238,216 -- (71,668) 172,432 Shares issued for cash 768,000 768 782,232 -- -- 783,000 Stock-based compensation for options issued to consultants and non-employees -- -- 337,629 -- -- 337,629 Loss for the year -- -- -- -- (1,005,146) (1,005,146) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2000 6,652,000 6,652 1,358,077 -- (1,076,814) 287,915 Shares issued for exercise of stock Options 180,000 180 179,820 -- -- 180,000 Shares issued for consulting fees 75,000 75 37,425 -- -- 37,500 Shares issued pursuant to a 740,000 740 369,260 -- -- 370,000 private placement Shares issued for finders fee on private placement 4,000 4 1,996 -- -- 2,000 Finders fee on private placement -- -- (31,000) -- -- (31,000) Shares issued for consulting fees 312,000 312 77,688 -- -- 78,000 Shares issued for exercise of stock options 150,000 150 29,850 -- -- 30,000 Stock-based compensation for options issued to consultants and non-employees -- -- 119,958 -- -- 119,958 Subscriptions received in advance -- -- -- 106,000 -- 106,000 Loss for the year -- -- -- -- (1,018,361) (1,018,361) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2001 8,113,000 $ 8,113 $ 2,143,074 $ 106,000 $(2,095,175) $ 162,012 Subscriptions received in advance -- -- -- (106,000) -- (106,000) Shares issued for cash 1,290,000 1,290 256,710 -- -- 258,000 Shares issued for consulting fees 200,000 200 9,800 -- -- 10,000 Shares issued for consulting fees 350,000 350 34,650 -- -- 35,000 Shares issued for cash 500,000 500 24,500 -- -- 25,000 Stock-based compensation for options issued to consultants and non-employees -- -- 33,711 -- -- 33,711 Loss for the period -- -- -- -- (268,578) (268,578) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 2001 10,453,000 $ 10,453 $ 2,502,445 $ -- $(2,363,753) $ 149,145 ==================================================================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
6 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in United States Dollars) (Unaudited) ==================================================================================================================================== Cumulative Amounts From Incorporation on January 20, Three Month Three Month 1999 to Period Ended Period Ended June 30, June 30, June 30, 2001 2001 2000 ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Loss for the period $(2,363,753) $ (268,578) $ (229,492) Items not affecting cash: Amortization 102,257 11,006 11,967 Stock based compensation 491,298 33,711 17,287 Consulting fees 160,500 45,000 -- Changes in non-cash working capital items: Increase in amounts receivable (33,015) (4,685) (3,437) (Increase) decrease in prepaid expenses (5,208) 4,158 2,654 Increase(decrease) in accounts payable and accrued liabilities 39,487 (15,361) (5,087) ----------- ----------- ----------- Net cash used in operating activities (1,608,434) (194,749) (206,108) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of capital assets (262,011) (12,905) (3,522) Acquisition of subsidiary (335) -- -- ----------- ----------- ----------- Net cash used in investing activities (262,346) (12,905) (3,522) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from shares issued 1,856,000 283,000 180,000 Subscriptions received in advance -- (106,000) -- Loans (repayments) from related parties 36,567 523 (6,950) ----------- ----------- ----------- Net cash provided by financing activities 1,892,567 177,523 173,050 ----------- ----------- ----------- CHANGE IN CASH FOR THE PERIOD 21,787 (30,131) (36,580) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 51,918 134,540 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,787 $ 21,787 $ 97,960 ==================================================================================================================================== SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 10) The accompanying notes are an integral part of these consolidated financial statements.
7 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 1. NATURE OF OPERATIONS ViaVid Broadcasting Inc., a Nevada corporation, was incorporated on January 20, 1999. On January 27, 1999, the Company completed the acquisition of ViaVid Broadcasting Corp. ("VBC"), a Canadian company operating in Vancouver, British Columbia, Canada. The Company is engaged in providing webcasting and teleconferencing services to corporate clients throughout North America. In accordance with Statement of Finance Accounting Standards No. 7 "Accounting and Reporting by Development Stage Enterprises", the Company is deemed to be in the development stage. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, comprehensive loss, changes in stockholders' equity and cash flows at June 30, 2001 and for the periods there ended have been made. These financial statements should be read in conjunction with the audited financial statements of the Company for the year ended March 31, 2001. The results of operations for the period ended June 30, 2001 are not necessarily indicative of the results to be expected for the year ending March 31, 2001. 3. GOING CONCERN As at June 30, 2001, the Company has an accumulated deficit of $2,363,753. The Company's ability to continue as a going concern is dependent on continued financial support in the form of loans from its shareholders and other related parties, the ability of the Company to raise equity financing, and the attainment of profitable operations. Management is of the opinion that sufficient working capital will be obtained from external financing and further share issuances to meet the Company's liabilities as they become due. These consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. They do not include any adjustments to the recoverability and classification of recorded asset amounts and liabilities that might be necessary should the Company be unable to continue as a going concern. 4. SIGNIFICANT ACCOUNTING POLICIES ESTIMATES In preparing these consolidated financial statements in conformity with generally accepted accounting principles, management was required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results in future periods could be different from these estimates made in the current period. The following is a summary of the significant accounting policies of the Company: 8 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 4. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, VBC. All significant inter-company balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. CAPITAL ASSETS Capital assets are recorded at cost and are amortized over their useful lives using the declining balance method at the following rates: Computer equipment 30% Office furniture 20% Telephone and video equipment 20% ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF The Company has adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). In accordance with SFAS 121, long-lived assets to be held and used by the Company are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on such impairment indicators as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. As at June 30, 2001, the Company's analysis indicated that there was not an impairment of its long-lived assets. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, amounts receivable, accounts payable and accrued liabilities and due to related parties. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximate their carrying values, unless otherwise noted. 9 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 4. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) REVENUE RECOGNITION Revenue is recognized once the audio conference, filming or editing of a project has been completed and collection is reasonably assured. FOREIGN CURRENCY TRANSLATION The Company accounts for foreign currency transactions and translation of foreign currency financial statements under Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). The Company records its operations in the Canadian subsidiary VBC, using the US dollar. Accordingly, carrying values of monetary assets and liabilities are adjusted at each balance sheet date to reflect the exchange rate at that date. Non-monetary assets and liabilities are translated at the exchange rate on the original transaction date. Gains and losses from restatement of foreign currency monetary and non-monetary assets and liabilities are included in income. Revenues and expenses are translated at the rates of exchange prevailing on the dates such items are recognized in earnings. SEGMENTED INFORMATION In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. The statement is effective for fiscal years beginning after December 15, 1997. The Company does not have any reporting requirements as defined by SFAS No. 131. LOSS PER SHARE In February 1997, the FASB issued SFAS 128, "Earnings Per Share". Under SFAS 128, basic and diluted earnings per share are to be presented. