10KSB 1 form10ksb.txt FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB Mark One: |X| Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended March 31, 2002; or |_| Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______. COMMISSION FILE NO. 0-26535 VIAVID BROADCASTING, INC. -------------------------------------------------------------------------------- (Name of Small Business Issuer in its Charter) NEVADA 98-0206168 -------------------------------------------------------------------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) SUITE 340 - 145 CHADWICK COURT, NORTH VANCOUVER, BRITISH COLUMBIA V7M 3K1 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) 604-988-7667 -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: Title of Each Class Name of Each Exchange on Which Registered -------------------------------------------------------------------------------- None -------------------------------------------------------------------------------- Securities Registered Pursuant to Section 12(g) of the Exchange Act: -------------------------------------------------------------------------------- Common Stock, par value $.001 per share -------------------------------------------------------------------------------- (Title of Each Class) Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve (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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB, or any amendment to this Form 10-KSB. |X| State Issuer's revenues for its most recent fiscal year: $275,280. The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of June 12, 2002, was $353,340. (Non-affiliates have been determined on the basis of holdings set forth in the information incorporated by reference under Item 11 of this Annual Report on Form 10-KSB.) The number of shares outstanding of each of the Issuer's classes of common equity, as of June 12, 2002, was 12,023,000. DOCUMENTS INCORPORATED BY REFERENCE None PART I ------ ITEM 1 - DESCRIPTION OF BUSINESS: -------------------------------- OVERVIEW Our primary business is to provide Webcasting, teleconferencing and transcription 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. We believe that as a result of recent changes in practices relating to the dissemination of corporate financial information, the demand for Webcasting and teleconferencing services is on the rise. In marketing our services, we are currently targeting public companies affected by a recent U.S. Securities and Exchange Commission ruling, Regulation F-D, that reinforces the requirement that all public reporting companies make earnings and analyst conference calls, corporate media announcements and other information available simultaneously to all investors, not just industry insiders. Our services meet the communication needs of these corporate clients and we have seen a marked increase in interest in our services. Regulation F-D singled out Webcasting and the Internet as compliance solutions for those public companies affected by the new regulation. Since our inception in 1999, when we commenced offering live-event coverage, participant interviews, online meetings and presentations, and teleconferencing services, we have developed a state-of-the-art digital facility capable of supporting of our Webcasting and teleconferencing business model. So as to ensure our competitiveness within the marketplace, we believe it necessary to continue to modify and enhance this digital streaming technology facility. In addition, we are continually seeking to make changes to update our proprietary systems to keep our technology current. -2- Using our facility, we believe we are able to provide Webcasting and teleconferencing services that are capable of maximizing the quality of the disclosure broadcast and thereby enhancing the participant's experience. We use third party conferencing technology that allows us to accommodate in excess of 2,000 participants at a level of quality consistent with the highest business standards. Our services provide efficient, cost-effective solutions for our customers teleconferencing needs, including: o Earnings events o Annual shareholder meetings o Analysts presentations o Product Launches o 24 Hour Transcription Services o Investor Relations Web Page Management Suite o All special events We are in the early stages of our business development, have had limited revenues and have incurred losses since our inception. Our growth in revenues is substantially dependent upon our ability to remain abreast with the application and use of the latest technological developments in offering our Webcasting and teleconferencing services. In order to do so we expect to require substantial amounts of additional capital. We may be unable to raise such capital or such capital may only be available to us on disadvantageous terms. Under such circumstances, an investment in our company may be placed in jeopardy and result in the loss of or substantial dilution to your investment. At March 31, 2002, Webcasting, teleconferencing and transcription services provided substantially all of our revenues. We have recently added I.R. Web Page Management Suite to our list of services. At March 31, 2002, we had not received any revenues for this service. OUR SERVICES By integrating the Internet with traditional telephony technology, we are able to provide presentation, conferencing and web management services for our customers. These services empower our customers with real-time, interactive communication tools that allow for an effective and efficient means of communication. With our services, companies can broadcast conference calls that allow for the rapid dissemination of important information. In addition, a company can create a presenter-controlled linear presentation for such purposes as the unveiling of a new business model. Or a company can choose to develop a viewer-controlled non-linear presentation where the viewer chooses information they want to read. A company can also choose to develop a dynamic, interactive Internet broadcast where viewers can actively -3- participate in the online experience. For example, a company may choose to broadcast a question and answer session with the CEO where the audience can pose their questions via phone or via the Internet. Utilizing our services, a customer has the ability to record a voice and visual presentation, store the presentation, distribute it via email to a wide group and play back the presentation using advanced, yet easy-to-use, streaming technologies. Additionally, we provide our customers with the option to obtain valuable real-time information and viewer statistics, such as the number and identity of participants, which help companies identify their shareholders and interested stakeholders, among others. By utilizing voice, video, and text data, companies are able to effectively communicate key information to a mass audience. Our services include automated, on-demand audio conferencing, ideal for the broadcast of earnings and analyst conference calls, and Webconferencing, ideal for the creation and broadcast of interactive, dynamic online corporate presentations. We believe that our services are cost effective and easy to use. Our services enable viewers to access, view, and interact with an online event from most computers. Conducting a conference or attending a presentation using our services requires only a telephone and personal computer equipped with an Internet connection and a standard Web browser. Our services do not require our customer or the user to acquire any specialized hardware or software. ViaVision, our flagship service, was developed to support day-to-day business meetings. ViaVision is an automated Web and telephone presentation service that combines the availability of traditional telephone conferencing services with simple to use Web presentations and controls. Our ViaVision service allows up to three types of participants: o Phone only: These participants listen and talk via phone; o Phone and Web: These participants listen and talk via phone, while viewing visuals and interacting via a Web browser; and o Web only: These participants listen via streaming audio, while viewing visuals and interacting via a Web browser. Other service enhancements that we provide include ViaContent and ViaTracker. ViaContent is designed to manage live audio / video streams and ViaVision events, such as online presentations. ViaContent allows clients to maintain a single Web link to an event, both for the initial live transmission and for the later on-demand playback transmission. ViaTracker is a proprietary statistical data tracking solution that enables customers to track event participants -4- and obtain viewer contact information. This data enables customers to analyze participant data and as a result, better target future events. In addition to the statistical features of ViaTracker, customers can also use the solution to enter online booking information and manage questions and answers during a live event. We have recently added our I.R. Web Page Management Suite to our list of services. This service has been specifically designed to help public companies meet the ever increasing demands of Regulation FD. The IR Page product is designed to integrate with a company's existing web site, maintaining the look and feel of the corporate site, while providing a powerful suite of tools for disclosure and investor communications. Our suite of tools include: o automatic update of key financial disclosure information such as news releases, quarterly earnings information and other SEC filings. Current stock quotes, charts and price history are also updated automatically. o enabling an I.R. Professional to update and manage the I.R. portion of the Corporate site quickly and easily without any technical skills or outside assistance. o maintenance of an online electronic database of investor contacts which allows the IR Professional to quickly and easily broadcast information such as press releases, earnings announcements, shareholder updates and other announcements. Our services offer customers the following benefits: o Customization. Customers can use their own images, colors, text and logos to customize their online presentation or event. In addition, our customers can use our service to create a custom branded interface that integrates our service into the customer's own Web site. o Presenter Controlled Visuals. With our ViaVision service, moderators are able to guide participants through a controlled online presentation while interacting with participants via phone. Presenters no longer need to distribute in advance their presentations via email to ensure remote attendees are following along. By uploading and presenting visual material online, moderators are able to present charts and graphs, such as Microsoft PowerPoint slides, to remote conference participants in real-time. o Live and Recorded Webcasting. Our live and recorded Webcasting lets meeting moderators stream their phone conference and synchronized slide presentations over the Internet. Webcasts can be executed live for press conferences or announcements, or can be recorded and made available to an unlimited number of participants. Thousands of individuals can