U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-KSB [X] Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003. [ ] Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____. COMMISSION FILE NO: 0-31497 VIDEO WITHOUT BOUNDARIES INC. (Name of small business in its charter) FLORIDA 65-1001686 -------- ---------- (State or other jurisdiction (IRS Employer of Incorporation) Identification No.) 1975 E. SUNRISE BLVD., 5TH FLOOR --------------------------------- Address of Principal Executive Office (street and number) FORT LAUDERDALE, FL 33304 ---------------------------- City, State and Zip Code Issuer's telephone number: (954) 462-8302 Securities registered under Section 12(b) of the Act: None Securities to be registered under Section 12(g) of the Act: Common Stock, par value $.001 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenue for its most recent fiscal year: $190,770 State 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 priced of such stock, as of a specified date within the past 60 days (See definition of affiliate in Rule12b-2): $31,527,728 as of February 29, 2004. Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. (Issuers involved in bankruptcy proceedings during the past five years) Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ____ No ____ (Applicable only to corporate registrants) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 25,948,747 shares of common stock as of February 29, 2003. (Documents incorporated by reference. If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes. FACTORS THAT MAY AFFECT FUTURE RESULTS This Annual Report on Form 10-KSB and the documents incorporated herein by reference contains certain forward-looking statements within the meaning of the Federal Securities Laws. Specifically, all statements other than statements of historical facts included in this Annual Report on Form 10-KSB regarding our financial performance, business strategy and plans and objectives of management for future operations are forward-looking statements and based on our beliefs and assumptions. If used in this report, the words "anticipate," "believe," "estimate", "expect," "intend," and words or phrases of similar import are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties, and assumptions, including but without limitation, those risks and uncertainties contained in our Annual Report on Form 10-KSB. Although we believe that our expectations are reasonable, we can give no assurance that such expectations will prove to be correct. Based upon changing conditions, any one or more of these events described herein as anticipated, believed, estimated, expected or intended may not occur. All prior and subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement. 1 VIDEO WITHOUT BOUNDARIES, INC. FORM 10-KSB TABLE OF CONTENTS PART I ITEM 1. Description of Business ITEM 2. Description of Property ITEM 3. Legal Proceedings ITEM 4. Submission of Matters to a Vote of Security Holders PART II ITEM 5. Market for Common Equity and Related Stockholder Matters ITEM 6. Management's Discussion and Analysis or Plan of Operation PART III ITEM 9. Directors, Executive Officers, Promoters and Control Persons ITEM 10. Executive Compensation ITEM 11. Security Ownership of Certain Beneficial Owners and Management ITEM 12. Certain Relationships and Related Transactions ITEM 13. Exhibits and Reports on Form 8-K SIGNATURES 2 PART I ITEM 1. DESCRIPTION OF BUSINESS CORPORATE HISTORY Video Without Boundaries, Inc. (f/k/a ValuSales.com, Inc.) a Florida corporation (the "Company" or "Video Without Boundaries") was formed to create a single-source Internet and streaming media product and solution's company providing Internet and Technology products and services to various sized customers. Video Without Boundaries, Inc. (f/k/a ValuSales.com, Inc.) was incorporated in the State of Florida, on March 19,1999, and had no operations until on July 20, 1999 when it purchased assets for, $75,000, and signed employment agreements with two individuals, which included the issuance of 900,000 shares of common stock. The assets acquired were property and equipment for $40,000 and inventory for $35,000. The common stock was valued at par because the Company was privately owned and no market existed for the sale of its stock. On December 1, 1999, Video Without Boundaries, Inc. (f/k/a ValuSales.com, Inc.) sold 2,673,000 shares of its common stock for $175,000 and used the proceeds to acquire an inactive entity, September Project II Corp., which then changed its name to Video Without Boundaries, Inc. and became the surviving entity. For accounting purposes, the acquisition has been treated as a capital transaction rather than a business combination. Accordingly, the 5,000,000 outstanding shares of September Project II, Corp. have been reflected as outstanding since inception. All significant interdivisional transactions and balances have been eliminated. The Company has elected to operate with divisions rather than create separate corporations for each business segment. The Company is headquartered at 1975 E. Sunrise Blvd. 5th Floor, Fort Lauderdale, FL 33304. GENERAL Video Without Boundaries (VWB) now provides products and services in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets. VWB is focused on home entertainment media products and solutions that enhance the consumer experience, while providing new revenue opportunities for online music and movie content providers. VWB is becoming a supplier of broadband products, services and content including its ability to deliver broadcast quality digital video and web interactivity at transfer rates as low as 56K. Video Without Boundaries (VWB) a provider of streaming digital media and video on demand (VOD) services, has recently taken actions to reduce the company's operating cost. These changes will also balance the company's investment across its two key markets: streaming digital media and video on demand (VOD) services. Due to the continued decline in economic activity and weakened capital and business spending for emerging technology products and services, VWB has redirected its human and capital resources towards its most profitable products and services, while reducing its exposure to unprofitable markets. The company is attempting to develop new business partnerships in regards to its streaming media business within the home entertainment marketplace. Over the last 12 months, all major PC, consumer electronics, and set-top box manufactures have added streaming media players within their products to capitalize on the growth of broadband connections and streaming content offered over the Internet. With more than 10 million broadband households and nearly 35 million broadband-enabled screens, VWB is attempting to capitalize on the growth of this market through its professional services division and potential new partnerships and business ventures. Video Without Boundaries (VWB) is repositioning itself within the entertainment and home broadband marketplace. VWB's goals are 1) to become a producer & 3 distributor of interactive consumer electronics equipment 2) establish itself as a software infrastructure player within the home entertainment media-on-demand marketplace, 3) attempt to capture revenue and market share from services and products within the video on demand (IP) marketplace. Media Convergence Consumers are becoming acclimated to the benefits and quality of digital media goods and on-line digital media. DVDs and CDs dominate the audio/video sales market, and digital cameras and emailing images have become a standard method of exchanging and sharing photographs. The acceptance of