SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Video Without Boundaries, Incorporated
--------------------------------------
(Exact name of registrant as specified in this charter)
Florida 65-1001686
------- ----------
(State of other jurisdiction (IRS Employer
of incorporation) Identification No.)
888 East Las Olas Blvd, Suite 710, Fort Lauderdale, FL 33304
--------------------------------------
Address of principal executive offices
954-527-7780
--------------------------------------
Registrant's telephone number, including area code
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of September 30, 2004 there were 36,448,747 shares of the Issuer's Common
Stock outstanding.
Video Without Boundaries, Inc.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets: September 30, 2004 and December 31, 2003
Statement of Operations: Nine Months Ending September 30, 2004 and Year
Ending December 31, 2003
Statement of Shareholder's Equity: Nine Months Ending September 30,
2004
Statements of Cash Flows: Nine Months Ending September 30, 2004 and
Year Ending December 31, 2003
Notes to Financial Statements for September 30, 2004
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
VIDEO WITHOUT BOUNDARIES, INC.
Consolidated Balance Sheets
12/31/03 9/30/2004
----------- -----------
Assets audited unaudited
Current assets:
Cash $ 73,912 $ 241,399
Accounts receivable $ 300,000 $ 1,092,009
Inventory $ 3,250 $ 459,423
Note - CAC $ 0 $ 253,000
----------- -----------
Total current assets $ 377,162 $ 2,045,831
Fixed assets:
Property and equipment $ 94,198 $ 163,752
----------- -----------
Net fixed assets $ 94,198 $ 163,752
Other assets $ 1,850 $ 21,951
Investment in CAC Media $ 163,000 $ 675,000
Graphics Distribution, Inc. -- $ 1,500,000
Media Ready Software $ 198,668 $ 203,168
Prepaid Box Tooling $ 40,000 $ 40,000
----------- -----------
Total other assets $ 403,518 $ 2,440,119
Total assets $ 874,877 $ 4,649,702
=========== ===========
Liabilities and owner's equity
Current liabilities:
Accounts payable $ 224,769 $ 262,726
Due To Shareholders $ 1,238,258 $ 2,280,463
Line of Credit $ 0 $ 812,544
Interest Payable $ 7,301 $ 0
Notes Payable $ 30,000 $ 0
Other -- $ 48,257
Convertible Debentures -- $ 0
----------- -----------
Total current liabilities $ 1,500,328 $ 3,403,990
Long term liabilities:
Note - GDI -- $ 1,150,000
----------- -----------
Total long term liabilities $ 0 $ 1,150,000
Shareholders Equity
Common stock-par value $.001, 50,000,000 shares
authorized, 15,448,747 issued and outstanding
at December 31, 2003 and 36,448,747 at
September 30, 2004 $ 15,449 $ 36,449
GDI common stock-par value $1.00, 10,000 shares
authorized, 1,000 shares issued and outstanding
at September 30, 2004 $ 0 $ 1,000
Additional paid -in capital $ 2,789,851 $ 4,171,851
Deficit $(3,430,750) $(4,113,587)
----------- -----------
Total owner's equity ($ 625,450) $ 95,713
Total liabilities and stockholders' equity $ 874,877 $ 4,649,703
=========== ===========
The accompanying notes are an integal part of these financial statements
3
YTD 2003 YTD 2004
9/30/03 9/30/04
----------- -----------
unaudited unaudited
Revenues $ 190,770 $ 3,757,474
Cost of sales $ 175,926 $ 3,479,150
----------- -----------
Gross profit $ 14,844 $ 278,324
Selling, general, and administrative expenses $ 648,925 $ 997,968
Research and Development $ 0 $ 0
----------- -----------
Net Income ($ 634,081) ($ 719,644)
=========== ===========
4
VIDEO WITHOUT BOUNDARIES, INC.
