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 March 31, 2005
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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.)
888 EAST LAS OLAS BLVD, SUITE 710
FORT LAUDERDALE, FL 33301
(Address of Principal Executive Offices)
(954) 527-7780
(Issuer'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 [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
The number of shares outstanding of each of the issuer's common stock, as of
October 13, 2005: 77,066,626 shares of common stock.
Video Without Boundaries, Inc.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at March 31, 2005 and December 31, 2004 3
Statements of Operations for the three months ended
March 31, 2005 and three months ended March 31, 2004 4
Statements of Cash Flows for the three months ended
March 31, 2005 and three months ended March 31, 2004 5
Notes to Financial Statements for March 31, 2005 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-16
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEO WITHOUT BOUNDARIES, INC.
BALANCE SHEETS
MARCH 31 DECEMBER 31
2005 2004
------------ ------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 18,482 $ 79,765
Accounts receivable 27,389 9,605
Inventory 41,553 61,747
Prepayments and other current assets 160,674 106,107
------------ ------------
Total current assets 248,098 257,224
------------ ------------
Property and equipment, net 134,035 176,741
------------ ------------
Other assets:
Investments (at cost), net of allowance for
decline in value of $1,308,000 at
March 31, 2005 and
December 31, 2004, respectively -- --
Deposits 12,000 12,000
------------ ------------
12,000 12,000
------------ ------------
Total assets $ 394,133 $ 445,965
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable trade 38,117 44,239
Accrued compensation 433,975 399,725
Other accruals 197,339 190,998
Notes payable and accrued interest - shareholder 2,220,277 2,088,145
Loans payable - shareholder 11,927 24,427
------------ ------------
Total current liabilities 2,901,635 2,747,534
------------ ------------
Stockholders' deficit:
Preferred stock - $.001 par value,
5,000,000 shares authorized,
-0- shares issued and
outstanding at March 31, 2005 and
December 31, 2004, respectively -- --
Common stock - $.001 par value,
100,000,000 shares authorized,
61,154,126 and 53,119,126
shares issued and outstanding at
March 31, 2005 and
December 31, 2004, respectively 61,154 53,119
Additional paid-in capital 5,115,434 4,935,219
Accumulated deficit (7,496,590) (7,042,407)
------------ ------------
(2,320,002) (2,054,069)
Stock subscription receivable -- (60,000)
Treasury stock - at cost (187,500) (187,500)
------------ ------------
Total stockholders' deficit (2,507,502) (2,301,569)
------------ ------------
Total liabilities and stockholders' deficit $ 394,133 $ 445,965
============ ============
The accompanying notes are an integral part of these financial statements.
3
VIDEO WITHOUT BOUNDARIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
Sales $ 21,089 $ 2,553
Cost of sales 20,283 3,310
------------ ------------
Gross profit 806 (757)
------------ ------------
Operating expenses:
Selling, general and administrative 363,872 264,200
Depreciation 43,404 59,709
Loss due to decline in value of investments -- 165,000
Research and development expense 5,580 --
Interest and financing expense 42,132 19,923
------------ ------------
454,988 508,832
------------ ------------
Net loss $ (454,182) $ (509,589)
============ ============
Basic and fully diluted loss per share $ (0.01) $ (0.02)
============ ============
Weighted-average number of shares
used in computing per share amounts 56,086,904 22,748,747
============ ============
The accompanying notes are an integral part of these financial statements.