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the year. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares. The Company is a development stage company and has recorded a loss per share. The weighted average number of shares outstanding at June 30, 2001 of 8,898,054 (2000 - 6,772,000), do not include the 2,162,000 (2000 - Nil) warrants outstanding, the stock options of 822,000 (2000 - 837,000) as their effect would be anti-dilutive. 10 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 4. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) INCOME TAXES Income taxes are provided in accordance with SFAS 109, "Accounting for Income Taxes". A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expenses (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. STOCK-BASED COMPENSATION SFAS 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure only provisions of SFAS 123. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock. The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued the SFAS 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income, depending on the derivative designation. The effective date of SFAS 133 was deferred by SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133", and further amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Transactions". Since the Company does not have derivative instruments and hedging activities, pursuant to SFAS 133, there would be no impact on its financial position or the results of its operations from the adoption of this accounting policy. 11 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 5. CAPITAL ASSETS ============================================================================= Accumulated Net Book Cost Amortization Value ----------------------------------------------------------------------------- JUNE 30, 2001 Computer equipment $166,329 $ 66,959 $ 99,370 Office furniture 12,239 4,364 7,875 Telephone and video equipment 83,444 25,500 57,944 -------- -------- -------- $262,012 $ 96,823 $165,189 ======== ======== ======== MARCH 31, 2000 Computer equipment $153,986 $ 59,402 $ 94,584 Office furniture 12,239 3,949 8,290 Telephone and video equipment 82,881 22,465 60,416 -------- -------- -------- $249,106 $ 85,816 $163,290 ============================================================================= 6. CAPITAL STOCK The Company issued shares of common stock during the three month period ended June 30, 2001 as follows: In April 2001, the Company issued 200,000 shares of common stock for consulting services for an agreed amount of $10,000. The shares were issued under Regulation S-8, of the Securities Act of 1933, as amended. In June 2001, the Company issued 1,290,000 units at $0.20 per unit pursuant to a unit offering under Regulation S of the Securities Act of 1933, as amended. Each unit consisted of one share of common stock and one warrant enabling the holder to purchase an additional share of common stock at $0.20 per share until February 28, 2004. The proceeds to the Company were $258,000. In June 2001, the Company issued 350,000 shares of common stock for consulting services for an agreed amount of $35,000. The shares were issued under Regulation S, subject to Rule 144 of the Securities Act of 1933, as amended. In June 2001, the Company issued 500,000 shares of common stock under Regulation S, subject to Rule 144 of the Securities Act of 1933, as amended, and realized proceeds of $25,000. Each unit consisted of one share of common stock and one warrant enabling the holder to purchase an additional share of common stock at $0.05 per share until February 28, 2004. 12 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 6. CAPITAL STOCK (cont'd.....) WARRANTS ============================================================================= Balance, March 31, 2001 372,000 Issued during the period 1,790,000 --------- Balance, June 30, 2001 2,162,000 ============================================================================= As at June 30, 2001, there were 372,000 warrants outstanding that are exercisable into 372,000 common shares at $0.50 per share until September 30, 2003, 1,290,000 warrants outstanding that are exercisable into 1,290,000 common shares at $0.20 per share until February 28, 2004 and 500,000 warrants outstanding that are exercisable into 500,000 common shares at $0.05 per share until February 28, 2004. 7. RELATED PARTY TRANSACTIONS During the period, the Company entered into the following transactions with related parties: Paid or accrued consulting fees as follows: o $43,794 (2000 - $45,418) to three directors of the Company o $Nil (2000 - $8,074) to a former officer of the Company These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties unless otherwise noted. Amounts due to related parties are unsecured and are non-interest bearing, therefore, the fair value of the amounts owed to the related parties are not determinable. 8. INCOME TAXES The Company's total deferred tax asset is as follows: ============================================================================= June 30, March 31, 2001 2001 Tax benefit of net operating loss carry forward $ 803,700 $ 677,900 Valuation allowance (803,700) (677,900) ----------- ----------- $ -- $ -- ============================================================================= 13 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 8. INCOME TAXES (cont'd.....) The Company has an operating loss carryforward of approximately $106,700 which expires in the year 2020. The Company's subsidiary, ViaVid Broadcasting Corp., has Canadian operating losses carryforwards of approximately $1,280,000 which expire in the year 2008. The Company has provided a full valuation allowance on the deferred tax asset due to the uncertainty regarding realizability. 9. STOCK-BASED COMPENSATION EXPENSE Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, compensation cost for stock options is measured as the excess, if any, of quoted market price of the Company's stock at the date of grant over the option price. No stock based compensation has resulted from the use of this standard. Following is a summary of the stock option activity: ===================================================================== Weighted Average Number Exercise of Shares Price --------------------------------------------------------------------- Outstanding at March 31, 2000 642,000 $ 1.49 Granted 715,000 0.85 Forfeited (360,000) (1.33) Exercised (330,000) (0.64) --------- Outstanding at March 31, 2001 667,000 0.55 Granted 155,000 0.20 Forfeited -- -- Exercised -- -- --------- Outstanding, June 30, 2001 822,000 0.48 ===================================================================== 14 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 9. STOCK-BASED COMPENSATION EXPENSE (cont'd...) The weighted average fair value of options granted to employees, non-employees and consultants during the three month period ended June 30, 2001 was approximately $0.16 (2000 - $1.45) per share. During the three month period ended June 30, 2001, no stock options were repriced. During the three month period ended June 30, 2000, 302,000 stock options were repriced from $3.50 per share to $1.00 per share. Following is a summary of the status of options outstanding at June 30, 2001: =============================================================================================== Outstanding Options Exercisable Options ---------------------------------------- ---------------------- Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Exercise Exercise Price Number Life Price Number Price ----------------------------------------------------------------------------------------------- $ 1.00 20,000 1.4 $ 1.00 20,000 $ 1.00 1.00 112,000 1.6 1.00 112,000 1.00 0.30 95,000 1.6 0.30 95,000 0.30 3.50 25,000 1.7 3.50 25,000 3.50 0.30 50,000 1.8 0.30 50,000 0.30 0.20 170,000 1.9 0.20 170,000 0.20 0.37 20,000 2.0 0.37 20,000 0.37 0.30 5,000 2.2 0.30 5,000 0.30 1.00 10,000 2.3 1.00 10,000 1.00 0.40 25,000 2.5 0.40 25,000 0.40 0.30 15,000 2.6 0.30 9,000 0.30 0.30 120,000 2.8 0.30 114,000 0.30 0.20 150,000 2.8 0.20 150,000 2.80 0.30 5,000 2.9 0.30 5,000 2.90 ===============================================================================================