listen to the conference and view online presentations using a standard -5- media player and an Internet connection of 28.8 kbps or greater. Businesses can record training presentations to view over time or may make presentations of new products, services or policies to a global workforce available for viewing online at the audience's convenience. o 24 Hour Transcription Services. We have a team of transcriptionists that provide us with a hard copy transcription within 24 hours of receiving the taped telephone conference call. o I.R. Web Page Management Suite. This product is designed to integrate with a company's existing web site, maintaining the look and feel of the corporate site, while providing a powerful suite of tools for disclosure and investor communications. The product has been designed to provide unparalleled economics to the marketplace, bringing automated IR web page management to a new level of dramatic cost savings. o Account Management and Statistics. Our customers can easily update and maintain their account information, upload new presentations and update existing presentations, and set access and viewing preferences. In addition, customers can view statistical reports. These reports enable our customers to track and view information about specific events, such as attendee click-thru statistics. With the help of ViaTracker, customers are also able to view information about event participants, including contact information. We believe our services benefit our customers in a number of ways: o By enabling companies to communicate with a large audience via the Internet, our services are able to decrease the need for costly business travel. o By providing to our customers outsourcing communication tools and solutions, our services are able to decrease their need for costly purchases of complex software and hardware solutions. o By increasing the quality and frequency of business meetings and sales presentations, our services are able to help increase productivity and strengthen key corporate relationships. o By enabling access from any telephone and most personal computers with an Internet connection, our services are able to allow companies to reach a diverse, worldwide audience. -6- Our Webcasting service currently includes the following options: o PowerPoint Slides: a PowerPoint presentation is controlled by the presenter, with audio synchronization both in real-time and for later playback; o Online Question and Answer: by adding a question and answer session to an online presentation or interview, a company encourages audience participants to pose questions to the presenter in real-time via the Internet; o Conference Tracking: a feature of our services is the ability for a company to track viewers and participants. These statistics help companies determine exactly who attended an online event regardless of whether it was live or later playback of a live event. o I.R. Web Page Management Suite: this service will be bundled with ViaVid's existing webcasting and teleconferencing products and services. Included in the suite are quarterly webcasts and text based transcripts of those webcasts, both of which are automatically linked within the clients IR Page. We provide customer support upon request. However, most of our services are fully automated, requiring little user setup or intervention, thereby reducing the risk of user error. Our automated services allow us to handle high user click-thru volume, while reducing the number of user errors. Ultimately, this high level of automation makes the service easier to use, more reliable, and more cost-effective for our customers. OUR REVENUES We charge our teleconferencing customers a per-minute fee based on each phone participant's actual participation time in the conference. For the year ended March 31, 2002, approximately 56% of our revenues were derived from this source. A customer using our Webcasting services is charged a flat fee for the addition of an audio/video Webcast, in addition to the per participant per minute fee for teleconferencing services. For the year ended March 31, 2002, approximately 24% of our revenues were derived from this source. A customer is charged a flat fee for the use of the ViaVision service for a Web conference or a recorded Webcast. The ViaVision service adds to an audio/video Webcast the ability of the presenter and his audience to interact through the telephone or a Web browser. For the year ended March 31, 2002, approximately 2% of our revenues were derived from this source. Also, a customer is charged a flat fee for our transcription services. For the year ended March 31, 2002, approximately 18% of our revenues were derived from this source. -7- We believe that a growing proportion of future revenues will be derived from areas of enhanced services including provision of video, data, and other Internet-based services. OUR STRATEGY Our business objective is to become a leader in the teleconferencing and Webcasting industry. Our primary business is to provide simple, reliable, and scalable, yet cost-effective, online presentation and conferencing services. To achieve our objective, we believe we must: o Aggressively sell our services to a wide range of business customers, using both direct and indirect sales channels to drive revenue growth. The primary objective for our direct sales efforts is to target businesses in diverse vertical markets, such as those in the financial services industry affected by the SEC's recent Regulation FD. The primary objective of our indirect sales efforts is to establish strategic partnerships with resellers, such as conferencing and communications providers, so as to leverage their large and established customer bases. 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. Rather than limiting our services to meet the investor and public relational needs of companies, our goal is to target all departments within the enterprise, including human resources and sales and marketing. We believe our services should enable customers to better manage and grow their workforce by providing timely and cost-effective training and education solutions, along with enabling better communication within the enterprise. o Continue to develop proprietary software and hardware enhancements that integrate traditional telephony solutions with the most current Internet technologies. As new technologies emerge, our goal is to integrate these technologies into our services and, where necessary, to create the tools necessary to enable these technologies to be integrated into our services. As a result, we expect to continue to invest significant resources on research and development activities so as to best facilitate the integration of new technologies applicable to the services we provide into our existing services. As the Internet and telecommunications continue to evolve, so must our services continue to grow and evolve in order to be able to continue to meet the needs of our customers. In -8- the event we are unable to grow and evolve our services, our ability to compete with others and earn revenues will be adversely affected. 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. Our current technology platform integrates telephony and Internet communications technologies to support multiple simultaneous communication events and thousands of meeting minutes per day. Our goal is to continuously expand our infrastructure so as to support the demands of our growing customer base, in addition to supporting our day-to-day operational needs. In the event we are unable to expand our infrastructure, our ability to compete with others and earn revenues will be adversely affected. 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 $250,000 of additional capital to be applied to meeting these objectives through March 31, 2003. Our ability to raise additional capital will depend, among other things, upon our ability to grow our revenues, our ability to remain current with technological and other developments within the teleconferencing and Webcasting industry, and our ability to attract the personnel and other technical and intellectual property resources needed to accomplish these objectives. There can be no assurance that we will be able to accomplish these objectives, in which event our growth, financial condition and future success will be in jeopardy. CUSTOMERS Since the inception of our offering Webcasting services for corporate clients in early January 2001 through June, 2002, we have serviced more than 400 Webcasts for more than 200 corporate clients, the majority of which have their securities traded on the New York Stock Exchange or the NASDAQ Stock Market. In addition to the dissemination of corporate financial information through Webcasting, our capabilities enable us to provide our services in connection with a variety of other business and other meetings, conferences and seminars including: o product introductions and demonstrations o marketing, sales, and training programs -9- o video presentations o broadcast commercials, informational and public service announcements Our customers for these other services include a variety of news organizations, boards and associations. We are not dependent on any single or small number of customers for any material portion of our revenues. STRATEGIC PARTNERS We intend to explore possible strategic relationship opportunities that will expand our position within the Webcasting and teleconferencing industry. We believe that such relationships can be used to enhance our service offerings, technology, infrastructure, and distribution channels. To date, we have not entered in any such relationships and there can be no assurance that we will be successful in entering into any strategic relationships. TECHNOLOGY AND RESEARCH AND DEVELOPMENT Since our inception in 1999, we have expended approximately $650,000 for research and development and the enhancement of our telephony and Webcasting capabilities. Our approach is to enhance existing services and develop future solutions that integrate traditional telephony with Internet communication technologies available from third parties that allows us to effectively improve upon our existing infrastructure, technologies, and proprietary systems to accommodate and remain current with changes within the teleconferencing and Webcasting industries. We maintain our own facilities for Webcasting and our other services and development activities in Vancouver, British Columbia. Our services are designed and developed using Microsoft development tools. They reside on a common infrastructure that has backup power systems, redundant cooling systems, fire suppression systems, and sophisticated security systems. We evaluate new technologies from time to time to determine if they will be beneficial to our users and also build systems and software that assist us in their management and integration into Web-based applications. In cases where no existing technology meets our needs, we may seek to develop our own solution or modify an existing technology. We believe that by developing proprietary systems and applications on top of new and existing technologies, we can leverage the benefits of emerging technologies and integrate these technologies into