4
VIDEO WITHOUT BOUNBARIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
Cash flows from operating activities:
Net loss $ (454,182) $ (509,589)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 43,404 59,709
Interest on shareholder loans and notes payable 42,132 20,069
Selling, general and administrative expenses -- 66,101
Loss due to decline in value of investments -- 165,000
Stock issued for services and under employment agreement 47,250 --
Change in assets and liabilities
(Increase) in accounts receivable (17,784) (1,725)
(Increase) decrease in inventories 20,194 (6,500)
(Increase) in prepayments and other assets (54,567) --
(Decrease) in cash overdraft -- (2,693)
(Decrease) in accounts payable (6,122) (2,263)
Increase in accrued compensation 34,250 40,250
Increase in other accruals 6,341 9,088
----------- -----------
Net cash used in operating activities (339,084) (162,553)
----------- -----------
Cash flows from investing activities:
Purchases of stock in closely held corporation -- (165,000)
Purchases of property, plant and equipment (699) (7,604)
----------- -----------
Net cash used in investing activities (699) (172,604)
----------- -----------
Cash flows from financing activities:
Proceeds from shareholder notes 266,000 85,000
Repayment of shareholder loans (12,500) --
Repayment of shareholder notes (100,000) --
Payment of notes payable -- (37,900)
Proceeds from issuance of stock 65,000 --
Collection of stock subscription 60,000 1,100,000
----------- -----------
Net cash provided by financing activities 278,500 1,147,100
----------- -----------
Net increase ( decrease) in cash and cash equivalents (61,283) 811,943
Cash and cash equivalents at beginning of period 79,765 20
----------- -----------
Cash and cash equivalents at end of period $ 18,482 $ 811,963
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ 3,600
----------- -----------
Non-cash movements affecting investing and financing transactions:
Accounts payable converted to note payable shareholder $ -- $ 160,000
----------- -----------
Note payable to shareholder converted into restricted
common stock $ 76,000 $ 116,000
----------- -----------
Stock issued for services and compensation $ 47,250 $ --
----------- -----------
The accompanying notes are an integral part of these financial statements.
5
VIDEO WITHOUT BOUNDARIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three-month periods
ended March 31, 2005 and 2004 have been prepared in conformity with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. The financial information as of December 31, 2004 is derived from the
registrant's Form 10-KSB for the year ended December 31, 2004. Certain
information or footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission.
The presentation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. In the opinion of management, the
accompanying financial statements include all adjustments necessary (which are
of a normal and recurring nature) for the fair presentation of the results of
the interim periods presented. While the registrant believes that the
disclosures presented are adequate to keep the information from being
misleading, it is suggested that these accompanying financial statements be read
in conjunction with the registrant's audited financial statements and notes for
the year ended December 31, 2004, included in the registrant's Form 10-KSB for
the year ended.
Operating results for the three-month period ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the remainder of
the fiscal year ending December 31, 2005.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis. The Company has generated minimal revenue since its inception and has
incurred net losses of approximately $7.5 million. The Company's ability to
continue as a going concern is dependent upon its ability to obtain the
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they become due, to fund possible
acquisitions, and to generate profitable operations in the future. While the
Company has sustained losses, certain current shareholders' of the Company have
committed to fund the operational needs of the Company. Additionally, management
plans to continue to provide for its capital requirements by issuing additional
equity securities and debt. Between the period April 1, 2005 through November
30, 2005 the Company has received approximately $1,300,000 as advances from a
major shareholder and sale of equity securities. The outcome of these matters
cannot be predicted at this time and there are no assurances that if achieved,
the Company will have sufficient funds to execute its business plan or generate
positive operating results.
These matters, among others, raise substantial doubt about the ability of the
Company to continue as a going concern. These financial statements do not
include any adjustments to the amounts and classification of assets and
liabilities that may be necessary should the Company be unable to continue as a
going concern.
NOTE 3 - NOTES PAYABLE
The Company is obligated to a shareholder for $2,220,277 advanced to fund
operations. The note is collateralized by the assets of the Company, bears
interest at 8% per annum and is repayable on demand. During the three months
ended March 31, 2005 the Company incurred interest on these notes totaling
$42,132. Furthermore, pursuant to an existing conversion agreement this
obligation can be converted to restricted common stock at a price of $0.01 per
share. On October 10, 2005, an amended agreement was executed which changed the
conversion feature as well as placed a restriction on the amount of debt which
can be converted during any quarter (see note 8).
6
NOTE 4 - LOANS PAYABLE
The Company is obligated to a shareholder for $11,927 advanced to fund
operations. The loan is non-interest bearing, unsecured and repayable on demand.