NON-VESTED STOCK OPTIONS The Company has 12,000 shares of common stock exercisable at $0.30 per share that will become fully vested six months from June 30, 2001. 15 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 9. STOCK-BASED COMPENSATION EXPENSE (cont'd...) COMPENSATION Had compensation cost for employees been recognized on the basis of fair value pursuant to Statement of Financial Accounting Standards No. 123, net loss and loss per share would have been adjusted as follows: ======================================================================== Three Month Three Month Period Ended Period Ended June 30, June 30, 2001 2000 NET LOSS As reported $ (268,578) $ (229,492) ============================== Pro forma $ (269,373) $ (249,886) ============================== BASIC AND DILUTED LOSS PER SHARE As reported $ (0.03) $ (0.04) ============================== Pro forma $ (0.03) $ (0.04) ======================================================================== The fair value of each option granted is estimated using the Black Scholes Option Pricing Model. The assumptions used in calculating fair value were as follows: ========================================================================= Three Month Three Month Period Ended Period Ended June 30, June 30, 2001 2000 ------------------------------------------------------------------------- Risk-free interest rate 4.300% - 4.327% 5.554% - 6.484%% Expected life of the options 2 years 2 years Expected volatility 180.41% - 191.78% 50% Expected dividend yield -- -- ========================================================================= The Company accounts for stock issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in issued No. 96 - 18 ("EITF 96-18") "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". 16 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) (Unaudited) JUNE 30, 2001 ================================================================================ 9. STOCK-BASED COMPENSATION EXPENSE (cont'd...) The Company granted 150,000 options to third party consultants during the three month period ended June 30, 2001 and accordingly, the stock based compensation recognized using the Black Scholes Option pricing model was $24,192. The amount expensed during the three month period ended June 30, 2001 was $33,711, which included stock-based compensation of $3,024 from the three month period ended June 30, 2001 and unamortized balance of $30,687 from the prior periods. Unamortized balance at June 30, 2001 totaled $135,360 which will be amortized to expense over the remaining term of consultants' services which range over a term of one to two years. 10. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS ========================================================== Three Month Three Month Period Ended Period Ended June 30, June 30, 2001 2000 ---------------------------------------------------------- Cash paid for income taxes $ -- $ -- ========================================================== Cash paid for interest $ -- $ -- ========================================================== The following non-cash investing and financing transactions occurred during the period from April 1, 2001 to June 30, 2001: a) The Company issued 550,000 shares of common stock at an agreed value of $45,000 for consulting services. There were no non-cash, investing and financing transactions during the period from April 1, 2000 to June 30, 2000. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Overview Our primary business is to provide Webcasting and teleconferencing services to corporate clients throughout North America. These services utilize systems that integrate traditional telephony technology with powerful streaming media technology and Web-based tools. From a simple conference call to a dynamic online presentation, our clients are able to choose the solution that best meets their unique communication needs. A key component of our business model, resulting from the ready availability of in-house expertise, infrastructure, and equipment, is the ability to offer our clients a cost-effective, yet scaleable, means of communications that can be customized to meet individual customer needs. We currently provide our services primarily as a means whereby our clients can communicate up-to-date corporate information, such as current financial information, to a mass audience, including market professionals, institutions, analysts, shareholders, and other key stakeholders. In addition, we also market our services and solutions to resellers of conferencing and communications services as well as a variety of associations and other entities seeking to broadly disseminate current information through a Webcast or teleconference. RESULTS OF OPERATIONS REVENUES. Our revenues were $37,372 for the three month period ending June 30, 2001, compared to revenues of $4,689 for the period June 30,2000. Our revenues for the year ended March 31, 2001 were $39,784. Our revenues were achieved primarily from webcasting, teleconferencing and our ViaVision services. Our revenues have increased from the period ended March 31, 2001 due to our new teleconferencing services that we now provide to clients. Our revenues are minimal in comparison to our operating expenses as the Company is currently in the start-up phase of its operations. We are attempting to increase our future revenues by completing our plan of operations, as discussed below. In addition, we are now providing our clients with additional services. OPERATING EXPENSES. Our operating expenses were $306,642 for the three month period ending June 30, 2001, compared to operating expenses of $236,558 for the three months ending June 30, 2000. The increase in operating expenses during this quarter was due to additional equipment purchased and expenses incurred to provide our new services to our clients. We will continue to have increases in operating expenses in connection with providing these new services to our clients. NET LOSS. Our net loss was $268,578, or $0.03 per share, for the three months ending June 30, 2001. Our net loss was $229,492, or $0.03 per share, for the three months ended June 30, 2000. Our net loss reflects the fact that we have not earned significant revenues to date. 18 LIQUIDITY AND CAPITAL RESOURCES Our operations to date have been financed principally through sales of our equity securities. We had cash of $21,787 as of June 30, 2001 compared to cash of $97,960 as of June 30, 2000. During the period April 1, 2001 to June 30, 2001, we realized net proceeds of $283,000 from the sales of our equity securities. These proceeds were used to finance our operating activities. We plan on meeting our operating expenses during the year by focusing on generating revenues through the sales of corporate conference call services and the sales of webcasting products and services related to broadcasts of conference calls, corporate presentations, annual general meetings and other related meetings, as well as from additional capital intended to be provided by the proposed sale of equity securities. There can be no assurance that any additional capital can be raised or, if equity securities are sold, the terms of any such transaction. Subject to the availability of sufficient funds, we currently intend to pursue the following Plan of Operations during the twelve months ended March 31, 2002: o Continue to develop a customer base of companies to use our services for teleconferencing and Webcasting of corporate information. o Market our teleconferencing services to public companies required to