Consolidated Statements of Operations
For year ended December 31, 2003 & nine months ended September 30, 2004
12/31/03 9/30/04
------------ ------------
audited unaudited
Revenues $ 190,770 $ 3,757,474
Costs of Sales $ 176,046 $ 3,479,150
------------ ------------
Gross Profit $ 14,724 $ 278,324
Selling,General, and Administrative Expenses $ 1,277,027 $ 997,968
Research and Development -- --
Loss on Discontinued Business -- --
------------ ------------
$ 1,277,027 $ 997,968
------------ ------------
Net Income / Loss ($ 1,262,302) ($ 719,644)
============ ============
Basic Loss Per Share ($ 0.082) ($ 0.020)
============ ============
Diluted Earnings Per Share ($ 0.162) ($ 0.028)
============ ============
Weighted-average common shares outstanding
Basic 15,448,747 36,448,747
============ ============
Diluted 7,783,917 25,948,747
============ ============
The accompanying notes are an integal part of these financial statements
5
VIDEO WITHOUT BOUNDARIES, INC.
Consolidated Statement of Shareholders' Equity
March 19, 1999 (Inception) to September 30, 2004
Additional
Common Stock 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 Year Ended December 31, 2003 ($ 1,262,302)
---------- ------------ ------------ ------------
Balance December 31, 2003 15,448,747 $ 15,449 $ 2,789,850 ($ 3,430,749)
Stock issued For Acquisitions 1,000 $ 1,000 $ 39,000
Stock Issued For Debt 17,100,000 $ 17,100 $ 188,900
Stock Issued For Services 900,000 $ 900 $ 57,100
Stock Issued For Stock Sale 3,000,000 $ 3,000 $ 1,097,000
GDI retained earnings $ 128,248
(Loss) For The Period Ended September 30, 2004 ($ 811,091)
---------- ------------ ------------ ------------
Balance September 30, 2004 36,449,747 $ 37,449 $ 4,171,850 ($ 4,113,592)
The accompanying notes are an integral part of these financial statements
6
VIDEO WITHOUT BOUNDARIES, INC.
Statements of Cash Flows
12/31/03 9/30/04
----------- -----------
audited unaudited
Cash flows from operating activities
Net income/(loss) ($1,262,302) ($ 811,091)
Adjustments to reconcile net income/
(loss) to net cash provided/
(used) by operating activities
Stock issuance $ 15,330 $ 23,000
Depreciation $ 140,001
Decrease (Increase) in accounts receivable ($ 299,379) ($ 2,064)
Decrease (Increase) in inventories ($ 3,250) ($ 72,816)
Decrease (Increase) in other Assets ($ 6,850) ($ 101,726)
Increase (Decrease) in notes payable $ 17,301 ($ 37,301)
Increase (Decrease) in accounts payable $ 139,394 ($ 132,230)
----------- -----------
Total Adjustments $ 2,546 ($ 323,136)
----------- -----------
Net cash provided/(used) by operating activities ($1,259,757) ($1,134,227)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment ($ 8,857) ($ 59,287)
Investment in CAC ($ 240,132) ($ 675,000)
Graphics Distribution $ 0 ($ 350,000)
----------- -----------
Net cash provided/(used) by investing activities ($ 248,989) ($1,084,287)
----------- -----------
Cash flows from financing activities
Loan from shareholder $ 474,478 $ 1,043,002
Sale of common stock $ 1,374,080 $ 1,343,000
Convertible Debentures ($ 277,948)
----------- -----------
Net cash provided/(used) by financing activities $ 1,570,610 $ 2,386,002
----------- -----------
Net change in cash $ 61,865 $ 167,487
Cash - beginning $ 12,047 $ 73,912
Cash - end $ 73,912 $ 241,399
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ -- $ --
=========== ===========
Taxes paid $ -- $ --
=========== ===========
7
VIDEO WITHOUT BOUNDARIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
unaudited
Note 1. Summary of Significant Accounting Policies
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted in this Form 10-QSB in compliance with the Rules
and Regulations of the Securities and Exchange Commission. However, in the
opinion of Video Without Boundaries, Inc. the disclosures contained in this Form
10-QSB are adequate to make the information fairly presented.
Note 2. Basis of Presentation
In the opinion of the Company, the accompanying unaudited financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position and the results of operations for the nine
month period ended September 30, 2004. The results of operations for the nine
months ended September 30, 2004 are not necessarily indicative of the results
which may be expected for the entire year.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------------
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-QSB.
OVERVIEW
Broadband Media Marketplace
Just when broadband growth in the US appeared to be waning, Leichtman Research
Group, Inc. (LRG) found that the twenty largest cable and DSL providers in the
US - representing about 95% of the market - achieved record net additions in the
third quarter of 2004. Combined net additions for the quarter totaled over 2.3
million subscribers - a total that slightly exceeded the previous record set in
the first quarter of 2004.