digital media and storage options, coupled with new digital distribution (IP) methods, is resulting in new convergence devices being introduced to consumers that allow for: o Universal Playback and storage of all digital media rented and purchased by the consumer o Consumers to have "on-demand" or immediate access to all digital media purchased & available for rental. o All forms of digital media to be played on all traditional audio/video equipment within the home, but also on relatively new, increasingly portable equipment (laptops, MP3 players) As a result of the above, consumer interaction with media is changing in significant ways. Supporting and exploiting this new consumer behavior requires: o Simple to use devices that conform to existing consumer behavior and media needs o Conceptual bridge between the "home PC" and the living room environment Robust Digital Rights Management (DRM) solution to support secure IP media delivery Convergence Approaches The existing industry participants are not successfully integrating convergence functionality in devices suitable for the living room. The result is that consumers: 1) have too many discrete devices connected to their TVs; and 2) lack the basic PC functionality required to exploit their TVs as "monitors" with which to access the Internet. Industry Product Line Example -------- -------------------- PC Manufacturers: Multimedia PC "Media Station" o Form factor (design) and connectivity is not living room & stereo/TV friendly o Designed for early adopter market o Expensive ($1,000-$2,000) Networking/Wireless Approach: Wireless PC to TV/Stereo Devices o Complicated for consumers & expensive o Does not support DVD/CD quality playback from PC to TV Consumer Electronics Manufacturers: Kenwood Soverign Product Line o Offers limited and fixed chip-set functionality o Cannot be upgraded or changed Product Architecture ("MediaReady 4000") Based on the MediaReady software, this product utilizes the basic form factor and functionality of mainstream DVD players (top selling main platform of home entertainment) and offers: o "Simple-stupid" Graphical User Interface (GUI) functionality o Internet Media Player that enables full-screen video playback on TV with DVD-like functionality (MPEG4) o Killer IP applications (email, Internet browsing, internet-based audio/video streaming) 4 o Form factor and Audio/Video connecters that mimic and connect to all consumer electronics products o Picture in picture (PIP) functionality (i.e. TV and Web at same time) Advanced Features include: o Progressive downloading, storage and playback of digital media files stored on inexpensive external USB and Firewire connected storage devices o Networked digital media playback from any connected PC device within the home network. o Seamless DRM compatibility with mainstream Internet DRM technologies, but enhanced to base DRM ownership to "an individual" rather than a device via CAC Media's proprietary DRM technology o Standard Linux-based operating system to support application scalability and extended power-on usage In addition, the MediaReady platform allows consumers to upgrade their units with additional services based on a one-time or subscription charge. Retailers and resellers of the MediaReady line of products also participate in the residual revenue stream offered by these upgrades. VWB offers value-added applications and upgrades that include: o Video Conferencing & IP Telephony o Games (Single or Multiplayer) o PVR (i.e. Tivo) o Online Digital Media Rental and Purchase STRATEGY Product Marketing and Sales Approach MediaReady products provide retailers and resellers with royalty commissions (sales incentive) on future upgrades and point-of-sale add-on purchases (i.e. external storage for media). Since consumers already understand the basic MediaReady features (DVD, PVR, Internet Access) and broadly accept the $299 - $399 price point, the key sales/marketing proposition is that the product: o Consolidates several popular devices (and features) into one universal unit o Is easily and inexpensively upgradeable via software downloads o Stands out as the "best buy for the dollar" (also provides the best profit ($$) for the retailer/salesperson) The company expects to become cash/flow positive primarily through Retail Distribution (VAR and End User) and OEM Licensing Sales. In addition, VWB will also receive incremental revenue streams based upon: o Purchases of value-added applications through the MediaReady platform o Professional Services Revenue based upon customized value-added applications In January 2003, Video Without Boundaries acquired all assets of Brokenremote.tv, for 500,000 shares of restricted common stock, a privately held on-line publisher and subsidiary of CAC Media Inc. Brokenremote.tv publishes news and market analytics about the emerging convergence of the Interactive TV & Consumer Electronics, Video On Demand (VOD), & Broadband Internet Entertainment markets. The acquisition will support Video Without Boundaries attempt to build its brand recognition within this new emerging market and leverage its existing relationships with streaming media clients as new advertising clients. Brokenremote.tv provides day-to-day news updates on topics such as: ongoing copyright and consumer rights legislation regarding digital media distribution, Video on Demand, Interactive TV, new technology standards and product announcements. In addition to the acquisition of Brokenremote.tv, the company has also made a strategic investment in privately held CAC Media, Inc. Video Without Boundaries invested $100,000 to complete the transaction. CAC Media, a privately held corporation, specializes in interactive consumer electronics software development, digital rights management, and digital media distribution infrastructure. In February 2003, Video Without Boundaries, Inc. (VWB) agreed to a strategic alliance with Neon Technology, Inc. a privately held corporation and a designer 5 of advanced set-top box hardware, under which the companies will collaborate on the design and production of a line of next-generation multifunction set-top boxes for the interactive consumer electronics marketplace. Video Without Boundaries and Neon Technology, have been working together to develop a tightly integrated multifunction interactive DVD player and set-top box solution. Next-generation interactive set-top boxes will be the delivery point for new entertainment programs and services for the home. They will combine Internet access, web browsing, streaming media playback, video-on-demand, email, online shopping, and a host of other capabilities into a single, unified system. Since this is a new market and product, there are may be unforeseen delays in design and production because of cash flow and manufacturing problems. In February 2003, Video Without Boundaries, Inc. (VWB) debuted the MediaReady Internet/DVD Player (VWB-3000), an easy-to-use home entertainment device that makes it possible to surf the Web, send email, watch DVD videos, and even sing karaoke from any television. Similar in size and appearance to a conventional DVD player, MediaReady combines a DVD player and Web browser with a full-sized wireless keyboard, a media player for playback of Web-based streaming media, Dolby Digital 5.1 Surround Sound, picture-in-picture capability, a karaoke microphone jack, and other features that enable consumers to access all popular forms of home entertainment from the comfort of their couch. The DVD player supports CDs, VCDs, SVCDs and CDs with MP3 files as well as DVDs, allowing users to play the latest video and audio. MediaReady supports all forms of