our services. Our Webconferencing service uses hardware that we purchase and software either licensed from third persons or that we develop in-house. -10- We currently employ two persons engaged in the enhancement of our services through software development. We use telephony hardware that allows us to connect to outside teleconferencing providers. We currently obtain our teleconferencing services from five teleconferencing providers whose service we resell at a mark-up. All our reseller agreements are non-exclusive and are for periods of one year or longer. These agreements are terminable by either party on notice. We are currently working on enhancements to all our proprietary systems with a targeted Fall/Winter 2002 release. These enhancements are intended to improve our product offerings by enabling live question and answer, survey and online voting, and the ability to allow for multiple presenters. SALES AND MARKETING Currently, we have three full-time employees engaged in sales and marketing. Our sales force directly sells our services to targeted companies and associated organizations. These include individual corporations and IR/PR firms with an established and diverse client base. Revenue from our direct sales initiative is primarily commission based. In addition, through indirect sales channels, we seek to extend our services to a wider, broader audience. The primary focus of our indirect sales effort is to establish strategic partner relationships with resellers, such as conferencing and communications providers. Our objective is to benefit from the large and established customer bases of our partners. In return, resellers can take advantage of our reseller discount program. Our direct marketing efforts seek to generate leads through direct mail, email, and telemarketing campaigns aimed at our targeted companies and associated audience. In addition, we seek to maintain and grow positive relationships with our existing customers through newsletters, training initiatives, promotions, and value-add incentives. Our goal is to retain existing customers and to encourage the continued use of our services. Our sales and marketing strategy is reinforced by the viral nature of our services. The very act of participating in an online event exposes new users to our services. It is our goal to convert these new users into new customers. Our public relation efforts include highlighting important technical developments, the announcement of new and enhanced service offerings, promotion of newly established strategic partnerships, along with recognition for awards and company milestones. We seek to enhance our position in our industry through active -11- participation in such public events as industry trade shows, conferences, and speaking engagements. CUSTOMER SERVICE Though our services are primarily automated, requiring limited user interaction or intervention, we offer customer support and technical assistance 24 hours a day, seven days a week. Support is available via telephone or email. COMPETITION In general, the business of providing communication services over the Internet is relatively new, rapidly evolving and is intensely competitive. We believe as the market for these services grows, competition will further intensify. Substantially all our competitors are larger companies with greater financial resources. We believe that in order for our services to be attractive and to be competitive with others providing Internet Webcasting services, we will need to continually enhance and improve our computer hardware and software. Furthermore, as the Internet communications industry evolves and develops, in order to meet competition, we may be required to acquire or develop additional computer hardware and software. We may not have available to us the necessary financial resources to acquire or develop these products. We must continually enhance our services to stay competitive Over the next few years, we expect the market for Webconferencing services to continue to evolve. As more opportunities arise within this market, more companies will enter this market and invest significant resources to develop services that compete with ours. As a result, we expect that competition will continue to intensify. This increase in competition may result in price reductions, reduced sales and margins, loss of market share, and reduced acceptance of our services. There are numerous other companies able to provide Webcasting services all of whom may be deemed to be our competitors There are also numerous other companies providing teleconferencing services substantially all of whom are larger with greater capitalization. These companies have large and established customer bases. Although our marketing efforts are currently directed primarily to a niche of teleconferencing relating to earnings reports and financial reporting, our competitors can be deemed to include AT&T, Global Crossing, MCI Worldcom and Sprint, as well as a large number of traditional operator-assisted teleconferencing providers. -12- We believe that the primary competitive factors in the Webcasting and teleconferencing services market include: o ease of use of services; o quality and reliability of services; o implementation of features that meet the needs of customers; o ability to develop new technologies that seamlessly integrate into the infrastructure of a rapidly evolving industry; o ability to develop and support secure formats for delivery of services; o scalability of communication services; o quality and timeliness of customer service; o competitive pricing; o strong brand recognition; o ability to achieve broad distribution through direct and indirect sales initiatives; and o ability to develop technologies that circumvent the challenges caused by bandwidth constraints and other limitations of the Internet infrastructure. In addition to newly established Webcasting and teleconferencing providers, our primary source of competition stems from standalone providers of traditional teleconferencing, such as AT&T, MCI WorldCom, Sprint, and other telecommunications giants. These companies currently offer bundled teleconferencing services to their customer base, which may include video and data conferencing services and other Web streaming services. We also compete with traditional operator-assisted conferencing providers, such as Conference Plus, Genesys, Intercall, and Premier Conferencing. Competitors of our Webcasting services include: PR Newswire, Vcall and CCBN. We face further competition from resellers of Webcasting and teleconferencing services. Also, some streaming providers have announced their intention to provide Web conferencing services in addition to their streaming services. There are also a number of software and distance-learning companies that may enter the Web conferencing services market. Current competitors or potential competitors may enter the market in the future or expand existing positions in the Web conferencing market through the acquisition of competitors, services, or technologies with the goal of developing an integrated, feature-rich offering of services. In addition, we also face competition from potential strategic alliances among our competitors. -13- Our ability to compete could be significantly hampered should these companies possess large and established customer bases, substantial financial resources, and established distribution channels. To protect our proprietary rights, we rely on a combination of trademarks, service marks, trade secrets, copyrights, employee confidentiality agreements, third parties nondisclosure agreements, and protective contractual provisions. Our protection efforts may prove unsuccessful, and unauthorized parties may copy or infringe upon aspects of our technology, services, or other intellectual property rights. In addition, these parties may develop similar technology independently. Existing trade secret, copyright, and trademark laws offer only limited protection and may not be available in every country in which we sell and market our services. Policing unauthorized use of our proprietary information is difficult. Each trademark, trade name, or service mark appearing in this report belongs to its holder. EMPLOYEES We currently have eight full-time employees, including Mr. Brian Kathler, our President, and Mr. Paul Watkins, our Secretary and Treasurer. Of these employees, four are engaged in marketing activities, two are engaged in software and other development activities, two are engaged in production activities. We also have three part-time employees that provide administrative, accounting and audio technical services. From time to time, we employ the services of outside consultants and third parties who provide software development services, marketing and promotional services and management services. GENERAL Our company was incorporated in January, 1999 under the laws of the state of Nevada. Prior to that time, we conducted operations as ViaVid Broadcasting, Corp., a British Columbia company formed in July, 1994. The British Columbia company was inactive and did not carry on any business operations prior to January, 1999. At that time, it began development of the business described in this Report. We continue to carry on our business through the British Columbia company as a wholly-owned operating subsidiary of the Nevada corporation. In November 1998, the British Columbia company changed its corporate name to ViaVid Broadcasting Corp. We acquired all the outstanding shares of ViaVid Broadcasting Corp. in January, 1999 from Paul Watkins, Cheryl Watkins, 549419 BC Ltd. and Kathler Holdings Inc. in consideration for the issue of a total of 5,100,000 shares of our common stock. Our principal executive offices are located at Suite 340 - 145 Chadwick Court, North Vancouver, British Columbia V7M 3K1. Our telephone number is (604) 988-7667. Our Web site is located at http://www.viavid.com. Information contained on our Web site does not constitute part of this Report. -14- ITEM 2 - DESCRIPTION OF PROPERTY -------------------------------- Our primary business activities are carried on at leased premises located at Suite 340 - 145 Chadwick Court, North Vancouver, British Columbia V7M 3K1. These premises are comprised of approximately 2,000 square feet and are rented on a month-to-month basis at a rate of $3,850 per month. We believe they are adequate for our present activities. ITEM 3 - LEGAL PROCEEDINGS: -------------------------- We are not currently a party to any material legal proceedings. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: ------------------------------------------------------------ No matter was submitted during the fourth quarter of the fiscal year ended March 31, 2002 to a vote of security holders. -15- PART II ------- ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS: --------------------------------------------------------------------- Our Common Stock has been quoted on the OTC Bulletin Board since January 4, 2000 under the symbol VVDB. The following table sets forth the high and low bid quotations on the OTC Bulletin Board for our Common Stock for the period January 4, 2000 through June 12, 2002. Prior to January 4, 2000 there was no active market for our Common Stock.