NOTE 5 - COMMON STOCK TRANSACTIONS
During the three months ended March 31, 2005 a stockholder converted $76,000 in
notes payable into 7,600,000 shares of restricted common stock at $0.01 per
share.
During the three months ended March 31, 2005 the Company issued 50,000 shares of
restricted common stock to its Chief Technology Officer, under an employment
agreement, at $0.35 per share, for a total of $17,250.
During the three months ended March 31, 2005 the Company issued 85,000 shares of
restricted common stock to a third party for services rendered at $0.35 per
share, for a total of $30,000.
During the three months ended March 31, 2005 the Company sold 300,000 shares of
restricted common stock to an investor at $0.22 per share, for a total of
$65,000, and on January 14, 2005 received $60,000 for stock sold during the
three months ended December 31, 2004.
NOTE 6 - RELATED PARTIES
During the three months ended March 31, 2005, the Company expensed an amount of
$50,000 for the salary of the President. As of March 31, 2005 a total of
$433,975 for the period January 1, 2002 through March 31, 2005 was unpaid and
has been accrued.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On August 11, 2004 (with an effective date of June 1, 2004) the Company entered
into a stock purchase agreement with the sole shareholder of a privately-held
company engaged in the business of selling and distributing electrical products.
The principal terms of the agreement provide for the Company to acquire all of
the issued and outstanding shares of the acquired entity for a purchase price of
$1,500,000 plus the issuance of 1,000,000 restricted common stock shares in the
acquiring entity. Additional considerations included in the stock purchase
agreement require the Company to collateralize an existing line of credit in the
amount of $2,500,000 as well as retain the services of the selling shareholder,
pursuant to a consulting agreement dated August 11, 2004, for a term consistent
with the fulfillment of the stock purchase agreement. The Company, at time of
closing, gave their initial deposit of $350,000, but has defaulted on the
remaining balance due and is also in default of the collateralization provision.
Management has written off the deposit of $350,000 and is actively negotiating
with the seller a resolution to this matter. Management anticipates that a
settlement will be forthcoming and that their loss will consist of their
forfeited deposit, however, if a settlement is not reached, management believes
this could have a material adverse effect on the Company's financial statements.
Effective February 23, 2005, the Company entered into a software development and
licensing agreement with a technology provider which requires the Company to pay
a total fee of $99,500 over a fixed period of time (approximately one year) in
exchange for stated software enhancement features to the Company's existing
product platform.
NOTE 8 - SUBSEQUENT EVENTS
On October 10, 2005, the Company and a stockholder/creditor entered into an
agreement which amended a prior agreement concerning the terms and conditions
attached to the conversion of outstanding debt into restricted or free trading
stock of the Company. The original agreement conveyed upon the stockholder the
right to convert amounts owed to him at a price of one ($.01) cent per share
without restrictions as to time periods. Based upon the terms and conditions of
the amended agreement, the stockholder, effective with the period commencing
July 1, 2005, will have conversion rights as follows; for the third calendar
quarter of 2005 the conversion of debt to stock shall be at twenty (20%) percent
of the then closing price on the date of conversion; for all subsequent periods
this conversion formula shall be at forty (40%) percent of the then closing
price of the stock on the date of conversion. In addition, effective October 10,
2005, the stockholder shall be limited in respect to the amount of outstanding
debt he will be permitted to convert in any calendar quarter. This limitation
has been set at three (3%) percent of the outstanding debt.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of Video Without Boundaries, Inc. ("the Company") for the three
months ended March 31, 2005 and significant factors that could affect our
prospective financial condition and results of operations. You should read this
discussion in conjunction with the financial statements, including the notes
thereto, of the Company included elsewhere in this Form 10-QSB, and our
financial statements and notes contained in our annual report on Form 10-KSB,
for the year ended December 31, 2004. Historical results may not be indicative
of future performance.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report on Form 10-QSB, contains forward-looking statements within the
meaning of and which are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to be materially different from historical results or from any results
expressed or implied by such forward-looking statements. Forward-looking
statements generally are accompanied by words such as "anticipates," "belief,"
"believes," "estimates," "expects," "intends," "plans" and similar statements,
and should be considered uncertain and forward-looking. Any forward-looking
statements speak only as of the date on which such statement is made, are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecast in such
forward-looking statements, whether as a result of new information, future
events or otherwise. Factors that could cause our results to differ materially
from the results discussed in such forward-looking statements include, without
limitation: going-concern considerations; uncertain continued ability to meet
our development and operational needs in view of our serious working capital
shortage; no assurances of and uncertainty of future profitability; our plan to
enter new, untested markets; our dependence on our management and the
requirement of additional management in order to execute our operating plan; the
uncertainty of the U.S. economic recovery and economic trends; the impact of
competitive services and pricing; the Sarbanes Oxley Act has increased our
legal, accounting and administrative costs; and many of such risk factors that
are beyond our control. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. In light of these risks and
uncertainties, there can be no assurance that the results anticipated in these
forward-looking statements contained in this report will in fact occur. All
forward-looking statements wherever they may appear are expressly qualified in
their entirety by the cautionary statements in this section. We undertake no
obligation to update any such forward-looking statements.