Internet connection including 56 kbps modem, dynamic DSL and cable modems, and 10/100 Base-T Ethernet. The built-in Web browser includes SSL 3.0 for secure online shopping. MediaReady's VWB Internet PIP picture-in-picture feature allows users to multi-task their favorite pastimes, such as viewing the Web while watching a DVD movie or television program. A user-friendly, TV-optimized user interface allows even first-time users to navigate with ease. The unit carries a manufacturer's suggested retail price of $349 and ships with a remote control, microphone, and all cables needed for easy hookup. The MediaReady product is a result of the strategic alliance with Neon Technology. In March 2003 Video Without Boundaries licensed the Lafayette name for its MediaReady set-top boxes. As a result of this licensing agreement with Lafayette Electronics, Video Without Boundaries will produce a set-top box under the Lafayette brand. The Lafayette-branded units will appear in specialty retail stores and coincide with the introduction of Lafayette's new line of home audio and video electronic products designed to re-launch the Lafayette brand. Additionally, Video Without Boundaries signed a Consulting Agreement with Steve Cavayero, President of Lafayette Electronics for 50,000 shares of restricted common stock. In April 2003 Video Without Boundaries announced the debut of a VAR program for its MediaReady(TM) Internet/DVD Player, the combo entertainment unit that brings email, web surfing, karaoke, MP3, CD music playback, and more to any television. Focused on specialty and high-end home electronics and computer retailers, the VAR program gives merchants an exceptional opportunity to capitalize on the developing market for convergent home entertainment devices. In May 2003 Video Without Boundaries signed a manufacturing agreement with Lung Hwa Electronics, a major consumer electronics manufacturer, to begin production of Video Without Boundaries' new line of MediaReady(TM) Internet/DVD Players. MediaReady(TM), a revolutionary combo entertainment device that brings email, web surfing, karaoke, MP3, CD/DVD playback, and more to any television and home theater system, will ship to retailers in September 2003. Lung Hwa Electronics Co. Ltd., established in 1973, is a public company listed on the Taiwan Stock Market (TSEC: 2424) with a current market capitalization of $28 million (USD). Lung Hwa, an ISO 9001 certified manufacturer, consistently provides the most qualified professional products to the market and has become one of the leading 3C manufacturers in Taiwan. Foreseeing rapid business growth, Lung Hwa invested in a new factory, Expert Electronics (Wujiang) Co. Ltd., in Shanghai, China. The 45,000-square-foot factory produces 600,000 PCBA pieces and 200,000 Box Build sets each month. The huge capacity of the China factory enables Lung Hwa to bring to market more cost-effective products. With 29 years of innovation, Lung Hwa is expanding its product lines into two categories: EMS (Electronics Manufacturing Services) and DMS (Design Manufacturing Services). 6 In June 2003, Video Without Boundaries began production of its new and more advanced MediaReady 4000 Internet/DVD player. The convergent device, which unifies DVD playback, feature-rich TV, Internet, email, karaoke, and CD/MP3 playback with local and networked digital storage along with a host of possible upgrades and options, is expected to reach consumer electronics shelves in late November 2003. The biggest change in the MediaReady(TM) 4000 is the addition of powerful PC componentry, including an onboard hard drive for storage of digital entertainment. The unit's new connectivity options, including Ethernet 10B/100BT wired and wireless connections, USB 2.0 and 1394 connectors, enables the device to download, play, and manage digital movies and other forms of digital entertainment from the Internet, or from a home networked PC. An improved Web browser and other feature upgrades ensure that the MediaReady(TM) 4000 will be the one-stop entertainment and communications choice for the new age of digital technology. In July 2003, VWB announced the selection of Sigma's EM8475 digital media processor, for Video Without Boundaries' new MediaReady(TM) 4000 Internet/DVD Player, from Sigma Designs, Inc. (Nasdaq: SIGM), a leader in digital media processing for consumer appliances. The EM8475, an advanced MPEG-4 decoder designed for set-top box applications, will drive digital video playback on the MediaReady 4000, a breakthrough in convergent home entertainment. Sigma Designs' EM8475 MPEG-4 digital processor is the premier product for IP video streaming in set-top boxes and media gateways. Incorporating the company's award-winning REALmagic(R) Video Streaming Technology, the chip was the industry's first MPEG-4 chip to support full-resolution (720x576) and streaming video based on ISMA specification 1.0. The EM8475 provides highly integrated solutions for decoding of MPEG-4, as well as DVD, MPEG-2 and MPEG-1 formats. The EM8475 enables the rapid development of adding PVR, progressive DVD playback and streaming video playback functionality to advanced set-top boxes and other PCI-based devices. In addition to providing state-of-the-art MPEG-4 playback capability, the EM8475 will allow the MediaReady(TM) 4000 to access sophisticated online multimedia content containing audio, video, text, graphics and interactivity. MPEG-4's object-oriented environment supports complex scene manipulation at low bit rates, making it ideal for streaming content over today's broadband connections. Sigma Designs specializes in silicon-based MPEG decoding for steaming video, progressive DVD playback, and advanced digital set-top boxes. The company's award-winning REALmagic(R) Video Streaming Technology is used in both commercial and consumer applications providing highly integrated solutions for high-quality decoding of MPEG-1, MPEG-2, and MPEG-4. Headquartered in Milpitas, Calif., the company also has offices in China, Europe, Hong Kong, Japan, Korea, and Taiwan. In September 2003, VWB announced a partnership with Sound Choice(R), the leading brand and distributor of karaoke sound tracks in the U.S., today announced an alliance aimed at adding bundled karaoke music titles to VWB's new MediaReady(TM) 4000 Internet/DVD player. Under the terms of the agreement, VWB's initial production run, will be factory-equipped with popular karaoke titles, giving purchasers a chance to enjoy the fun of karaoke in the privacy of their home. Sound Choice's premium-quality karaoke content will be presented on the MediaReady 4000 under Sound Choice's Performer's Choice(R) brand. The Performer's Choice logo will appear on MediaReady 4000 packaging; other cooperative marketing activities will include the promotion and sale of MediaReady 4000 players on Sound Choice's websites. In September 2003, VWB announced it was demonstrating its breakthrough MediaReady 4000(TM) convergent Internet/DVD Player to OEM manufacturers at Computex Taipei 2003. The MediaReady 4000, one of the world's first integrated consumer set-top devices, combines popular media entertainment options including DVD/MPEG-1/MPEG-2/MPEG-4 playback, feature-rich television, email, web surfing, karaoke, CD/MP3 playback and more, with an open source, Linux-based architecture that allows it to support virtually any kind of OEM configuration or upgrade. Video Without Boundaries' MediaReady 4000 has partnered with Lung Hwa Electronics Co., Ltd., a leading worldwide consumer electronics equipment manufacturer, to produce the convergent device. The MediaReady 4000 is being demonstrated at Computex Taipei 2003 from