BID --------------------------------------------------------- CALENDAR QUARTER HIGH LOW ----------------------------------------------------------------------------------------------- 2000: First Quarter $5-1/8 $1-1/2 2000: Second Quarter $3.63 $0.75 2000: Third Quarter $1.05 $0.41 2000: Fourth Quarter $1.88 $0.28 2001: First Quarter $0.63 $0.16 2001: Second Quarter $0.48 $0.11 2001: Third Quarter $0.42 $0.10 2001: Fourth Quarter $0.40 $0.09 2002: First Quarter $0.19 $0.09 2002: Second Quarter (through June 12) $0.14 $0.05
The foregoing amounts, represent inter-dealer quotations without adjustment for retail markups, markdowns or commissions and do not represent the prices of actual transactions. On -16- June 12, 2002, the closing bid quotation for the Common Stock, as reported on the OTC Bulletin Board, was $0.05. As of June 1, 2002, we had approximately 404 shareholders of record. DIVIDEND POLICY We do not intend to pay any dividends on our Common Stock for the foreseeable future. Any determination as to the payment of dividends on our Common Stock in the future will be made by our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial condition and future prospects as well as such other factors as our Board of Directors may deem relevant. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The Company has one equity compensation plan for its employees, Directors and consultants pursuant to which options rights or shares may be granted or issued. See Note 9 to the Notes to Consolidated Financial Statements for further information on the material terms of these plans. The following table provides information as of March 31, 2002 with respect to compensation plans (including individual compensation arrangements), under which securities are authorized for issuance aggregated as to (i) compensation plans previously approved by stockholders, and (ii) compensation plans not previously approved by stockholders: EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c) PLAN CATEGORY NUMBER OF WEIGHTED- NUMBER OF SECURITIES SECURITIES TO BE AVERAGE EXERCISE REMAINING AVAILABLE FOR ISSUED UPON PRICE OF FUTURE ISSUANCE UNDER EXERCISE OF OUTSTANDING EQUITY COMPENSATION OUTSTANDING OPTIONS, PLANS (EXCLUDING OPTIONS, WARRANTS WARRANTS AND SECURITIES REFLECTED IN AND RIGHTS RIGHTS COLUMN (A)) ------------------------------------------------------------------------------------------------------------- Equity compensation plans 1,117,000 $0.30 723,950 approved by security holders Equity compensation plans 200,000 $0.31 -0- not approved by security holders Total 1,317,000 723,950
-17- RECENT ISSUANCES OF UNREGISTERED SECURITIES During the fiscal year ended March 31, 2002, we have issued the following unregistered securities. 1. In June, 2001, we issued 1,290,000 units, each unit consisting of one share of common stock and one warrant to purchase an additional share of common stock at $0.20 per share until February 28, 2004. Each unit was sold for $0.20. The proceeds were $241,700 (net of a finder's fee paid $16,300). Also in June, 2001, we issued 500,000 units, each unit consisting of one share of common stock and one warrant to purchase an additional share of common stock at $0.05 per Unit until February 28, 2004. The proceeds were $25,000. The foregoing units of securities were offered and sold pursuant to Regulations D and S under the Act. Each purchaser represented his intention to acquire the securities for investment only and not with a view to their distribution. Legends were affixed to the stock certificates. 2. In October, 2001, we issued 550,000 shares of common stock upon the exercise of warrants at $0.20 per share. The proceeds were $110,000. Also in October, 2001, we issued 500,000 shares of common stock upon the exercise of warrants at $0.05 per share. The proceeds were $25,000. In December, 2001, we issued 250,000 shares of common stock at $0.05 per share. The proceeds were $12,500. The foregoing securities were offered and sold pursuant to Regulations D and S under the Act. Each purchaser represented his intention to acquire the securities for investment only and not with a view to their distribution. Legends were affixed to the stock certificates. 3. In addition, during the year ended March 31, 2002, we issued an aggregate 900,000 shares to four persons for consulting services rendered. Each person represented his intention to acquire the securities for investment only and not with a view to distribution. Legends were affixed to the stock certificates. The securities were issued in reliance upon the -18- exemption from the registration requirements of the Act afforded by Section 4(2). No underwriter was involved in the issuance of the securities. ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION: ------------------------------------------------------------------ PLAN OF OPERATION Goals and Objectives Our goal is to establish the Company as a leading teleconferencing and Webcasting provider to corporations. Our objectives are to: o Generate teleconferencing revenues through the sales of corporate conference call services o Generate audio/video webcasting revenues through broadcasts of conference calls, corporate presentations, annual general meetings and other related meetings; o Build a revenue base to grow from; and identify new revenue streams as they emerge. STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2001 SALES. Our revenues were $275,280 for the year ended March 31, 2002 compared to revenues of $39,784 for the year ended March 31, 2001. Our revenues were achieved primarily from webcasting, teleconferencing and transcription services. The increase in our revenues is due to the increase in our client base and providing a greater volume of services. EXPENSES. Our operating expenses were $1,038,754 for the year ended March 31, 2002, compared to operating expenses of $1,065,056 for the year ended March 31, 2001. Consulting fees, salaries and benefits and stock-based compensation totalled $563,201 for the year ended March 31, 2002, compared to $640,480 for the year ended March 31, 2001. Consulting fees and salaries decreased by $139,076 because the number of staff required for our new services has been significantly reduced. Stock-based compensation increased slightly because of the increase of stock options granted to consultants. -19- Our amortization expenses decreased from $51,702 in the year ended March 31, 2001 to $44,460 in the year ended March 31, 2002 because of the reduction in assets required for our new services and the lower asset base. Internet fees decreased because of the lower rates now offered by internet companies. Office and miscellaneous expenses decreased from $89,442 in 2001 to $75,261 in 2002 because of the reduction of staff. Travel and promotion declined from $21,839 in 2001 to $2,887 in 2002 because of the shift in focus towards our new products and services which did not require extensive travel. We will incur additional operating expenses as we continue to grow our business. We will continue to have operating expenses in connection with the continued up-grade of our services and related research and development expenses. We also anticipate that operating expenses will increase as the number of teleconferences and Webcasts which we provide to our customers increases. NET LOSS. Our net loss was $764,696 or $(0.07) per share for the year ended March 31, 2002. Fully diluted loss per share was the same. Our net loss was $1,018,361 or $(0.14) per share for the year ended March 31, 2001. Our net loss reflects the fact that we have not earned significant revenues to date. YEAR ENDED MARCH 31, 2001 SALES. Our revenues were $39,784 for the year ended March 31, 2001 compared to revenues of $44,644 for the year ended March 31, 2000. Our revenues were achieved primarily from video production and Internet broadcast services provided to our customers. OPERATING EXPENSES. Our operating expenses were $1,065,056 for the year ended March 31, 2001, compared to operating expenses of $1,055,294 for the year ended March 31, 2000. The increase in operating expenses was due to the additional equipment purchased to conduct our business. NET LOSS. Our net loss was $1,018,361, or $(0.14) per share, for the year ended March 31, 2001. Our net loss was $1,005,146 for the year ended March 31, 2000. -20- LIQUIDITY AND CAPITAL RESOURCES Our operations to date have been financed principally through sales of our equity securities. We had cash of $10,616 as of March 31, 2002 compared to cash of $51,918 as of March 31, 2001. During the period April 1, 2001 through March 31, 2002, we realized net proceeds of $448,200 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, I.R. Web Page services, transcription services 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, 2003: o Continue to develop a customer base of companies to use our services for teleconferencing and Webcasting of corporate information, as well as customers requiring I.R. Pages and transcription services. 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 $250,000 intended to be raised from external sources over the twelve-month period ending March 31, 2003 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. -21- 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, Webcasting and transcription services. We anticipate an increase in revenue from these sources if we are successful in increasing our customer base. 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 -22- 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 other 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. 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 23. 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. -23- 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 March 31, 2002 are $363,144. Our total losses since inception through March 31, 2002 are $2,859,871. 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, 2002 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 March 31, 2002, we had current assets of $96,692 and current liabilities of $94,767. In order to meet our Plan of Operations, we will need to raise additional capital. Our budget for the year ending March 31, 2003 calls for us to raise an additional $250,000 in capital during the year ending March 31, 2003. 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 -24- 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. -25- 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. 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 $250,000 of additional capital to be applied to meeting these objectives through March 31, 2003. 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 year ended March 31, 2002, we incurred a loss of $764,696 on revenues of $275,280. 