release earnings and analyst conference calls, corporate media announcements and other information. o Purchase additional equipment to expand our teleconferencing service and Webcasting capabilities. Subject to the availability of funds, we anticipate that we will spend an aggregate of up to approximately $1,000,000 over the twelve-month period ending March 31, 2002 in pursuing our Plan of Operations for the purposes described above. Substantially all these funds will need to be obtained from additional equity financings to be completed in the future. In the event we are unable to obtain these funds from these sources, our ability to pursue our business plan will be adversely affected. Our actual expenditures and business plan may differ from this stated Plan of Operations. Although we have no present plans or proposals pending, strategic alliances relating to teleconferencing or Webcasting may cause our Board of Directors to modify our plans. In addition, we may modify our Plan of Operations based on the available amounts of financing in the event that we cannot obtain the required equity financings to pursue our Plan of Operations. We do not have any arrangement in place for any debt or equity financing which would enable us to meet our Plan of Operations. We are currently receiving revenues from our teleconferencing and Webcasting services. We anticipate an increase in revenue from these sources if we are successful in increasing our customer base. 19 Notwithstanding the above Plan of Operations, we anticipate we will experience continuing operating losses in the foreseeable future. We base this expectation in part on the following: o Increased usage of our services will lead to increased operating expenses and require additional capital expenditures on new computer equipment, software and technology. o Our operating expenses will continue to increase as we expand the technical capabilities of our software and services. o Our operating expenses will increase as we market our services to potential customers and complete teleconferencing and Webcasting services for our customers. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996 With the exception of historical matters, the matters discussed in this Report are "forward-looking statements" as defined under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements made herein include, but are not limited to, the statements in this Report regarding our plans and objectives for our future operations, including plans or objectives relating to our intentions to provide webcasting and teleconferencing services, streaming media technology and Web-based tools to create, develop and offer financial news and information, and other content through the Internet and other dissemination services and products or services, our plans and objectives regarding revenues and expenses in future periods, our needs for capital expenditures, research and development, our ability to maintain our competitive position, our plans and objectives and needs to raise additional capital, the terms on which such capital can be raised, the period over which any capital available currently to us or raised in the future will be sufficient to meet our current or future levels of operating and research and development expenses, and our plans regarding the uses of that capital, as well as any other prospective financial information concerning us. Forward-looking statements made in this Report include the assumptions made by management as to the future growth and business direction of the publication of corporate financial information over the Internet, e-commerce through the facilities of the Internet and the role of video and audio production and Internet news broadcasting. They also include our beliefs as to our ability to compete successfully and maintain our technological position relative to other providers of streaming media and Web-based communication services. They also include our beliefs as to the willingness of public reporting issuers of securities to use our services for Webcasting and teleconferencing and to broadcast corporate news and information on the Internet and for us to derive revenues from providing this service. We cannot assure you that our assumptions in this regard or our views as to the commercial viability of our business plans discussed herein will prove to be accurate. Likewise, we cannot assure you that we will be successful in growing our user and customer base as we plan, attracting companies to use our Internet-based communication services for the dissemination of their news information, realizing material amounts of Webcasting or other revenues, achieving any commercial advantage relative to other financial news dissemination media companies or raising the additional capital required to support our operations or the terms and conditions on which such capital can be raised. Our ability to realize revenues and raise additional capital from the business plans discussed herein cannot be assured. If our assumptions are incorrect or our webcasting or other growth plans or plans to realize revenues or raise additional capital fail to materialize, we may be unsuccessful in developing as a viable business enterprise. Under such circumstance your entire investment will be in jeopardy and may be lost. 20 Our business plan has evolved over time, and we expect that our plans will evolve further in the future. Our inability to meet our goals and objectives or the consequences to us from adverse developments in general economic or capital market conditions and our inability to raise additional capital could have a material adverse effect on us. We caution you that various risk factors accompany those forward looking statements and are described, among other places, under the caption "Risk Factors" herein, beginning on page 21. They are also described in our Annual Reports on Form 10KSB, Quarterly Reports on Form 10-QSB, and our Current Reports on Form 8-K. These risk factors could cause our operating results, financial condition and ability to fulfill our plans to differ materially from those expressed in any forward-looking statements made in this Report and could adversely affect our financial condition and our ability to pursue our business strategy and plans. RISK FACTORS An investment in shares of our Common Stock involves a high degree of risk. You should consider the following factors, in addition to the other information contained in this Report, in evaluating our business and proposed activities before you purchase any shares of our common stock. You should also see the "Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1996" regarding risks and uncertainties relating to us and to forward looking statements in this Report. RISKS APPLICABLE TO OUR BUSINESS WE HAVE AN EXTREMELY LIMITED OPERATING HISTORY AND ALSO HAVE A HISTORY OF NET LOSSES We have had an extremely limited operating history. Our business was established in January 1999 and we began operations on the Internet in February 1999. Our total revenues since inception through June 30, 2001 are $125,236. Our total losses since inception through June 30, 2001 are $2,363,753. An investor must consider the risks, expenses and difficulties frequently encountered by companies such as ours, in the early stages of their development. Our business plan has evolved over time and therefore, we experience additional risks resulting from the changes we make in our business plan. As changes in the industry further develop, we may need to make further changes to our business plan. We cannot assure you that we will be successful in addressing the risks we confront. We cannot assure you that our revenue will grow sufficiently to assure our future success. We must increase our revenues in order to continue our operations. New companies, such as ours, experience expenses, difficulties and unforeseen problems that create a higher risk of business failure. If we are not successful in overcoming these expenses and difficulties, our business may fail. FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING The report of our independent auditors on their audit of our financial statements as of March 31, 2001 contains an