The top broadband providers now account for over 30.9 million high-speed
Internet subscribers, with cable having nearly 18.8 million broadband
subscribers, and DSL having close to 12.2 million subscribers.
Other key findings include:
o The top cable providers added 1.28 million subscribers, representing
55% of the net broadband additions for the quarter versus DSL -
rebounding from last quarter when DSL, for the first quarter ever, had
a greater share of net additions than cable
o Comcast alone added a record 549,000 net additional subscribers in the
quarter - representing 44% of total additions for the top cable
operators, and nearly a quarter of all broadband adds in the quarter
o The top cable broadband providers retain a 6.6 million subscriber
advantage over DSL and have a 61% share of the total market versus DSL
o In the past year, from the end of third quarter of 2003 to the end of
the third quarter of 2004, cable and DSL added 8.3 million net
subscribers - a record for any one year period
9
BROADBAND INTERNET PROVIDER SUBSCRIBERS AT END OF Q3 2004 NET ADDS IN Q3 2004
CABLE
Comcast 6,554,000 549,000
Time Warner 3,716,000 168,000
Cox 2,430,555 184,446
Charter 1,819,900 108,500
Adelphia** 1,253,407 85,605
Cablevision 1,259,024 79,984
Bright House Networks* 700,000 25,000
Mediacom 350,000 23,000
Insight 311,500 37,600
RCN* 215,000 5,000
Cable One 165,600 13,300
TOTAL TOP CABLE 18,774,986 1,279,435
DSL
SBC 4,679,000 402,000
Verizon 3,253,000 309,000
Bell South 1,872,000 134,000
Qwest 956,000 103,000
Covad 524,900 10,555
Sprint 432,000 49,000
ALLTEL 216,885 22,351
Cincinnati Bell 123,000 6,000
Century Tel 120,869 12,049
TOTAL TOP DSL 12,177,654 1,047,955
TOTAL BROADBAND 30,952,640 2,327,390
Sources: The Companies and Leichtman Research Group, Inc. * Bright House
Networks and RCN subscriber counts are estimates ** Adelphia subscriber counts
do not include properties owned by the Rigas family Top cable and DSL providers
represent approximately 95% of all subscribers Company subscriber counts may not
represent solely residential households.
Similar research in the industry also points out that over 50% of broadband
customers are installing in-home networks as a means for sharing high speed data
connections, files and resources. With this mass adoption of broadband
connectivity and in-home networking technology, consumers have the ability to
access a wide range of digital media over the internet and move that media
around our homes. The world is moving away from the storefront delivery of media
to a new all-digital distribution system. Consumers are becoming acclimated to
the benefits and quality of digital media goods and on-line digital media. In
addition, PCs, digital cameras, USB storage devices, MP3 players, CDs and DVDs
are all broadly accepted consumer devices that are changing the way we view
media. Consumers no longer store their pictures, videos or audio files on tapes
or other antiquated storage mechanisms.
10
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
o Robust Digital Rights Management (DRM) solution to support
secure IP media delivery
The Video Without Boundaries (VWB) MediaREADYTM products are the first consumer
electronic products to achieve the long-awaited promise of convergent home
entertainment. All MediaREADYTM units have the ability to connect PC's
wirelessly to home entertainment stereo and TV systems, linking all digital
media content stored on PC's to its onboard hard drive. The products leverage
the power of VIA Technologies EPIA processing, a breakthrough product offering
low power consumption, quiet operation, and high-bandwidth connectivity options
including IEE1394, USB2.0, S-Video, RCA TV-Out (NTSC and PAL), 10/100 Ethernet
and wireless PCMCIA card support, enabling MediaREADYTM units to download, play,
and manage digital movies, music and pictures from the Internet, or from a home
networked PC. The recently announced MediaREADYTM 5000 also adds the ability to
record live TV and burn DVDs. Similar in size to a standard DVD player, the
MediaREADYTM products retail between $449-$899.
VWB's goals are 1) innovative developer/licensor 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.