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. -26- DEPENDENCE ON WEBCASTING, TELECONFERENCING AND TRANSCRIPTION REVENUE We currently expect that webcasting, teleconferencing, transcription and I.R. Pages will continue to be the principal source of our revenue in the foreseeable future. Our ability to generate webcasting, teleconferencing, I.R. Page and transcription revenue will depend on several factors, including: o the pricing of webcasting, teleconferencing, I.R. Page and transcription services by others, o our ability to develop and retain a skilled sales force. 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, teleconferencing, I.R. Pages and transcription, 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. -27- 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; 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. -28- 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. -29- 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 Vancouver, 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 -30- 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 and 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 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 of 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. -31- 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. 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. -32- 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. In November, 2001, the moratorium was extended through November 1, 2003. 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. 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 -33- 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 our products and services, we rely on a combination of: o copyright, unfair competition, trademark, service mark and trade secret laws, and -34- o confidentiality agreements with our licensees and other third parties and confidentiality agreements and policies covering our employees. We cannot assure you that these measures will be adequate, that we will be able to secure registrations for all of our 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 35.3% 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. -35- 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. 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. ITEM 7 - FINANCIAL STATEMENTS: ----------------------------- The response to this Item is included in a separate section of this report. See page F-1. ITEM 8 - CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: ---------------------------------------------------------------------------- During the two fiscal years ended March 31, 2002, we did not file any Current Report on Form 8-K reporting any change in accountants in which there was a reported disagreement on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. -36- PART III ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; ---------------------------------------------------------------------- COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT: ------------------------------------------------- Our Directors and executive officers, their ages, and positions with us, as well as their employment background for the past five years are as follows: NAME AGE POSITION ---- --- -------- Brian Kathler 39 President and Director Paul Watkins 38 Secretary, Treasurer and Director Robert Gamon 54 Director James King 58 Director Brian Kathler has been our President and a Director since January, 1999. Mr. Kathler has served as the President and a director of our subsidiary, ViaVid Broadcasting Corp. since October 31, 1998. Prior to joining us, Mr. Kathler was a self-employed computer consultant from July, 1997 to November, 1998. Mr. Kathler provided technical consulting services to several public companies based in Vancouver, British Columbia, Canada as a self-employed computer consultant. Mr. Kathler was a co-founder and a director of Riptide Technologies, a company involved in the business of software consulting, from 1996 to July, 1997. Mr. Kathler was employed as a senior software engineer by MPR Teltech, a company involved in the business of telephone research from 1994 to 1996. Mr. Kathler possesses more than fourteen years of experience in the computer software development, consulting and management industry. Over this fourteen year period, Mr. Kathler has worked in a number of areas of the software development industry ranging from programming to assisting companies in getting started. Paul Watkins has been a Director since January, 1999. Mr. Watkins has also served as a director of our subsidiary, ViaVid Broadcasting Corp., since October 31, 1998. Mr. Watkins founded Watkins Communications Inc., an Internet marketing and news dissemination company with clients in the financial industry, in 1994. Mr. Watkins has been the president and director of Watkins Communications Inc. from 1994 to the present. Mr. Watkins has a background in computer sciences and has over 10 years experience in the business of investor communications. -37- Robert Gamon joined our board of directors on November 23, 1999. Mr. Gamon has been a director of our subsidiary, ViaVid Broadcasting Corp. since November, 1998. Mr. Gamon was an investment advisor with Pacific International Securities of Vancouver, British Columbia from November, 1997 to November, 1999. Mr. Gamon was an investment advisor with Georgia Pacific Securities of Vancouver, British Columbia from 1991 to November, 1997. James King is the General Manager of Technicolor Canada. Prior to his position at Technicolor, Mr. King worked in the video industry since 1990. From February of 1992 to June 1999, Mr. King was President of VTR Video. VTR manufactured and distributed video products in Canada for major Hollywood studios. In June 1999, Technicolor, a manufacturer of video and optical products, purchased VTR Video. Mr. King continues as the head of Technicolor Canada. Mr. King is a graduate of The University of British Columbia, and is a registered Professional Engineer. Prior to 1990 Mr. King worked in management roles with Union Carbide, Gas Products Division. He was a senior consultant with Roy Jorgensen Associates, a firm specializing in Maintenance Management systems for cities, municipalities and provincial Governments. Mr. King became a Director of our company on January 19, 2000. Our Directors are elected for terms of one year to hold office until the next annual meeting of the holders of our common stock, as provided by the Nevada Revised Statutes, or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. DIRECTOR AND OFFICER SECURITIES REPORTS The Federal securities laws require our Directors and executive officers, and persons who own more than ten percent (10%) of a registered class of our equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of any of our equity securities. Copies of such reports are required to be furnished to us. To our knowledge, based solely on a review of the copies of such reports and other information furnished to us, all persons subject to these reporting requirements filed the required reports on a timely basis with respect to the year ended March 31, 2002. -38- ITEM 10. EXECUTIVE COMPENSATION: -------------------------------- SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid or awarded to our President during the three fiscal years ended March 31, 2002 for all services rendered to us in that year. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ----------------------------------------------------------------------- BONUS/ANNUAL SECURITIES LONG-TERM NAME AND INCENTIVE UNDERLYING INCENTIVE ALL OTHER PRINCIPAL POSITION YEAR SALARY AWARD OPTIONS PAYOUTS COMPENSATION ------------------------------------------------------------------------------------------------------- Brian Kathler 2000 $52,500 -0- -0- -0- -0- 2001 $60,000 -0- -0- -0- -0- 2002 $17,000 -0- -0- -0- -0- ----------------------------------------------------------------------------------------------------------------------
(1) Options granted to Mr. Kathler in 1999 were cancelled in January 2000. EMPLOYMENT AGREEMENTS The services of Brian Kathler, our President, are provided pursuant to a consulting agreement dated March 31, 2002 between Kathler Holdings Ltd and us. The following services of Mr. Kathler are provided pursuant to this agreement: (1) general direction and supervision of our business and financial affairs; (2) overall direction to our management; (3) management of our day to day operations; and (4) performing such other duties and observing such instructions as may be reasonably assigned to Mr. Kathler by our Board of Directors. The agreement has a term of one year. The compensation we pay to Kathler Holdings Inc. was increased from $5000 per month to $6,500 per month effective March 31, 2002. The services of Mr. Kathler under this agreement are on a full time basis. The services of Paul Watkins, Secretary, Treasurer and a director, are provided pursuant to a consulting agreement dated March 31, 2002 between Watkins Communications Inc and us. The following services of Mr. Watkins are provided to us pursuant to this agreement: (1) the exercise of general direction and supervision over the marketing and development of our business; (2) providing direction to our management; (3) assisting with our day to day operations; and (4) performing such other duties and observing such instructions as may be reasonably assigned by our Board of Directors. The agreement is for a term of one year. The compensation that we pay to Watkins Communications Inc. was increased from $5,000 per month to $6,500 per -39- month effective March 31, 2002. The services of Mr. Watkins under this agreement are on a full time basis. The services of Robert Gamon, a director, are provided pursuant to a consulting agreement between us and Mr. Gamon. dated March 31, 2002. The following services of Mr. Gamon are provided to us pursuant to this agreement: (1) supervising the financing activities of the Company; (2) advising the Company on its capital structure and the structure of future financings; and (3) performing such other duties and observing such instructions as may be reasonably assigned by our Board of Directors. The agreement is for a term of one year. The compensation that we pay to Mr. Gamon was increased from $5,000 per month to $6,500 per month effective March 31, 2002. The services of Mr. Gamon under this agreement are on a full time basis. ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: ------------------------------------------------------------------------ The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding common stock as of March 31, 2002 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly. NAME AND ADDRESS PERCENT OF BENEFICIAL OWNER(1) AMOUNT OF CLASS(2) ---------------------- ------ ----------- Brian Kathler (3) 1,635,000 shares 13.6% Director, President Paul Watkins(4) 817,500 shares 6.8% Secretary, Treasurer, and Director Robert Gamon (5) 1,635,000 shares 13.6% Director James King(6) 156,800 shares 1.3% Director Cheryl Watkins (7) 817,500 shares 6.8% All Officers and Directors 4,344,300 shares 35.3% as a Group (4 persons) -------------------------------------------------------------------------------- (1) Unless otherwise indicated, the address of such person is c/o of the Company. -40- (2) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of shares of Common Stock actually outstanding at June 12, 2002. As of June 12, 2002, there were 12,023,000 shares of the Company's common stock issued and outstanding. In addition, there were 1,092,000 shares subject to options exercisable within 60 days of the date of this registration statement. (3) The 1,635,000 shares of common stock beneficially owned by Brian Kathler are registered in the name of Kathler Holdings Inc., a private company controlled by Mr. Kathler. (4) Excludes 817,500 shares held by Mr. Watkins' wife as to which Mr. Watkins disclaims a beneficial interest. Paul Watkins and Cheryl Watkins are husband and wife. (5) The 1,635,000 shares of common stock beneficially owned by Robert Gamon are registered in the name of 595871 BC Ltd., a private company controlled by Mr. Gamon. (6) Mr. King holds 51,200 shares directly. His holdings also include 50,000 shares issuable on exercise of an option at $0.30 per share and 50,000 shares issuable on exercise of a warrant at $0.20 per share, 5,000 shares held by his wife, as to which he disclaims a beneficial interest and 600 shares held by his minor children as to which he disclaims a beneficial interest. (7) Excludes 817,500 shares held by Ms. Watkins' husband as to which Ms. Watkins disclaims a beneficial interest. Paul Watkins and Cheryl Watkins are husband and wife. ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: -------------------------------------------------------- We acquired our subsidiary, ViaVid Broadcasting Corp., on January 27, 1999 from Paul Watkins, Cheryl Watkins, 549419 BC Ltd. and Kathler Holdings Inc. in consideration for the issue of 5,100,000 shares of our common stock issued as follows: o Kathler Holdings Inc. was issued 1,700,000 shares. Kathler Holdings Inc. is a private company controlled by Brian Kathler, our President and a Director. o Paul Watkins, our Secretary, Treasurer and a Director, was issued 850,000 shares. o Cheryl Watkins, the wife of Mr. Watkins, was issued 850,000 shares. Mr. Watkins disclaims a beneficial interest in these shares. o 549419 BC Ltd. was issued 1,700,000 shares. 549419 BC Ltd. is a private company controlled by Robert Gamon, a Director. These shares are now held by 595871 BC Ltd., a private company controlled by Robert Gamon, a Director. We have entered into a consulting contract with Kathler Holdings Inc. for the services of Brian Kathler, our President and a Director. We have also entered into a consulting contract with -41- Watkins Communications Inc. for the services of Mr. Paul Watkins, our Secretary/Treasurer and a Director, and Mr. Robert Gamon for his services as a Director. We have also repaid on September 15, 1999 the following loans to our shareholders and Directors: Shareholder/Director Loan Repayment -------------------- -------------- Kathler Holdings Inc. $3,240 549419 B.C. Ltd. $4,520 Paul Watkins $4,790 As of March 31, 2002, we are indebted to each of Mr. Kathler, 595871 and Mr. Watkins an aggregate of $155,858 for their monthly compensation that was deferred. In March 2002, we issued our 3% convertible promissory notes in the principal amount of $50,000 to each of Kathler Holdings, Inc.,595871 BC Ltd. and Watkins Communications Inc. The notes were issued in place of amounts owing to those persons for services rendered by Brian Kathler, Robert Gamon and Paul Watkins, respectively, during the period May 31, 2000 to February 28, 2002. Interest is payable on the notes at 3% per annum (5% if past due) and is payable at maturity in cash or by issuance of shares of common stock based on their fair market value. The principal and accrued interest on the notes is convertible at any time into shares of our common stock at a conversion price equal to the lesser of $0.50 and 80% of the fair market value of a share of common stock, subject to adjustment in the event of stock splits or combinations. Fair market value is determined based on the average of the closing bid and asked prices for our common stock on the 20 trading days preceding the date on which we receive notice of conversion of the note or the date interest is paid by deliver of shares.. The notes become due and payable on December 31, 2004, or prior thereto in the event of a default. We have agreed to file on one occasion a registration statement under the U.S. Securities Act of 1933, as amended, to register the offer and sale of the shares issuable on conversion of the notes on the demand of any holder of the notes. We have no other loans outstanding to any of our officers, Directors or principal shareholders. -42- PART IV ------- ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K: ------------------------------------------
(a) EXHIBIT DESCRIPTION ----------------------- ----------------------------------------------------------------------------------- 3.1 Articles of Incorporation* 3.2 By-Laws of the Company* 10.1 Acquisition Agreement dated January 26, 1999 between the Company and Mr. Paul Watkins, Ms. Cheryl Watkins, 549419 BC Ltd. and Kathler Holdings Inc.* 10.2 Consulting Contract dated March 31, 2002 with Kathler Holdings Inc. and Brian Kathler. 10.3 Consulting Contract dated March 31, 2002 with Watkins Communications Inc. and Paul Watkins. 10.4 Consulting Contract dated March 31, 2002 with Robert Gamon 21.0 Subsidiaries of Registrant: Name State or Jurisdiction of Incorporation ---- -------------------------------------- ViaVid Broadcasting Corp. British Columbia
------------------------ * Filed as an exhibit to the Registrant's Registration Statement on Form 10-SB filed June 29, 1999 (File No. 0-26535). (b) Reports on Form 8-K The Registrant has not filed any Current Reports on Form 8-K for the quarter ended March 31, 2002. -43- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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. VIAVID BROADCASTING, INC. BY: /s/ Brian Kathler -------------------------------------- Brian Kathler, PRESIDENT Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/Brian Kathler President (Principal June 20, 2002 ----------------------------- Executive Officer and Principal Brian Kathler Financial and Accounting Officer and Director) /s/ Paul Watkins ----------------------------- Director June 20, 2002 Paul Watkins /s/ Robert Gamon ----------------------------- Director June 20, 2002 Robert Gamon /s/ James King ----------------------------- Director June 20, 2002 James King
REPORTS\2001\FORM10-Ks\10-KSB Draft -44- VIAVID BROADCASTING INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 F-1 DAVIDSON & COMPANY Chartered Accountants A Partnership of Incorporated Professionals
INDEPENDENT AUDITORS' REPORT To the Shareholders of ViaVid Broadcasting Inc. (A Development Stage Company) We have audited the consolidated balance sheets of ViaVid Broadcasting Inc. as at March 31, 2002 and 2001 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended and for the period from the start of the development stage on January 20, 1999 to March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2002 and 2001 and the results of its operations and its cash flows for the years then ended and for the period from the start of the development stage on January 20, 1999 to March 31, 2002 in accordance with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming that ViaVid Broadcasting Inc. will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's losses from operations since inception raises substantial doubt as to the Company's ability to continue as a going concern, unless the Company attains future profitable operations and/or obtains additional financing. These financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might result from the outcome of this uncertainty. "DAVIDSON & COMPANY" Vancouver, Canada Chartered Accountants May 1, 2002 A Member of SC INTERNATIONAL 1200 - 609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, BC, Canada, V7Y 1G6 Telephone (604) 687-0947 Fax (604) 687-6172 F-2 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS AS AT MARCH 31
====================================================================================================================== 2002 2001 ---------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT Cash $ 10,616 $ 51,918 Accounts receivable 86,076 28,330 Prepaid expenses -- 9,366 ----------- ----------- Total current assets 96,692 89,614 CAPITAL ASSETS (Note 4) 129,578 163,290 ----------- ----------- Total assets $ 226,270 $ 252,904 ====================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities $ 88,909 $ 54,848 Due to related parties (Note 5) 5,858 36,044 ----------- ----------- Total current liabilities 94,767 90,892 CONVERTIBLE PROMISSORY NOTES (Note 6) 150,000 -- ----------- ----------- 244,767 90,892 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock (Note 7) Authorized 25,000,000 common shares with a par value of $0.001 per share Issued and outstanding 12,023,000 common shares (2001 - 8,113,000 common shares) 12,023 8,113 Additional paid-in capital 2,829,351 2,143,074 Share subscriptions received in advance -- 106,000 Deficit accumulated during the development stage (2,859,871) (2,095,175) ----------- ----------- Total stockholders' (deficit) equity (18,497) 162,012 ----------- ----------- Total liabilities and stockholders' equity $ 226,270 $ 252,904 ====================================================================================================================== NATURE OF OPERATIONS (Note 1) SUBSEQUENT EVENT (Note 11)