the Lung Hwa Electronics exhibit, Booths 427, 429, and 431. In November 2003, VWB announced that it has expanded its trade credit facilities to more than $10 million (USD) in order to ensure ample production financing for 7 its new line of branded MediaREADY(TM) convergent Internet/DVD players. The $10 million in credit facilities includes a new line of credit from Video Without Boundaries' primary manufacturing partner. Currently Video Without Boundaries has minimal revenue but will derive substantially all of its revenues from product sales and licensing fees associated with the sale of its MediaReady line of set-top boxes on an order by order basis which will start in 2004. Agreements and purchase orders that may be entered into in connection with product sales are generally on an order by order basis. If customers terminate purchase orders or if Video Without Boundaries is unable to acquire new customer and orders for its products, Video Without Boundaries' business, financial condition, and results of operations could be materially and adversely affected. In addition, because a proportion of Video Without Boundaries' expenses is relatively fixed, a variation in the number of products sold can cause significant variations in operating results from quarter to quarter. Video Without Boundaries' product sales will vary in size; therefore, a customer that accounts for a significant portion of Video Without Boundaries' revenues in one period may not generate a similar amount of revenue in subsequent periods. No customer accounted for more than 10.0% of Video Without Boundaries' revenues in the periods ended December 31, 2002 or December 31, 2003. Video Without Boundaries does not know the scope of its product sales or customer profile as yet because the products are so new. Any cancellation, deferral, or significant reduction in future orders could have a material adverse affect on Video Without Boundaries' business, financial condition, and results of operations. CLIENTS We have focused and will continue to focus on long-term relationships with client's that will range from retail consumers to small, medium, and large business customers. If its clients terminate purchase orders or if Video Without Boundaries is unable to enter into new engagements or sell its new products and services its business, financial condition and results of operations could be materially and adversely affected. No client accounted for more than 10% of Video Without Boundaries revenues in 2003 or 2002. Although, Video Without Boundaries does not believe that it will derive a significant portion of its revenues from a limited number of clients, there is a risk that it may do so since many of the Companies products are new and more difficult to sell. Any cancellation, deferral or significant reduction in work performed for clients or a significant number of smaller clients could have a material adverse affect on Video Without Boundaries business, financial condition and results of operations. SALES AND MARKETING The Company plans to promote itself by direct sales efforts using telephone sales, conventional media advertising, and Internet marketing. These advertisements are targeted at small, medium, and large business customers as well as retail consumers who are likely to respond to specific ads or visit specific web sites to make a purchase. The Company employs two inside and outside sales people to help customers and to prospect business from various forms of lead generation. The Company also plans to engage independent sales agents in various geographic areas as well as product dealers and resellers. Our marketing strategy is to promote and enhance our brand by participating in targeted industry conferences and seminars, engaging in a public relations campaign. This strategy is designed to strengthen our brand name and generate new clients by increasing the awareness of our brand with high quality comprehensive converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics companies. As previously mentioned, the sales and marketing of our products and services is dependent on the company to continue to raise capital and grow revenues. 8 We believe that establishing and maintaining a good reputation and name recognition is critical for attracting and expanding our customer base. We also believe that the importance of product acceptance and market validation will increase due to the growth in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets. If the various product markets and customers do not perceive our products and services to be effective or of high quality, our brand name and reputation could be materially and adversely affected. COMPETITION Many of Video Without Boundaries competitors have longer operating histories, larger client bases, longer relationships with clients, greater brand or name recognition and significantly greater financial, technical, marketing and public relations resources. Several of these competitors may provide or intend to provide a broader range of products and services than Video Without Boundaries. Furthermore, greater resources may enable a competitor to respond more quickly to new or emerging technologies and changes in customer requirements and to devote greater resources to the development, promotion and sale of its products and services than we can. In addition, competition may intensify in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets by major companies which could have an adverse on Video Without Boundaries. Video Without Boundaries currently has no portion of the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets as it develops its products for launch and there can be no assurances it that it will be able to penetrate these markets in the future because of the need for the Company to raise additional capital. EMPLOYEES The Company employs a total of 5 on a full-time and part-time basis. In addition the company currently has consulting agreements with 4 outside individuals or firms for sales and marketing, technical consulting, and public relations. None of the employees belong to a union and the Company has not experienced any work stoppages. The Company believes that its labor relations are satisfactory. The Company's headquarters is located at 1975 E. Sunrise Blvd. 5th Floor Ft. Lauderdale, FL 33304 and its telephone number is (954) 462-8302. The company also has a sales and technical office at 20 SW 27th Ave. Suite 101 Pompano Beach, FL 33069. ITEM 2. DESCRIPTION OF PROPERTY The Company's corporate office is currently located at 1975 E. Sunrise Blvd. 5th Floor Ft. Lauderdale, FL 33304. Pursuant to a written lease, the Company leases approximately 450 square feet at an annual rent of $7,200. The lease is for a term of 1 year. The company has a sales and technical office at 20 SW 27th Ave. suite 101 Pompano Beach, FL 33069. Pursuant to a written lease, the company leases approximately 1,000 square feet at an annual rent of $12,000. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. In addition, no director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year which ended December 31, 2003. 