explanatory paragraph that describes an uncertainty as to our ability to continue as a going concern due to our recurring losses and our necessity to obtain additional financing. At June 30, 2001, we had current assets of $60,010 and current liabilities of $76,054. In order to meet our Plan of Operations, we will need to raise additional capital. Our budget for the year 21 ending March 31, 2002 calls for us to raise an additional $1,000,000 in capital during the year ending March 31, 2002. There can be no assurance that any additional financing will be available to us on favorable terms, or at all. If adequate funds are not available or not available on acceptable terms, we may not be able to fund our business plans as we desire, or, develop or enhance services or respond to competitive pressures. Any such inability could have a material adverse effect on our business, results of operations and financial condition. Additional funds raised through the issuance of equity or convertible debt securities, will result in reducing the percentage ownership of our stockholders and, our stockholders may experience additional dilution. Such securities may have rights, preferences or privileges senior to those of the rights of our Common Stock. As a result of our limited operating history, we have limited meaningful historical financial data upon which our planned operating expenses can be based. Accordingly, our anticipated expense levels in the future are based in part on our expectations as to future revenue. Once established, these expense levels will become, to a large extent, fixed. Revenues and operating results generally will depend on the volume of, timing of and ability to complete transactions, which are difficult to forecast. In addition, there can be no assurance that we will be able to accurately predict our revenue, particularly in light of the unproven and evolving manner in which we derive our revenue, the intense competition for the marketing of our services, revenue-sharing opportunities, our limited operating history and the uncertainty as to the broad acceptance of the Web as a communications medium. We may be unable to adjust our spending in a timely manner to compensate for disappointing results of our marketing efforts and efforts to develop revenue, any unexpected revenue shortfall or other unanticipated changes in the Internet industry. Our failure to accurately make such predictions or adjustments in our spending would have a material adverse effect on our business, results of operations and financial condition. POSSIBLE INABILITY TO IMPLEMENT OUR BUSINESS STRATEGY Our business strategy includes increasing our revenues from the teleconferencing and Webcasting industry. To achieve our business objective, we believe we must: o Sell our services to a wide range of business customers, using both direct and indirect sales channels to drive revenue growth. o Create a positive online experience for our customers and their target audience, thereby encouraging participants to virally promote our services within the corporate and online community. o Promote our services as day-to-day business communication tools used for teleconference meetings, real-time corporate demonstrations, and interactive training sessions, among other corporate communications needs. . o Continue to develop proprietary software and hardware enhancements that integrate traditional telephony solutions with the most current Internet technologies and thereby maintain our competitive position. o Expand our telephony, Internet, and supporting hardware infrastructure in anticipation of the development of future services and enhancements and expand our storage capacity in anticipation of increased customer demand. 22 o Explore possible strategic relationship opportunities that will expand our position within the Webcasting and teleconferencing industry that will enhance our service offerings, technology, infrastructure, and distribution channels. In order to accomplish the forgoing objectives, we will require substantial amounts of additional capital that is not currently available to us. Management estimates that it will require $1,000,000 of additional capital to be applied to meeting these objectives through March 31, 2002. If we are not successful in implementing all components of our business strategy successfully, our operating results and financial condition may be harmed and our business may fail. POSSIBLE INABILITY TO GENERATE REVENUES AND PROFITABLE OPERATIONS We have earned minimal revenues to date and we are presently not profitable. Our business and marketing strategy contemplates that we will earn revenues from providing Webcasting and teleconferencing services to corporate clients throughout North America. If we are not able to generate material revenues from these activities or if the revenues generated do not exceed the operating costs of our business, then our business will not be profitable and our business may fail. ANTICIPATED LOSSES IN FUTURE PERIODS During the three month period ended June 30, 2001, we incurred a loss of $269,270 on revenues of $37,372. We expect that our operating expenses will increase as we implement our business and marketing strategy due to the following factors: o We expect that increased usage of our services will lead to increased operating expenses and require additional capital expenditures on new computer equipment, software and technology. o We expect our operating expenses will continue to increase as we expand the technical capabilities of our products and services to meet competition. o We expect our operating expenses will increase as we solicit potential customers. If our operating expenses increase as anticipated, we will realize additional losses for the foreseeable future. DEPENDENCE ON WEBCASTING AND TELECONFERENCING REVENUE We currently derive the principal portion of our revenue from the sale of webcasting and teleconferencing services to corporate clients throughout North America. We currently expect that webcasting and teleconferencing will continue to be the principal source of our revenue in the foreseeable future. Our ability to generate webcasting revenue will depend on several factors, including: o the pricing of webcasting services by others, o our ability to develop and retain a skilled sales force. 23 As a result of the evolving nature of Webcasting and the use of the Internet as a communication medium and our limited operating history, we cannot accurately forecast our revenue. Current and future expense levels are based principally on anticipated future revenues and, as we increase the scope of our activities, these expenses, to a large extent, will increase and become fixed. Accordingly, we may be unable to adjust spending to compensate for shortfalls in our anticipated revenues. If our revenues do not materialize as anticipated, this could have an immediate material adverse effect on our business, financial condition and results of operations, which could lead to an investor's loss of his investment in our company. Our quarterly operating results may fluctuate significantly because of a variety of factors, many of which are outside our control, including: o overall usage levels of our services, o the amount and timing of our capital expenditures, o costs relating to the expansion of our operations, o price competition or pricing changes in Webcasting and teleconferencing, and o costs relating to technical difficulties or system downtime. Quarterly comparisons of our results of operations are not expected to be a reliable indication of our future performance. COMPETITION IN THE WEBCASTING SERVICES MARKET IS INTENSE AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY. The market for Webcasting services is relatively new, rapidly evolving and intensely competitive. Competition in the marketing of these services will continue to intensify and may force us to reduce our prices, or cause us to experience reduced sales and margins, loss of customers and reduced acceptance of our services. Substantially all of our current and potential competitors have larger and more established customer bases, longer operating histories, greater name recognition, broader service