The accompanying notes are an integral part of these consolidated financial statements. F-3 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================================================= Period From Incorporation on January 20, 1999 to Year Ended Year Ended March 31, March 31, March 31, 2002 2002 2001 ----------------------------------------------------------------------------------------------------------------- REVENUE Broadcast and web income $ 363,144 $ 275,280 $ 39,784 ------------ ------------ ------------ EXPENSES Amortization 135,711 44,460 51,702 Bad debts 3,677 3,677 -- Conference calls 331,642 198,112 133,530 Consulting 968,000 293,281 368,291 Foreign exchange 13,654 665 8,967 Interest expense 37,500 37,500 -- Office and miscellaneous 288,437 75,261 89,442 Professional fees 261,321 74,672 72,997 Rent 139,724 38,319 46,099 Salaries and benefits 343,160 88,165 152,231 Stock based compensation 639,342 181,755 119,958 Travel and promotion 72,040 2,887 21,839 ------------ ------------ ------------ 3,234,208 1,038,754 1,065,056 ------------ ------------ ------------ LOSS BEFORE OTHER ITEMS (2,871,064) (763,474) (1,025,272) ------------ ------------ ------------ OTHER ITEMS Loss on sale of assets (2,118) (2,118) -- Interest income 13,311 896 6,911 ------------ ------------ ------------ 11,193 (1,222) 6,911 ------------ ------------ ------------ LOSS FOR THE PERIOD $ (2,859,871) $ (764,696) $ (1,018,361) ================================================================================================================= BASIC AND DILUTED LOSS PER SHARE $ (0.07) $ (0.14) ================================================================================================================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,910,370 7,288,729 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-4 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
============================================================================================================================= Common Stock Deficit ------------------------- Sub- Accumulated Additional scriptions During the Number Paid-in Received Development of Shares Amount Capital in Advance Stage Total ----------------------------------------------------------------------------------------------------------------------------- Shares issued on acquisition (Note 1) 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 private placement 740,000 740 369,260 -- -- 370,000 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 -- -- 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 =============================================================================================================================
- continued - The accompanying notes are an integral part of these consolidated financial statements. F-5 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================================================================ Common Stock Deficit -------------------------- Sub- Accumulated Additional scriptions During the Number Paid-in Received Development of Shares Amount Capital in Advance Stage Total -------------------------------------------------------------------------------------------------------------------------------- Continued... 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 Finders fee on private placement -- -- (15,825) -- -- (15,825) 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 Shares issued for exercise of warrants 550,000 550 109,450 -- -- 110,000 Shares issued for exercise of warrants 500,000 500 24,500 -- -- 25,000 Shares issued for exercise of stock options 170,000 170 33,830 -- -- 34,000 Shares issued for consulting fees 100,000 100 4,900 -- -- 5,000 Shares issued for consulting fees 250,000 250 12,250 -- -- 12,500 Shares issued for cash 250,000 250 12,250 -- -- 12,500 Finders fee -- -- (15,243) -- -- (15,243) Stock-based compensation for options issued to consultants -- -- 181,755 -- -- 181,755 Issuance of convertible promissory notes -- -- 37,500 -- -- 37,500 Return to treasury (250,000) (250) (24,750) -- -- (25,000) Loss for the year -- -- -- -- (764,696) (764,696) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2002 12,023,000 $ 12,023 $ 2,829,351 $ -- $(2,859,871) $ (18,497) ================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-6 VIAVID BROADCASTING INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
=========================================================================================================================== Period From Incorporation on January 20, 1999 to Year Ended Year Ended March 31, March 31, March 31, 2002 2002 2001 --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Loss for the period $(2,859,871) $ (764,696) $(1,018,361) Items not affecting cash Amortization 135,711 44,460 51,702 Stock based compensation 639,342 181,755 119,958 Consulting fees 153,000 37,500 115,500 Intrinsic value of beneficial conversion feature of convertible promissory notes 37,500 37,500 -- Loss on sale of assets 2,118 2,118 -- Changes in non-cash working capital items Increase in accounts receivable (86,076) (57,746) (22,166) Decrease in prepaid expenses -- 9,366 3,679 Increase in accounts payable and accrued liabilities 88,909 34,061 23,054 ----------- ----------- ----------- Net cash used in operating activities (1,889,367) (475,682) (726,634) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of capital assets (271,667) (22,561) (31,252) Acquisition of subsidiary (335) -- -- ----------- ----------- ----------- Net cash used in investing activities (272,002) (22,561) (31,252) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from shares issued 1,900,432 327,432 551,000 Proceeds from sale of assets 9,695 9,695 -- Subscriptions received in advance 106,000 -- 106,000 Loans from related parties 155,858 119,814 18,264 ----------- ----------- ----------- Net cash provided by financing activities 2,171,985 456,941 675,264 ----------- ----------- ----------- CHANGE IN CASH FOR THE PERIOD 10,616 (41,302) (82,622) CASH, BEGINNING OF PERIOD -- 51,918 134,540 ----------- ----------- ----------- CASH, END OF PERIOD $ 10,616 $ 10,616 $ 51,918 =========================================================================================================================== SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 10)
The accompanying notes are an integral part of these consolidated financial statements. F-7 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 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 related Canadian company operating in Vancouver, British Columbia, Canada. VBC was incorporated under the laws of British Columbia on July 26, 1994. The Company's primary business is to provide webcasting, teleconferencing and transcription services to corporate clients throughout North America. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage Enterprises", the Company is deemed to be in the development stage. 2. GOING CONCERN As at March 31, 2002, the Company has an accumulated deficit of $2,859,871. 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. 3. SIGNIFICANT ACCOUNTING POLICIES ESTIMATES In preparing these consolidated financial statements in conformity with United States 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 year. Actual results in future periods could be different from these estimates made in the current year. 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. F-8 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) CASH 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 SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". 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 March 31, 2002 and 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, accounts receivable, accounts payable and accrued liabilities, due to related parties and convertible promissory notes. 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. REVENUE RECOGNITION Revenue is recognized once the audio conference, filming or editing of a project has been completed and invoices and collection of the amounts is reasonably assured. F-9 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) FOREIGN CURRENCY TRANSLATION The Company accounts for foreign currency transactions and translation of foreign currency financial statements under SFAS No. 52, "Foreign Currency Translation". 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 weighted average number of shares outstanding for 2002, 10,910,370, and 2001, 7,288,729, do not include the 1,112,000 (2001 - 372,000) warrants outstanding, the stock options of 1,117,000 (2001 - 667,000) and the 250,000 shares of common stock returned to treasury subsequent to March 31, 2002, as their effect would be anti-dilutive. 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. F-10 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) 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". NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB approved the issuance of SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that all business combinations be accounted for using the purchase method of accounting making the use of the pooling-of-interest ___ method prohibited. This statement also establishes criteria for separate recognition of intangible assets acquired in a purchase business combination. SFAS 141 is effective for business combinations completed after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The statement is effective for fiscal years beginning after December 15, 2001, and is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of this statement (resulting from a transitional impairment test) are to be reported as resulting from a change in accounting principle. Under an exception to the date at which this statement becomes effective, goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the non-amortization and amortization provisions of this statement. In July 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" that records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets. The initial recognition of the liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. SFAS 143 is required to be adopted effective January 1, 2003. In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment on Disposal of Long-lived Assets", which supersedes SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of". SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and, generally, its provisions are to be applied prospectively. The adoption of these new pronouncements is not expected to have a material effect on the Company's financial position or results of operations. F-11 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 4. CAPITAL ASSETS
======================================================================================= Accumulated Net Book Cost Amortization Value --------------------------------------------------------------------------------------- 2002 Computer equipment $170,465 $ 90,249 $ 80,216 Office furniture 17,011 6,027 10,984 Telephone and video equipment 67,932 29,554 38,378 -------- -------- -------- $255,408 $125,830 $129,578 ======== ======== ======== 2001 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 =======================================================================================