9 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades in the over-the-counter market under symbol VDWB on the OTC Electronic Bulletin Board. There was no trading in the Company's Common Stock prior to May 2000. The following table shows the quarterly high and low bid prices for the calendar year 2003 as reported by the National Quotations Bureau Incorporated. These prices reflect inter-dealer quotations without adjustments for retail markup, markdown or commission, and do not necessarily represent actual transactions. YEAR PERIOD HIGH LOW ---- ------ ---- --- 2003 First Quarter $5.25 $0.20 Second Quarter $2.00 $0.375 Third Quarter $0.83 $0.27 Fourth Quarter $0.55 $0.145 As of December 31, 2003, there were approximately 181 holders of record of the Company's Common Stock. Holders of the Company's Common Stock are entitled to dividends when, as and if declared by the Board of Directors out of funds legally available therefore. The Company does not anticipate the declaration or payment of any dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy will be subject to the discretion of the Board of Directors and will be contingent upon future earnings, if any, the Company's financial condition, capital requirements, general business conditions and other factors. Therefore, there can be no assurance that any dividends of any kind will ever be paid. The Company's transfer agent is Interwest Transfer Co., Inc., which is located at 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117 and Interwest's telephone number is (801) 272-9294. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Financial Statements, including the Notes thereto, of the Company included elsewhere in this Form 10-KSB. OVERVIEW Video Without Boundaries (VWB) now provides products and services in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets. VWB is focused on home entertainment media products and solutions that enhance the consumer experience, while providing new revenue opportunities for online music and movie content providers. VWB is becoming a supplier of broadband products, services and content including its ability to deliver broadcast quality digital video and web interactivity at transfer rates as low as 56K. Video Without Boundaries (VWB) a provider of streaming digital media and video on demand (VOD) services, has recently taken actions to reduce the company's operating cost. These changes will also balance the company's investment across its two key markets: streaming digital media and video on demand (VOD) services. Due to the continued decline in economic activity and weakened capital and business spending for emerging technology products and services, VWB has redirected its human and capital resources towards its most profitable products and services, while reducing its exposure to unprofitable markets. The company is attempting to develop new business partnerships in regards to its streaming media business within the home entertainment marketplace. Over the last 12 months, all major PC, consumer electronics, and set-top box manufactures have added streaming media players within their products to capitalize on the growth of broadband connections and streaming content offered over the Internet. With more than 10 million broadband households and nearly 35 million broadband-enabled screens, VWB is attempting to capitalize on the growth of this 10 market through its professional services division and potential new partnerships and business ventures. Video Without Boundaries (VWB) is repositioning itself within the entertainment and home broadband marketplace. VWB's goals are 1) to become a producer & distributor of interactive consumer electronics equipment 2) establish itself as a software infrastructure player within the home entertainment media-on-demand marketplace, 3) attempt to capture revenue and market share from services and products within the video on demand (IP) marketplace. Media Convergence Consumers are becoming acclimated to the benefits and quality of digital media goods and on-line digital media. DVDs and CDs dominate the audio/video sales market, and digital cameras and emailing images have become a standard method of exchanging and sharing photographs. The acceptance of digital media and storage options, coupled with new digital distribution (IP) methods, is resulting in new convergence devices being introduced to consumers that allow for: o Universal Playback and storage of all digital media rented and purchased by the consumer o Consumers to have "on-demand" or immediate access to all digital media purchased & available for rental. o All forms of digital media to be played on all traditional audio/video equipment within the home, but also on relatively new, increasingly portable equipment (laptops, MP3 players) As a result of the above, consumer interaction with media is changing in significant ways. Supporting and exploiting this new consumer behavior requires: o Simple to use devices that conform to existing consumer behavior and media needs o Conceptual bridge between the "home PC" and the living room environment Robust Digital Rights Management (DRM) solution to support secure IP media delivery Convergence Approaches The existing industry participants are not successfully integrating convergence functionality in devices suitable for the living room. The result is that consumers: 1) have too many discrete devices connected to their TVs; and 2) lack the basic PC functionality required to exploit their TVs as "monitors" with which to access the Internet. Industry Product Line Example -------- -------------------- PC Manufacturers: Multimedia PC "Media Station" o Form factor (design) and connectivity is not living room & stereo/TV friendly o Designed for early adopter market o Expensive ($1,000-$2,000) Networking/Wireless Approach: Wireless PC to TV/Stereo Devices o Complicated for consumers & expensive o Does not support DVD/CD quality playback from PC to TV Consumer Electronics Manufacturers: Kenwood Soverign Product Line o Offers limited and fixed chip-set functionality o Cannot be upgraded or changed Product Architecture ("MediaReady 4000") Based on the MediaReady software, this product utilizes the basic form factor and functionality of mainstream DVD players (top selling main platform of home entertainment) and offers: 11 o "Simple-stupid" Graphical User Interface (GUI) functionality o Internet Media Player that enables full-screen video playback on TV with DVD-like functionality (MPEG4) o Killer IP applications (email, Internet browsing, internet-based audio/video streaming) o Form factor and Audio/Video connecters that mimic and connect to all consumer electronics products o Picture in picture (PIP) functionality (i.e. TV and Web at same time) Advanced Features include: o Progressive downloading, storage and playback of digital media files stored on inexpensive external USB and Firewire connected storage devices o Networked digital media playback from any connected PC device within the home network. o Seamless DRM compatibility with mainstream Internet DRM technologies, but enhanced to base DRM ownership to "an individual" rather than a device via CAC Media's proprietary DRM technology o Standard Linux-based operating system to support application scalability and extended power-on usage In addition, the MediaReady platform allows consumers to upgrade their units with additional services based on a one-time or subscription charge. Retailers and resellers of the MediaReady line of products also participate in the residual revenue stream offered by these upgrades. VWB offers value-added applications and upgrades that include: o Video Conferencing & IP Telephony o Games (Single or Multiplayer) o PVR (i.e. Tivo) o Online Digital Media Rental and Purchase Historically Video Without Boundaries has derived substantially all of its revenues from fees and product sales for services and products generated on an order by order basis. Video Without Boundaries services and products are provided on a fixed-price basis and on a time and material basis. In addition, because a proportion of Video Without Boundaries' expenses is relatively fixed, a variation in