Broadband Media Device Competition
Industry Product Line Example
PC Manufacturers: Multimedia PC "Media Station"
o Form factor (design), connectivity and usability are not
living room & stereo/TV friendly
o Designed for early adopter market
o Expensive (averaging $2,000)
Networking/Wireless Approach: Media Receiver
o Requires PC and extensive PC proficiency from the user
o Expensive (averaging $849)
Consumer Electronics Manufacturers: Media Server
o Expensive (averaging $7442)
VIDEO WITHOUT BOUNDARIES PRODUCTS
Consumer Products
MediaREADY 4000
11
The MediaReady(TM) 4000 connects to your TV, Stereo, home network and Internet
to bring the best of what digital media can be into a single device. As the
medium of media delivery is shifting from tangible products to electronic media,
new capabilities are required from the essential entertainment devices in the
consumer's living rooms. The MediaReady 4000 is a product that was designed to
give the answer. The MediaREADY 4000 comes with support for an essential suite
of TV-centric media applications to help create an easy to navigate environment
for controlling your entertainment choices. In addition, the product serves as
an upgradeable platform that will allow you to constantly update the features
and content to ensure you are able to enjoy this product well into the future.
MediaREADY 4000 Highlights
Media Jukebox - burn & manage your music, movies and pictures on the
MediaREADY's hard drive, any PC connected to the same home network or connected
peripherals (ex. digital cameras, external storage devices)
Rip CDs onto the MediaREADY 4000
Get an easy access to all your music collection from the TV
screen
Create Playlists of your favorite songs
Present Your Pictures on The TV
Transfer pictures from digital camera to be displayed on the
TV
Transfer pictures from your PC to be displayed on the TV
Create slideshows to auto-play while music plays at the same
time
Play Music and Video from PC on the TV
Access all the pictures, music and video stored on the PC from
the TV
Download and stream full-Screen DVD quality Video and Music over the Internet on
your TV
High speed internet browsing with TV-centric website portal to provide the best
surfing experience on the TV
Enhanced DVD/CD Player with 5.1 Digital Surround
Create and manage multiple email accounts
TV-friendly games of all genres and skill levels
Simple to use Karaoke feature to sing along with your entire music collection or
access new content on demand
Wireless Keyboard and Remote Controls both with trackball mouse built in for
easy navigation
Unmatched level of connectivity for USB, 1394, Component or composite video
peripherals
Remotely upgradeable to ensure the latest applications, services and content are
kept current and competitive
MediaREADY 4000+RW
The MediaReady(TM) 4000+RW, Retail Price $599, connects to your TV, Stereo, home
network and Internet to bring the best of what digital media can be into a
single device. The unit supports an essential suite of TV-centric media
applications that create an easy to navigate environment for controlling your
entertainment choices. The product also allows the user to easily archive all of
their digital media through the DVD+RW loader. In addition, the product serves
as an upgradeable platform that will allow you to constantly update the features
and content to ensure you are able to enjoy this product well into the future.
MediaREADY(TM) 4000+RW Highlights -
12
Broadband Connectivity
Remotely upgradeable to ensure the latest applications, services and content are
kept current and competitive
In-home Network Ready
PCMCIA Wireless card or Ethernet capable
DVD+RW
Enhanced DVD/CD Player and Recorder with 5.1 Digital Surround
Media Jukebox
Burn & manage your music, movies and pictures on the MediaREADY(TM)'s hard
drive, any PC connected to the same home network or connected peripherals (ex.
digital cameras, external storage devices). Rip CDs onto the MediaREADY 4000 .
Play Music and Video from PC on the TV.
Support for Streaming and Downloaded Media
Full-Screen DVD quality Video and Music over the Internet on your TV
Web Browsing
High speed internet browsing with TV-centric website portal to provide the best
surfing experience on the TV
TV E-Mail
Create and manage multiple email accounts
MediaREADY 5000 PVR+RW
The MediaREADY(TM) 5000 PVR+RW, suggested retail price $899, lets users
customize viewing by recording shows on a built-in computer hard drive or DVD
recorder. Made popular by TiVo, the concept of time shifting television is
gaining mass acceptance. The functionality of this unit is, however, unmatched
in the industry. Users can access digital media files on the unit's internal
drive, any PC or on the same in-home network, connected peripheral devices. In
addition, the unit brings On-demand content, E-mail, Internet browser, Games,
and MP3/CD/DVD/MPEG-1/MPEG-2/MPEG-4 playback to any connected television.