5. RELATED PARTY TRANSACTIONS The Company entered into the following transactions with related parties: a) Paid or accrued consulting fees of $155,858 (2001 - $194,848) to three directors of the Company b) Issued three 3% convertible promissory notes of $50,000 each for a total debt of $150,000 (2001 - $Nil) to related parties (Note 6). 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, other than the convertible promissory notes, are unsecured and non-interest bearing, therefore, the fair value of the amounts owed to the related parties is not determinable. F-12 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 6. CONVERTIBLE PROMISSORY NOTES
================================================================================================================= 2002 2001 ----------------------------------------------------------------------------------------------------------------- On March 11, 2002, the Company issued three convertible promissory notes to related parties at $50,000 each bearing interest at 3% per annum, payable at maturity on December 31, 2004. The promissory notes are convertible at any time at the option of the holder into common shares of the Company at the lesser of $0.50 per share and 80% of the fair market value of the common shares, but not less than $0.05 per share. The intrinsic value of the beneficial conversion feature of $37,500 was charged to interest expense for the current year. $ 150,000 $ -- Current portion -- -- --------- --------- Long term $ 150,000 $ -- =================================================================================================================
7. CAPITAL STOCK In April 2001, the Company issued 200,000 shares of common stock for consulting services for an agreed amount of $10,000. In June 2001, the Company issued 1,290,000 units at $0.20 per unit pursuant to a unit offering. 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. In June 2001, the Company issued 350,000 shares of common stock for consulting services for an agreed amount of $35,000. In June 2001, the Company issued 500,000 units at $0.05 per unit pursuant to a unit offering. 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. In October 2001, the Company issued 550,000 shares of common stock upon the exercise of warrants at $0.20 per share. In October 2001, the Company issued 500,000 shares of common stock upon the exercise of warrants at $0.05 per share. In October 2001, the Company issued 170,000 shares of common stock upon the exercise of stock options at $0.20 per share. In October 2001, the Company issued 100,000 shares of common stock for consulting services for an agreed amount of $5,000. F-13 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 7. CAPITAL STOCK (cont'd...) In November 2001, the Company issued 250,000 shares of common stock for consulting services for an agreed amount of $12,500. In December 2001, the Company issued 250,000 shares of common stock at $0.05 per share. Subsequent to year end, 250,000 shares of common stock issued for consulting fees at an agreed value of $25,000 were returned to treasury. WARRANTS ======================================================================= 2002 2001 ----------------------------------------------------------------------- Balance, beginning of the year 372,000 -- Issued during the year 1,790,000 372,000 Exercised during the year (1,050,000) -- ---------- ---------- Balance, end of the year 1,112,000 372,000 ======================================================================= As at March 31, 2002, there were 372,000 warrants outstanding that are exercisable into 372,000 common shares at $0.50 per share until September 30, 2003, and 740,000 warrants outstanding that are exercisable into 740,000 common shares at $0.20 per share until February 28, 2004. 8. INCOME TAXES The Company's total deferred income tax asset is as follows: ================================================================================ 2002 2001 -------------------------------------------------------------------------------- Tax benefit of net operating loss carry forward $ 855,500 $ 677,900 Valuation allowance (855,500) (677,900) --------- --------- $ -- $ -- ================================================================================ The Company has an operating loss carryforward of approximately $423,000 which expires in the year 2022. The Company's subsidiary, ViaVid Broadcasting Corp., has Canadian operating losses carryforward of approximately $1,670,000 which expire from 2004 to 2009. The Company has provided a full valuation allowance on the deferred tax asset due to the uncertainty regarding realizability. F-14 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 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 the 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:
================================================================================================== 2002 2001 -------------------------- --------------------------- Weighted Weighted Average Average Number Exercise Number Exercise of Shares Price of Shares Price ------------------------------------------------------------------------------------- --------------- Outstanding, beginning of year 667,000 $ 0.55 642,000 $ 1.49 Granted 960,000 0.17 715,000 0.85 Forfeited (340,000) 0.46 (360,000) (1.33) Exercised (170,000) 0.20 (330,000) (0.64) --------- -------- Outstanding, end of year 1,117,000 $ 0.30 667,000 $ 0.55 ==================================================================================================
The weighted average fair value of options granted to employees, non-employees and consultants during the current year was approximately $0.14 (2001 - $0.43) per share. - continued - F-15 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 9. STOCK-BASED COMPENSATION EXPENSE (cont'd...) Following is a summary of the status of options outstanding at March 31, 2002:
======================================================================================================== Outstanding Options Exercisable Options --------------------------------------- ------------------------- Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Exercise Exercise Price Number Life Price Number Price -------------------------------------------------------------------------------------------------------- $ 0.30 25,000 0.04 $ 0.30 25,000 $ 0.30 1.00 20,000 0.65 1.00 20,000 1.00 0.30 80,000 0.80 0.30 80,000 0.30 1.00 12,000 0.80 1.00 12,000 1.00 3.50 25,000 0.92 3.50 25,000 3.50 0.30 50,000 1.03 0.30 50,000 0.30 0.37 20,000 1.22 0.37 20,000 0.37 1.00 10,000 1.51 1.00 10,000 1.00 0.40 25,000 1.78 0.40 25,000 0.40 0.30 15,000 1.84 0.30 15,000 0.30 0.30 45,000 1.97 0.30 45,000 0.30 0.30 10,000 2.00 0.30 10,000 0.30 0.20 150,000 2.02 0.20 150,000 0.20 0.30 15,000 2.25 0.30 12,000 0.30 0.20 15,000 2.55 0.20 15,000 0.20 0.30 100,000 2.60 0.30 100,000 0.30 0.10 500,000 2.88 0.10 500,000 0.10 ========================================================================================================
NON-VESTED STOCK OPTIONS The Company has 3,000 stock options exercisable at $0.30 per share that will become fully vested as of April 1, 2002. F-16 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 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: ======================================================================= 2002 2001 ----------------------------------------------------------------------- NET LOSS As reported $ (764,696) $ (1,018,361) ======================================================================= Pro forma $ (768,089) $ (1,058,854) ======================================================================= BASIC AND DILUTED LOSS PER SHARE As reported $ (0.07) $ (0.14) ======================================================================= Pro forma $ (0.07) $ (0.15) ======================================================================= 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: ======================================================================= 2002 2001 ----------------------------------------------------------------------- Risk-free interest rate 0.00% - 4.327%% 4.300% - 6.484% Expected life of the options 2 years 2 years Expected volatility 180.41% - 234.29% 50%-175.85% 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 "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". The Company granted 925,000 options to third party consultants during the year ended March 31, 2002 and accordingly, the stock based compensation recognized using the Black Scholes Option pricing model was $127,756. The amount expensed during 2002 was $181,755, and the total unamortized balance is $86,871. This amount can be allocated to another expense category in the accompanying consolidated statements of operations as consulting fees. F-17 VIAVID BROADCASTING INC. (A Development Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ 10. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS ======================================================================= 2002 2001 ---------------------------------------------------------------------- Cash paid for income taxes $ -- $ -- ======================================================================= Cash paid for interest $ -- $ -- ======================================================================= The following non-cash investing and financing transactions occurred during the period ended March 31, 2002: a) The Company issued 900,000 shares of common stock at an agreed value of $62,500 for consulting services of which 250,000 shares at an agreed value of $25,000 were returned to treasury subsequent to year end. b) The Company issued three convertible promissory notes at an agreed value of $50,000 each for a total of $150,000 to related parties. The intrinsic value of beneficial conversion feature of $37,500 was charged to interest expense for the year. c) The Company issued 530,000 shares of common stock for $106,000 which were share subscriptions received at March 31, 2001. The following non-cash, investing and financing transactions occurred during the year ended March 31, 2001: a) The Company issued 75,000 shares of common stock at an agreed value of $37,500 for consulting services. b) The Company issued 4,000 shares of common stock at a deemed value of $2,000 for finders fees. c) The Company issued 312,000 shares of common stock at a deemed value of $78,000 for consulting services. 11. SUBSEQUENT EVENT Subsequent to March 31, 2002, the Company returned to treasury 250,000 shares of common stock which had been issued for consulting services for an agreed amount of $25,000. F-18