the number of client purchase orders can cause significant variations in operating results from quarter to quarter. Video Without Boundaries' orders vary in size and scope; therefore, a client that accounts for a significant portion of Video Without Boundaries' revenues in one period may not generate a similar amount of revenue in subsequent periods. No client accounted for more than 10.0% of Video Without Boundaries' revenues in the period ended December 31, 2003. Video Without Boundaries does not believe that it will derive a significant portion of its revenues from a limited number of clients in the near future. However, there is a risk that the source of Video Without Boundaries' revenues may be generated from a small number of clients. These clients may not retain Video Without Boundaries in the future. Any cancellation, deferral, or significant reduction in work performed for these principal clients or a significant number of smaller clients could have a material adverse affect on Video Without Boundaries' business, financial condition, and results of operations. Quarter-to-quarter fluctuations in margins The Company's operating results and quarter-to-quarter margins may fluctuate in the future as a result of many factors, some of which are beyond the Company's control. Historically, the Company's quarterly margins have been impacted by: o the number of client purchase orders completed; o seasonality; o the number of days during the quarter; o marketing and business development expenses; o pricing changes; and o economic conditions generally or in the information technology products and services markets. 12 The Company expects these trends to continue. Results of Operations. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002. REVENUES Net sales are comprised of product and services sales, net of returns and allowances. In 2003, revenues were $190,770 compared to $330,621 for 2002. The decrease in net sales was due to the consolidation and elimination of non-profitable company divisions while investing in the development of new digital media products for future sales. Cost of sales increased from $3,921 in 2002 to $176,046 in 2003. As a percentage of net sales, the Company's gross margin was 98.8% for 2002 and 7.7% for 2003. This decrease in gross margin is due to consulting services in 2002 and product sales in 2003. The current margin is more indicative of anticipated future margins. GENERAL AND ADMINISTRATIVE General and administrative expense includes personnel costs, administrative expenses, general office expenses, depreciation expenses, advertising costs, and professional fees. General and administrative expenses were $1,277,027 representing 669% as a percentage of revenue for the year ended December 31, 2003 compared to $715,651 representing 216% as a percentage of revenue for the year ended December 31, 2002. The increase in general and administrative expenses as a percentage of revenue was a result of company investment in the development of new products and services. Net cash used in operating activities was $1,259,757 for the year ended December 31, 2003. Net cash used in operating activities was primarily attributable to net losses. Net cash provided by financing activities was $1,570,610 for the year ended December 31,2003. Net cash provided by financing activities resulted from an advance from a shareholder and a Convertible Debenture. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2003, the Company had ($1,123,166) of working capital. On February 28, 2004 the Company secured financing for $1,100,000. The Company believes that the new financing and cash generated from operations will be sufficient to meet the Company's cash requirements for the next twelve months. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The current executive officers, directors and significant employees of the Company are as follows: Directors and Executive Officers. The following is the Director and Executive Officer of the Company. None of the Directors hold similar positions in any reporting company. The directors named below will serve until the next annual meeting of the Company's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. V. Jeffrey Harrell, age 38, is the Chairman of the Board, President, CEO, and Secretary of the Company. Mr. Harrell has held these positions since December 1999. Prior to joining Video Without Boundaries, Mr. Harrell was employed by Southeast Bankers Mortgage Corp. as Vice President of Sales from December 1998 to January 1999, and before that he served as Vice President of Kensington-Ashworth Financial Group, Inc. from March 1994 to January 1998. 13 The Company has not adopted yet the code of ethics for its Officers but intends to adopt code of ethics at its meeting of the Board of Directors in the near future. ITEM 10. EXECUTIVE COMPENSATION The Company paid the following salaries to its executives: 2002 2003 ---- ---- V. Jeffrey Harrell, $29,025 $32,250 President, CEO, and Chairman of the Board None of the executives received any stock options or stock dividends. The above executive received reimbursement for health insurance as part of his compensation. The director was not compensated for any Board of Directors meetings. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 2003, the Company had 15,448,747 shares of its Common Stock issued and outstanding. The following table sets forth, as of December 31, 2003, the beneficial ownership of the Company's Common Stock (i) by the only persons who are known by the Company to own beneficially more than 5% of the Company's Common Stock; (ii) by each director of the Company; and (iii) by all directors and officers as a group. Name and Amount Address of of Title of beneficial beneficial Percent of Class owner owner class Common V. Jeffrey Harrell 1,523,440 9.9% PO Box 30057 Ft. Lauderdale, FL 33303 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The director named above will serve until the next annual meeting of the Company's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding between any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer. None of the executives received any stock options or stock dividends. The executive received reimbursement for health insurance as part of compensation. The directors were not compensated for any Board of Directors meetings. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) The Exhibits listed below are filed as part of this Annual Report. 3.1 Articles of Incorporation (incorporated by reference from Registration Statement on Form 10SB filed with the Securities and Exchange Commission under File No. 0-31497 filed 09/11/00) 3.2 Amended Articles of Incorporation (incorporated by reference from Registration Statement on Form 10SB filed with the Securities and Exchange Commission under File No. 0-31497 filed 09/11/00) 3.3 Bylaws (incorporated by reference from Registration Statement on Form 10SB filed with the Securities and Exchange Commission under File No. 0-31497 filed 09/11/00) 14 10.1 Office Lease (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00) 10.2 Office Lease (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00) 10.3 Office Lease (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 06/28/02) 10.4 Office Lease (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 06/28/02) 10.5 Office Lease (incorporated by reference from Quarterly Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 05/15/03) 10.10 Executive Employment Contract - Pete Fisher (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00) 10.11 Executive Employment Contract - Jonathan Silverstein (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00) No reports on Form 8-K were filed by the Company during the third quarter of it's fiscal year ending December 31, 2003. 