Professional Products
In July 2004, VWB announced our plans to license the MediaREADY(TM) 400,
MediaREADY(TM) 4000 and the MediaREADY(TM) Module to consumer electronics
manufacturers interested in deploying a variety of competitive broadband-enabled
devices. The company has recently added the MediaREADY 5000 PVR+RW to the list
of available products. All MediaREADY(TM) products are tightly integrated
hardware designs which provide broadband media capabilities, fast time-to-market
and recurring revenue opportunities for licensees. The MediaREADY(TM) Module is
a low-cost small footprint module designed to empower television sets and other
consumer electronics devices with a wide range of broadband media applications.
Hardware available for license:
13
MediaREADY(TM) 4000 hardware
The MediaREADY(TM) 4000 connects to a person's TV, home stereo, home network and
Internet, combining the best of digital media into a single device. As media
delivery continues to shift from tangible products to electronic media, new
capabilities are required from the essential entertainment devices found in
consumers' living rooms. The MediaREADY(TM) 4000 offers the answer with an
essential suite of easy to navigate, TV-centric media applications that control
all the user's various entertainment choices. In addition, the product serves as
an upgrade platform for future features and content, thus ensuring the product's
performance and enjoyment well into the future.
MediaREADY 5000 PVR+RW
The MediaREADY(TM) 5000 PVR+RW will combine a suite of popular TV-centric
applications for digital media management and communication with an advanced
electronic program guide and the ability to record broadcast media on either the
internal hard drive or DVD recorder.
MediaREADY(TM)400 hardware
The MediaREADY(TM) 400 takes the best features and functionality of the
MediaREADY(TM) 4000 and encases them in a small, discreet enclosure. By offering
an integrated hard drive, smart card support, Ethernet connectivity,
USB/1394/superior A/V connectivity and a full go-to-market suite of TV-centric
applications, the MediaREADY(TM) 400 brings today's high speed internet users a
feature-rich solution to access their digital media.
MediaREADY(TM) Module
The MediaREADY(TM) Module can be designed into many different types of consumer
electronics including televisions, DVD players, home theater amplifiers and
receivers, and a host of other devices. This design flexibility allows VWB to
provide a wide range of solutions for manufacturers looking to expand the
feature-set of their devices. In an era when time-to-market is key, having a
partner with proven hardware capabilities is fundamental to success. VWB works
with the top IC solution providers in the world; what's more, no design or
feature-set combination is too complicated for MediaREADY(TM) design products.
Video Without Boundaries is making its MediaREADY(TM) technology available for
consumer electronic manufacturers beginning in Q4 2004.
In addition, the MediaReady platform allows consumers to upgrade their units
with additional services based on a one-time or subscription charge. VWB offers
value-added applications and upgrades that include:
o Games (Single or Multiplayer)
o On Demand Media Rental and Purchase
Content Delivery Network
In September VWB announced the launch of the Content Delivery Network (CDN)
supported by technology partner C.A.C Media. The CDN will be deployed by Video
Without Boundaries on all MediaREADYTM products and will deliver DVD quality
video content to MediaREADYTM enabled TVs over the Internet. The network will
support a wide range of content including Channel Programming (Subscription
Video on Demand) and Library Subscription Video on Demand. The CDN is a major
step forward in consumer electronics as we will be in a position to generate an
ongoing revenue stream from every unit sold.
About the content available:
Channel Program (SVOD)
Using a TV-based navigation screen, MediaREADYTM users can log on a channel,
select a show they are interested in watching and click to play it
instantaneously. Channels may consist of daily or weekly episode updates.
14
Individual Titles - VOD
Home users can browse between available titles and select titles they wish to
view. The content is sent over the Internet to a MediaREADY device and will play
on a TV screen connected to any enabled device. The content network will support
DVD and High Definition quality video transmission. Content owners have the
option of allowing users to "purchase" instead of rent. If purchased, the user
will receive a physical DVD of the purchased material along with unlimited
access to the title on their MCSS device.
Library SVOD
The CDN also provides a great platform for instructional content and large
archives of content to generate income by offering up to 1 year of unlimited
access libraries of content and instructional video classes. From wine tasting
and magic lessons to archival music collections of the 60s, the Library SVOD
feature serves both consumers and content owners.