offerings, more employees and significantly greater financial, technical, marketing, public relations and distribution resources than we do. As a result, these competitors may be able to spread costs across diversified lines of business, and therefore, adopt aggressive strategies, such as pricing structures and marketing campaigns, that reduce our ability to compete effectively. Telecommunication providers, for example, enjoy lower per-minute long distance costs as a result of their ownership of the underlying telecommunication network. We expect that many more companies will enter this market and invest significant resources to develop webcasting services. These current and future competitors may also offer or develop products or services that perform better than ours. In addition, the Internet industry has recently experienced substantial consolidation and a proliferation of strategic transactions. We expect this consolidation and strategic partnering to continue. Acquisitions or strategic partnerships involving our current and potential competitors could harm us in a number of ways. For example: o competitors could acquire or partner with companies with which we have distribution relationships and discontinue our relationship, resulting in the loss of distribution opportunities for our services; 24 o a competitor could be acquired by or enter into a strategic relationship with a party that has greater resources and experience than we do, thereby increasing the ability of the competitor to compete with our services; or o a competitor could acquire or partner with one of our key suppliers. IF WE FAIL TO OFFER COMPETITIVE PRICING, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS. Because the Webcasting market is relatively new and still evolving, the prices for these services are subject to rapid and frequent changes. In many cases, businesses provide their services at significantly reduced rates, for free or on a trial basis in order to win customers. Due to competitive factors and the rapidly changing marketplace, we may be required to significantly reduce our pricing structure, which would negatively affect our revenues, margins and our ability to achieve or sustain profitability. MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE ON KEY PERSONNEL In developing our business plan, we expect to be required to establish and manage multiple relationships with various strategic providers of services, technology licensors, marketers and other third parties. To date, only a limited number of such relationships have been established. The requirements to enter into these relationships will be exacerbated in the event of our material growth or in the number of third party relationships, and there can be no assurance that our systems, procedures or controls will be adequate to enable us to establish and enter into these relationships, to support any substantial growth in our operations or that our management will be able to implement or manage any growth effectively. To effectively manage growth, we must establish, implement and improve operational, financial and management information systems and expand, train and manage our employee base. Our development is and will continue to be substantially dependent on the abilities and performance of our executive officers and other key employees. The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our prospects, business development, and results of operations and financial condition. Competition for senior management, experienced sales and marketing personnel, qualified Web engineers and other employees is and is expected to continue to be intense. There can be no assurance that we will be successful in attracting and retaining such personnel. There can be no assurance that we may not experience difficulty from time to time in hiring and retaining the personnel necessary to support the growth of our business. Our failure to successfully manage our personnel requirements would have a material adverse effect on our business, results of operations and financial condition. Our performance is substantially dependent on the continued services and performance of our senior management and other key personnel, including Brian Kathler, President and a Director, Paul Watkins, Secretary/Treasurer and a Director, Robert Gamon, a Director and James King, a Director. We do not have long-term employment agreements with any of our key personnel and maintain no "key person" life insurance policies. Our future success also depends on our ability to identify, attract, retain and motivate highly skilled, technical, managerial, sales, marketing and customer service personnel. Competition for such persons is intense. We cannot assure you that we will be able to attract or retain such personnel. The failure to do so could have a material adverse effect on our business, financial condition and results of operations. 25 OUR WEBCASTING SERVICES MAY BECOME SUBJECT TO TRADITIONAL TELECOMMUNICATIONS CARRIER REGULATION BY FEDERAL AND STATE AUTHORITIES, WHICH WOULD INCREASE THE COST OF PROVIDING OUR SERVICES AND MAY SUBJECT US TO PENALTIES. We believe our Webcasting service is not subject to regulation by the U.S. Federal Communications Commission or any other state or provincial public service commission. The FCC and state or provincial public service commissions, however, may require us to submit to traditional telecommunications carrier regulations for our Webcasting service under the Communications Act of 1934, as amended, and various state laws or regulations as a provider of telecommunications services. If the FCC or any state public service commission seeks to enforce any of these laws or regulations against us, we could be prohibited from providing the voice aspect of our Webcasting service until we have obtained various U.S. federal and state licenses and filed tariffs. We believe we would be able to obtain those licenses, although in some states, doing so could significantly delay our ability to provide services. We also would be required to comply with other aspects of federal and state laws and regulations. Subjecting our Web-conferencing service to these laws and regulations would increase our operating costs, could require restructuring of those services to charge separately for the voice and Internet components, and would involve on-going reporting and other compliance obligations. We also might be subject to fines or forfeitures and civil or criminal penalties for non-compliance. OUR BUSINESS WILL SUFFER IF OUR SYSTEMS FAIL OR BECOME UNAVAILABLE. A reduction in the performance, reliability or availability of our systems will harm our ability to distribute our services to our users, as well as our reputation. These disruptions may be due to service or network outages, periodic system upgrades, and internal system failure. To the present, we have not experienced any material service disruptions. Because our revenue depends largely on the numbers of calls and users and the amount of minutes consumed by users, our business will suffer if we experience frequent or extended system interruptions. We maintain our primary data facility and hosting servers at our headquarters in Burnaby, British Columbia, Canada. Our operations depend on our ability to protect these facilities and our systems against damage or interruption from fire, power loss, water, telecommunications failure, vandalism, sabotage and similar unexpected events. In addition, a sudden and significant increase in traffic on our systems or infrastructure could strain the capacity of the software, hardware and systems that we use. This could lead to slower response times or system failures. The occurrence of any of the foregoing risks could cause service interruptions and, as a result, materially harm our reputation, negatively affect our revenue, and our ability to achieve or sustain profitability. IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER. We must securely receive and transmit confidential information over public networks and maintain that information on internal systems. Our failure to prevent security breaches could damage our reputation and expose us to risk of loss or liability. Our internal systems are accessible to certain of our employees. Although each of these employees is subject to a confidentiality agreement, we may be unable to prevent the misappropriation of this information. Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and 26 other resources to ensure adequate encryption and additional technologies to protect against security breaches or to alleviate problems caused by any breach. If we fail to provide adequate security measures to protect the confidential information or our customers, our customers may refrain from using our services, potential customers may not want to use our services, and as a result, our operating results would be harmed. DEPENDENCE ON LICENSED TECHNOLOGY We rely on certain technology licensed from third parties for use in operating and managing our Internet site and providing related services to users. We cannot assure you that such technology licenses will be available at all, that they will be available on reasonable commercial terms or that they will operate as intended. DEPENDENCE ON GROWTH IN INTERNET USE Our future revenue will depend largely on the widespread acceptance and use of the Internet as a communication source. Rapid growth in Internet use is a recent trend and market acceptance of the Internet as a communication medium is highly uncertain. The Internet may not be accepted as a viable communications medium for distribution of information for a number of reasons, including: o inadequate development of the network infrastructure, o inadequate development of enabling technologies, and o concerns about privacy and security among users. RAPID TECHNOLOGICAL CHANGE The market for Internet services is characterized by rapid technological developments, frequent new product introductions and evolving industry standards. We will be required to continually improve the performance, features and reliability of our infrastructure and products and services, particularly in response to competition and changing customer demands. We cannot assure you that we will be successful in responding rapidly, cost-effectively or adequately to such developments. NEW SERVICE RISKS Our future success will depend in part on our ability to expand our Internet communications abilities to include new services. Costs related to developing new services are expensed as they are incurred while revenue related to these new services typically builds over time and, accordingly, our profitability from year to year may be adversely affected by the number and timing of new service launches. In addition, we cannot assure you that any new areas or services will be developed in a timely or cost-effective manner or that they will be successful. RISKS ASSOCIATED WITH BRAND DEVELOPMENT We believe brand identity is important to attracting and expanding our client base. We believe the significance of brand and name recognition will intensify as the number of competing companies increases. We cannot assure you that we will be able to develop our brand identity so as to gain any significant market recognition. 27 GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES We are not currently subject to direct regulation by any U.S. or Canadian government agency, other than regulations applicable to businesses generally. There are currently few laws or regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, a number of legislative and regulatory proposals are under consideration by U.S. and Canadian federal, state, provincial, local and foreign governmental organizations. It is possible that a number of laws or regulations may be adopted with respect to the Internet relating to such issues as user privacy, user screening to prevent inappropriate uses of the Internet by, for example, minors or convicted criminals, taxation, infringement, pricing, content regulation, quality of products and services and intellectual property ownership and infringement. The adoption of any such laws or regulations may decrease the growth in the use of the Internet, which could, in turn, decrease the demand for our services, increase our cost of doing business, or otherwise have a material adverse effect on our business, results of operations and financial condition. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, copyright, trademark, trade secret, obscenity, libel and personal privacy is uncertain and developing. Any new legislation or regulation, or application or interpretation of existing laws, could have a material adverse effect on our business, results of operations and financial condition. There can be no assurance that any legislation will not be enacted in the future that could expose us to substantial liability. Legislation could also dampen the growth in the use of the Web generally and decrease the acceptance of the Web as a communications and commercial medium. The result could, thereby, have a material adverse effect on our business, results of operations and financial condition. A number of legislative proposals have been made at the U.S. and Canadian federal, state, provincial and local level that would impose additional taxes on the sale of goods and services over the Internet and certain jurisdictions have taken measures to tax Internet-related activities. The U.S. Congress enacted the Internet Tax Freedom Act on October 21, 1998 which imposes a national moratorium in the United States on state and local taxes on Internet access services, on-line services, and multiple or discriminatory taxes on electric commerce effective October 1, 1998 and ending three years after its enactment. Various proposals are under discussion regarding possible taxes subsequent to the expiration of the moratorium. There can be no assurance that, once such moratorium is lifted, some type of U.S. federal and/or state taxes will not be imposed upon Internet commerce, and there can be no assurance that such legislation or other attempts at regulating commerce over the Internet will not substantially impair the growth of our services on the Internet and as a result, our opportunity to derive financial benefit from these activities may be adversely affected. Due to the global nature of the Web, it is possible that, although our transmissions over the Internet originate primarily in British Columbia, Canada, the governments of various states in the United States and foreign countries might attempt to regulate our transmissions or prosecute us for violations of their laws. There can be no assurance that violations of local laws will not be alleged or charged by state or foreign governments, that we might not unintentionally violate such laws or that such laws will not be modified, or new laws enacted, in the future. Any of the foregoing developments could have a material adverse effect on our business, results of operations and financial condition. 28 In addition, as our services are available over the Internet in multiple foreign countries, provinces, states and other jurisdictions, such jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions. We are qualified to do business only in British Columbia, and our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties and could result in our inability to enforce contracts in such jurisdictions. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could have a material adverse effect on our business, results of operations and financial condition. LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB; ABSENCE OF LIABILITY INSURANCE Because financial and other information is broadcast to the securities marketplace and elsewhere using our services, there is a potential that claims will be made against us as a participant in the process of distributing this information to investors. We may also be exposed to claims for alleged defamation, negligence, copyright or trademark infringement, personal injury or other theories based on the nature, content, publication and distribution of these materials. Claims may be asserted against us for errors or omissions in the financial and other information disseminated by use of our services by the companies that are our customers. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could impact the overall growth of Internet use and our services. We could also be exposed to liability with respect to the offering of third party content that may be accessible through our services. It is also possible that if any financial information content provided through our services contains errors, third parties could make claims against us for losses incurred in reliance on such information. Even to the extent that such claims do not result in liability to us, we could incur significant costs in investigating and defending against such claims. The imposition on us of potential liability for information carried on or disseminated through our systems could require us to implement measures to reduce our exposure to such liability, which may require the expenditure of substantial resources and limit the attractiveness of our services. Currently, we do not carry general liability insurance intended to protect us from any liability arising out of the foregoing. In any event, however, insurance may not cover all potential claims to which we are exposed or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of our insurance coverage would have a material adverse effect on our business, results of operations and financial condition. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could impact the overall growth of Internet use. RELIANCE ON INTELLECTUAL PROPERTY RIGHTS To establish and protect our trademark, service mark and other proprietary rights in its products and services, we rely on a combination of: o copyright, unfair competition, trademark, service mark and trade secret laws and o confidentiality agreements with our licensees and other third parties and confidentiality agreements and policies covering its employees. 29 We cannot assure you that these measures will be adequate, that we will be able to secure registrations for all of its marks in the U.S. or internationally or that third parties will not infringe upon or misappropriate our proprietary rights. Any infringement or misappropriation, or litigation relating to intellectual property rights, may have a material adverse effect on our business, financial condition and results of operations. On May 22, 2001, the U.S. Patent and Trademark Office registered the mark "ViaVid" in the United States. We have also applied to the Canada Patent and Trademark Office for registration of "ViaVid" in Canada. A trademark has been issued in Canada for "ViaVid". We are not aware of any other companies currently using the name "ViaVid" in the United States. We have conducted searches of trademark databases in the United States and have not found any registration of the name "ViaVid" as a trademark. There is no assurance that the trademark for the "ViaVid" name in the United States will stand up to objections by others who may have made prior use of the name. Also, there can be no assurance that we will obtain any significant commercial advantage from this trademark or that we will have the financial resources to protect our rights in the name through legal proceedings or otherwise. It is also possible that our competitors or others will adopt product or service names similar to "ViaVid" or other similar service marks or trademarks, thereby impeding our ability to build brand identity and possibly leading to customer confusion. Our inability to protect the name "ViaVid" adequately could have a material adverse effect on our business, results of operations and financial condition. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related business are uncertain and evolving. In particular, new registration and ownership priority procedures may be adopted which may make it more difficult for us to retain or obtain desirable domain names. CONTROL BY PRINCIPAL STOCKHOLDERS AND POTENTIAL CONFLICTS OF INTEREST Our officers and Directors own approximately 40.4% of our outstanding shares of Common Stock. As a result, such persons could elect all the members of our Board. Such persons could also control those actions requiring the approval of the holders of a majority of our voting stock, including amendments to our Articles of Incorporation and any business combinations. Such persons concentration of ownership could prevent a change in control of our company that might otherwise be beneficial to stockholders. RISKS APPLICABLE TO THE MARKET FOR OUR COMMON STOCK NO ACTIVE PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE Prior to January 4, 2000, there was no active public market for our Common Stock. Since then, our Common Stock has been quoted on the OTC Bulletin Board. There can be no assurance that an active trading market for our Common Stock will be sustained or that the market price of our Common Stock will not decline based upon market or other conditions. The market price may bear no relationship to our revenues, earnings, assets or potential and may not be indicative of our future business performance. The trading price of our Common Stock has been and can be expected to be subject to wide fluctuations in response to variations in our quarterly results of operations, the gain or loss of significant strategic relationships, unanticipated delays in our development, changes in estimates by analysts, announcements of technological innovations or new solutions by us or our competitors, general conditions in the technology and Internet sectors and in Internet-related industries, other matters discussed elsewhere in this report and other events or factors, many of which are beyond our control. 30 In addition, the stock market in general and the technology and Internet sectors in particular have experienced extreme price and volume fluctuations which have affected the market price for many companies in industries similar or related to us and which have been unrelated to the operating performance of these companies. These market fluctuations, as well as general economic, political and market conditions, may have a material adverse effect on the market price of our Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such companies. Such litigation, if instituted, and irrespective of the outcome of such litigation, could result in substantial costs and a diversion of management's attention and resources and have a material adverse effect on our business, results of operations and financial condition. PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds In June 2001, the Company issued and sold an aggregate of 1,790,000 units of securities for $0.20 per unit exempt under Regulations D and S from the registration requirements of the Securities Act of 1933, as amended. Each unit consisted of one share of common stock and one warrant enabling the holder to purchase an additional share of common stock. Of the 1,790,000 warrants issued, 1,290,000 are exercisable at $0.20 per share and 500,000 are exercisable at $0.05 per share. All of the warrants expire on February 28, 2004. The total proceeds to the Company were $283,000. Except for one purchaser, all were "Non-U.S. Persons". Each purchaser represented to the Registrant that the purchaser was an "accredited investor" as defined under Regulation D. Each purchaser also represented his intention to acquire the securities for investment only and not with a view to distribution. Legends were affixed to the stock certificates and stop transfer instructions instituted. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved In June 2001, the Company issued 350,000 shares of common stock were issued for consulting services for an agreed amount of $35,000. The issuance of these shares was exempt from registration pursuant to section 4(2) of the Securities Act of 1933, as amended. The consultant represented his intention to acquire the securities for investment only and not with a view to distribution. A legend was affixed to the stock certificate and stop transfer instructions instituted. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Description None (b) Reports on Form 8-K The Registrant did not file any current reports on Form 8-K during the quarter ended June 30, 2001. 31 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 13, 2001 By: /s/ Brian Kathler ------------------------------- President (Principal Executive Officer and Principal Accounting Officer) 32