31.1 Certification 32.1 Certification 15 Signatures In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VIDEO WITHOUT BOUNDARIES, INC. April 14, 2004 By: /s/ V. JEFFREY HARRELL --------------------------- V. Jeffrey Harrell, President and Chief Executive Officer 16 NORMAN STUMACHER CERTIFIED PUBLIC ACCOUNTANT 85 ATLANTIC AVENUE LYNBROOK, NY 11563 TEL# 516-594-9500 FAX# 516-594-9550 INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Board of Directors Video Without Boundaries, Inc. I have audited the accompanying balance sheet of Video Without Boundaries, Inc. as of December 31, 2003 and the related statements of operations, shareholders' equity, and cash flows for the year ended December 31, 2003. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Video Without Boundaries, Inc. as of December 31, 2003, and December 31, 2002 and the results of its operations and cash flows for the years ended December 31, 2003 and December 31, 2002 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In January and February 2004, $1,100,000 was invested in the Company through purchase of Sec. 144 shares. /s/ Norman Stumacher -------------------- Norman Stumacher April 12, 2004 F-1 VIDEO WITHOUT BOUNDARIES, INC. Balance Sheets ------------------------------------------------------------------------------- 12/31/02 12/31/03 ------------------------------------------------------------------------------- Assets audited audited Current assets: Cash $ 12,047 $ 73,912 Accounts receivable $ 621 $ 300,000 Inventory -- $ 3,250 Deposit Neon Tech $ 10,000 -- ----------- ----------- Total current assets $ 22,668 $ 377,162 Fixed assets: Property and equipment $ 66,006 $ 94,198 ----------- ----------- Net fixed assets $ 66,006 $ 94,198 Other assets -- $ 1,850 Deposit CAC Media $ 70,000 $ 163,000 Investment Cornerstone Entertainment $ 210,871 -- International Consortium $ 25,000 -- Media Ready Software -- $ 198,668 Prepaid Box Tooling -- $ 40,000 Brokenremote.tv -- -- ----------- ----------- Total other assets $ 305,871 $ 403,518 Total assets $ 394,545 $ 874,877 =============================================================================== Liabilities and owner's equity Current liabilities: Accounts payable $ 85,375 $ 224,769 Due To Shareholders $ 763,780 $ 1,238,258 Interest Payable $ 9,948 $ 7,301 Notes Payable $ 20,000 $ 30,000 Other -- -- Convertible Debentures $ 268,000 -- ------------------------------------------------------------------------------- Total current liabilities $ 1,147,103 $ 1,500,328 Shareholders Equity Common stock-par value $.001, 50,000,000 shares authorized, 119,087 issued and outstanding at December 31, 2002 and 15,448,747 at December 31, 2003 $ 119 $ 15,449 Additional paid -in capital $ 1,415,770 $ 2,789,851 Deficit ($2,168,447) ($3,430,750) ------------------------------------------------------------------------------- Total owner's equity ($ 752,558) ($ 625,450) Total liabilities and stockholders' equity $ 394,545 $ 874,877 =============================================================================== The accompanying notes are an integal part of these financial statements F-2 VIDEO WITHOUT BOUNDARIES, INC. STATEMENTS OF OPERATIONS For year ended December 31, 2002 & year ended December 31, 2003 12/31/02 12/31/03 ------------ ------------ audited audited Revenues $ 330,621 $ 190,770 Costs of Sales $ 3,921 $ 176,046 ------------ ------------ Gross Profit $ 326,700 $ 14,724 Selling,General, and Administrative Expenses $ 715,651 $ 1,277,027 Research and Development $ 427,000 -- Loss on Discontinued Business $ 107,125 -- ------------ ------------ $ 1,249,776 $ 1,277,027 Net Loss $ (923,076) $ (1,262,302) ============ ============ Basic Loss Per Share $ (7.75) $ (0.082) ============ ============ Diluted Earnings Per Share $ (7.72) $ (0.162) ============ ============ Weighted-average common shares outstanding Basic 119,087 15,448,747 ============ ============ Diluted 119,573 7,783,917 ============ ============ The accompanying notes are an integal part of these financial statements F-3 STATEMENT OF SHAREHOLDERS' EQUITY March 19, 1999 (Inception) to December 31, 2003 Common Stock Additional Paid-In Shares Amount Capital Deficit ------ ------ ------- ------- Sales of common stock-net 18,750 $ 19 $ 293,591 Stock issued for services 52,600 $ 53 $ 102,360 Stock issued for acquired companies 45,000 $ 45 $ 855 Sale of common stock for cash 133,650 $ 133 $ 174,867 Purchase of September Project II, Corp $ (175,000) Reverse acquisition of Video Without Boundaries, Inc. 250,000 $ 250 $ 4,750 (Loss) for period March 19,1999(inception) to December 31, 1999 $ (162,116) ============================================================ Balance December 31, 1999 500,000 $ 500 $ 401,423 $ (162,116) (Loss) for the year ended December 31, 2000 $ (226,714) Stock issued for services 184,250 $ 184 $ 3,501 ============================================================ Balance December 31, 2000 684,250 $ 684 $ 404,924 $ (388,830) Private Placement Offer 144,307 $ 145 $ 25,455 (Loss) for the year ended December 31, 2001 $ (742,412) ============================================================ Balance December 31, 2001 828,557 $ 829 $ 430,379 $(1,131,242) Reverse Split 1 for 20 (787,130) $ (787) Stock Issued For Services 75 $ 7 $ 492,450 Stock Issued For Convertible Debenture 94,866 $ 242 $ 492,941 Reverse Split 1 for 300 (17,281) $ (172) Dividend Cornerstone Entertainment $ (114,129) (Loss) For The Year Ended December 31,2002 $ (923,076) ------------------------------------------------------------ Balance December 31, 2002 119,087 $ 119 $1,415,770 $(2,168,447) Stock Issued For Acquisitions 750,000 $ 750 $ 449,250 Stock Issed For Convertible Debenture 949,660 $ 950 $ 495,510 Stock Issued For Debt 12,795,000 $12,795 $ 220,155 Stock Issued For Services 835,000 $ 835 $ 209,165 (Loss) For The Period Ended December 31, 2003 $(1,262,302) ------------------------------------------------------------ Balance December 31, 2003 15,448,747 $15,449 $2,789,850 $(3,430,749) F-4 VIDEO WITHOUT BOUNDARIES, INC. STATEMENTS OF CASH FLOWS 12/31/02 12/31/03 ----------- ----------- audited audited Cash flows from operating activities Net (loss) $ (923,076) $(1,262,302) Adjustments to reconcile net (loss) to net cash (used) by operating activities Stock issued for services and acquired companies $ 7 $ 15,330 Depreciation $ 34,294 $ 140,001 Decrease (Increase) in accounts receivable $ (621) $ (299,379) Decrease (Increase) in inventories $ (3,250) Decrease (Increase) in other Assets $ (254,921) $ (6,850) Increase (Decrease) in notes payable $ 17,301 Increase (Decrease) in accounts payable $ (84,049) $ 139,394 ----------- ----------- Total Adjustments $ (305,290) $ 2,546 Net cash (used) by operating activities $(1,228,366) $(1,259,757) Cash flows from investing activities Purchase of property and equipment $ 0 $ (8,857) Net cash (used) by investing activities $ 0 $ (240,132) Cash flows from financing activities Loan from shareholder $ 554,094 $ 474,478 Sale of common stock $ 427,191 $ 1,374,080 Convertible Debentures $ 237,000 $ (277,948) Net cash provided by financing activities $ 1,218,285 $ 1,570,610 Net change in cash $ (10,081) $ 61,865 Cash - beginning $ 22,128 $ 12,047 Cash - end $ 12,047 $ 73,912 =========== =========== Supplemental disclosures of cash flow information: Interest paid $ -- $ -- =========== =========== Taxes paid $ -- $ -- =========== =========== The accompanying notes are an integal part of these financial statements F-5 VIDEO WITHOUT BOUNDARIES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 Note 1. Nature of Business Video Without Boundaries is in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics market. VWB is focused on home entertainment media products and solutions that enhance the consumer experience, while providing new revenue opportunities for online music and movie content providers. VWB, and its subsidiaries, are leading suppliers of broadband products, services, and content including its ability to deliver broadcast quality digital video and web interactivity at transfer rates as low as 56K. All prior segments in 2001 were discontinued. A. The accompanying financial statements have been prepared on the going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred a loss of ($1,262,303) for the current year, and has a working capital deficiency of ($1,123,166) at December 31, 2003. Such factors raise substantial doubt about the ability of the Company to continue as a going concern. Continuation of the Company as a going concern is dependent on the Company's ability to attain profitable operations and/or obtain additional financing. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In January and February 2004, $1,100,000 was invested in the Company through the purchase of Sec. 144 shares. Note 2. Summary of Significant Accounting Policies Basis of Presentation Video Without Boundaries, Inc. was incorporated in the State of Florida, on March 19, 1999 under the name of ValuSales.com, Inc. and had no operations. On July 20, 1999, it acquired the assets of, and signed employment agreements with the principals of, two privately held operating companies for $75,000 and 45,000 shares of common stock. The transaction was accounted for as a purchase. The assets were recorded at cost, which approximated market value. Operations are included from the date of acquisition. The company changed its name to Video Without Boundaries on November 16, 2001. Note 2. Summary of Significant Accounting Policies-Continued On December 1, 1999, the Company, a public shell (with no historical operations) changed its name to Valusales.com, and acquired 100% of the outstanding stock of ValuSales.Com, Inc. for 250,000 shares. For accounting purposes, the acquisition has been treated as a capital transaction rather than a business combination. F-6 The accounting is identical to that resulting from a reverse acquisition. Therefore, a re-capitalization of the Acquired Company took place with the Acquired Company as the acquirer. The historical financial statements prior to December 1, 1999 are those of the Acquired Companies. All significant interdivisional transactions and balances have been eliminated. Revenues The Company recognizes revenues as follows: A. Product sales revenue its recognized when the product is delivered. B. Service revenue is recognized when the services are performed. Use of Estimates Use of estimates and assumptions by management is required in the preparation of financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates and assumptions. Property and Equipment Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the three year estimated useful lives of the assets. Property and equipment at December 31, 2003 and December 31, 2002 consist of: 2003 2002 --------- --------- Computer equipment $ 405,179 $ 118,294 Furniture and fixtures 27,687 27,687 --------- --------- 432,866 145,981 Less: Accumulated Depreciation (140,001) (79,974) --------- --------- $ 292,865 $ 66,007 ========= ========= Note 2. Summary of Significant Accounting Policies-Continued (Loss) Per Share (.082) Basic (loss) per share equals net (loss) divided by the weighted average shares outstanding during the period. Fully diluted shares assumes the average shares for the year. Leases - The Company's operating facilities are on a month to month leases for an annual rent of approximately $24,000. F-7 Due to Shareholders - The Company obtained loans from two shareholders totaling $474,478. The note is payable on demand with interest on the unpaid principal at the rate of 8.0% per annum. The balance of loans outstanding was $1,238,258 at December 31, 2003 and $763,780 at December 31, 2002. Note 4. Income taxes At December 31, 2003 the Company had net operating loss carry forward of approximately $3,430,750, which expires thru 2023. The deferred benefit of the net operating loss carry forward has been fully reserved for due to the uncertainty of the timing of its recognition. At December 31, 2003, there are no items that give rise to deferred income taxes. Note 5. Shareholders' Equity On April 1, 1999, Video Without Boundaries, Inc. had a private placement offering of 18,750 shares of its common stock at $1 per share. Cost of the offering was approximately $81,000. Such stock was sold pursuant to Rule 504 of Regulation D under the United States Securities Act of 1933. In 2001 the Company had a private placement offering of 144,307 shares of its common stock at $0.18 per share. Effective November 18, 2002 the Company effectuated a one-for-twenty reverse stock split. All share and per share data, is stated to reflect the split. In 2001 the Company sold convertible debentures totaling $485,500 interest on the outstanding principal shall accrue at the rate of 12% per annum. Holder may elect on maturity to collect the outstanding principal in shares of common stock at the rate of $0.05 per share. Subsequent to the balance sheet date all of the debentures were converted into common stock. In 2002 the company sold convertible debentures totaling 268,000. Interest on the outstanding principle share accrue at the rate of 12% per am mum. Holder may elect to collect the outstanding principal in shares of common stock at the rate of 50% of the bid price on conversion. These debentures were converted to 949,660 shares in 2003. Note 6. Business Segments The Company is organized as on entity (See Note 1). Summarized financial information concerning the Company is shown in the following table. Corporate related items not allocated to reportable segments are included in the reconciliation to the Balance Sheets and Statements of Operations. Reconciliation to Balance Sheets and Statements of Operations: F-8 -------------------------------------------------------------------------------- 2003 Totals 2002 Totals -------------------------------------------------------------------------------- Net Sales 190,770 Net Sales 330,621 -------------------------------------------------------------------------------- Operating earnings (loss) (1,262,303) Operating earnings (loss) (923,076) -------------------------------------------------------------------------------- Depreciation 140,001 Depreciation 32,230 -------------------------------------------------------------------------------- Total Assets 874,877 Total Assets 394,545 -------------------------------------------------------------------------------- Capital Expenditures 353,108 Capital Expenditures 8,903 -------------------------------------------------------------------------------- Reconciliation to Balance Sheets and Statements of Operations: 2003 2002 ----------- ----------- Assets Corporate $ 874,877 $ 394,545 ----------- ----------- Total $ 874,877 $ 394,545 =========== =========== Operating Results Total s for reportable segments Corporate ($1,262,303) ($ 923,076) ----------- ----------- Total ($1,262,303) ($ 923,076) =========== =========== Note 7. Subsequent Events During 2002 Convertible Debentures totaling $485,500 were converted into 9,710,000 shares of common stock. During 2003 Convertible Debentures totaling $496,460 was converted into 949,660 shares of common stock. F-9