At the Digital Hollywood Conference in Los Angeles VWB announced the TV FOR THE
PEOPLE BY THE PEOPLETM Concept. In partnership with CAC Media, the company is
creating a number of independently developed "channels" scheduled for the 2005
season which are currenlty in production including; Celebrity Gossip, Console
Game Review, Yoga Instruction, Beat'em at Hold'em, Muscle Cars, $500 US Travel,
Become a Magician, Daily Soap Review, Diet Channel, Knit 1 Perl 2, Frat Party
USA, Dance Channel and Extreme Pranks & Jokes.
This Content Delivery Network will be available on Video Without Boundaries
MediaREADYTM hardware and is also available for license by other CE/PC
manufacturers. The projected network is 5,000 "Pilot" households by the end of
2004 and 250,000 households by the end of 2005.
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 -
$499 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
15
Acquisition of Graphics distribution, Inc.
In September 2004, VWB completed its acquisition of (GDI), a Glendale,
Wisconsin-based high-technology distribution and product support services
company. The acquisition, first made public in May when the two companies signed
a letter of intent, assures VWB customers warehousing, logistics, and technical
support for the new VWB MediaREADYTM 4000 consumer set-top device as well as
other consumer electronics products.
Graphics Distribution, Inc., founded in 2000, is an established and profitable
enterprise with fiscal 2003 revenues of $8 million. The company has
relationships with many of America's largest and best-known retail consumer
electronics and computer companies including CDW, Dell, Ingram Micro, Insight,
Northrop Grumman, PC Connection, PC Mall, and Tiger Direct. The terms of the
transaction are $1,500,000 in cash and 1,000,000 shares of restricted VWB common
stock.
GDI currently serves as authorized distributor for manufacturers in the video,
AV, personal computer, and IT segments and operates a warehouse and distribution
center in Glendale, a suburb of Milwaukee. James Joachimczyk and the rest of
GDI's highly-experienced senior management team will continue to operate the
company as a wholly-owned subsidiary of VWB. GDI is located at 4650 North Port
Washington Road, Glendale WI 53212.
CUSTOMERS
VWB 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.
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.
During the perio ended September 30, 2004, no customer accounted for more than
10.0% of Video Without Boundaries' revenues. 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.
Results of Operations:
--------------------------------------------------------------------------------
The following table sets forth certain statements of operations data of the
Company both in actual dollars and as a percentage of revenue for the period
indicated:
Insert:
Statement of Operations 2003 Q3 and 2004 Q3
Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30,
2003
16
REVENUES
Net Revenues are comprised of product and services revenues, net of
returns and allowances. Net revenues increased 1,870%, to $3,757,474 for the
nine months ended September 30, 2004 from $190,770 for the comparable period in
2003. This increase was due primarily to the acquisition of GDI, Inc. and the
revenue produced from this subsidiary.
GROSS PROFIT
Gross Profit increased 1775%, to $278,324 for the nine months ended
September 30, 2004 from $14,844 for the comparable period in 2003. This increase
was due primarily to the acquisition of GDI, Inc. and the revenue produced from
this subsidiary.
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 as
a percentage of revenue decreased to 27% for the nine months ended September 30,
2004 from 340% for the comparable period in 2003. The decrease in general and
administrative expenses as a percentage of revenue was a result of the
consolidation of operations and re-focusing of the Company as we develop and
manufacture our new MediaReady line of set-top boxes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004 the Company had cash and net working capital
of $241,399 and ($1,358,159), respectively. The Company believes that its
current working capital, and cash generated from operations will be sufficient
to meet the Company's cash requirements for the current year. If the Company is
not successful in generating sufficient cash flow from operations or in raising
additional capital when required in sufficient amounts and on acceptable terms,
these failures could have a material adverse effect on the Company's business,
results of operations and financial condition. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
Company's then-current stockholders would be diluted. There can be no assurance
that the Company will be able to raise any required capital necessary to achieve
its targeted growth rates and future continuance on favorable terms or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings against the Company.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
99.1 Certification Pursuant to 18 USC Section 1350, Section 906 of the
Sarbanes-Oxley Act of 2003
No Reports on form 8-K
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Video Without Boundaries, Inc.
Date: November 15, 2004 By: /s/ V. JEFFREY HARRELL
--------------------------
V. Jeffrey Harrell, President & CEO