OVERVIEW
The Company provides products and services in the converging digital media on
demand, enhanced home entertainment and emerging interactive consumer
electronics markets. The Company 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. The Company is
becoming a supplier of broadband products, services and content including its
ability to deliver broadcast quality digital video and web interactivity
directly to its CE products.
With more than 120 million broadband households worldwide, the Company is
attempting to capitalize on the growth of this market through sale of products,
professional services and potential new partnerships and business ventures.
The Company has repositioned itself within the entertainment and home broadband
marketplace. The Company's goals are: 1) to become a developer/licenser,
producer and distributor of interactive consumer electronics equipment; 2)
establish itself as a software infrastructure player within the home
entertainment media-on-demand marketplace; and 3) attempt to capture revenue and
market share from services and products within the video on demand (IP)
marketplace.
8
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
o economic conditions generally or in the information technology
products and services markets
The Company expects these trends to continue.
The Company's 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 from $449 to $899.
BROADBAND MEDIA MARKETPLACE
Just when broadband growth in the United States appeared to be waning, Leichtman
Research Group, Inc. (LRG) found that the twenty largest cable and DSL providers
in the United States - 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.
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
10
PRINCIPAL PRODUCTS
MediaREADYTM Digital Media Centers
MediaREADYTM 4000:
The MediaREADYTM 4000, retail price $449, connects to the home user's 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 MediaREADYTM 4000 is a
product that was designed to give the answer. The MediaREADYTM 4000 comes with
support for an essential suite of TV-centric media applications to help create
an easy to navigate environment for controlling a consumer's entertainment
choices. In addition, the product serves as an upgradeable platform that allows
consumers to constantly update the features and content to ensure their ability
to enjoy this product well into the future.
MediaREADYTM 4000 Highlights
o Media Jukebox - burn and manage music, movies and pictures on the
MediaREADYTM hard drive, any PC connected to the same home network or
connected peripherals (ex. digital cameras, external storage devices)
o Rip CDs onto the MediaREADYTM 4000 - Provides easy access to a
consumer's music collection from the TV screen, creates play lists of
favorite songs
o Present Your Pictures on The TV - Transfer pictures from digital
camera to be displayed on the TV, transfer pictures from a consumer's
PC to be displayed on the TV, create slideshows to auto-play while
music plays at the same time
o Play Music and Video from PC on the TV - Access all the pictures,
music and video stored on the PC from the TV
o Download and stream full-Screen DVD quality video and music over the
Internet on one's TV
o High speed internet browsing with TV-centric website portal to provide
the best surfing experience on the TV
o Enhanced DVD/CD Player with 5.1 Digital Surround
o Create and manage multiple email accounts
o TV-friendly games of all genres and skill levels
o Simple to use Karaoke feature to sing along with one's entire music
collection or access new content on demand
o Wireless Keyboard and Remote Controls both with trackball mouse built
in for easy navigation
o Unmatched level of connectivity for USB, 1394, Component or composite
video peripherals
o Remotely upgradeable to ensure the latest applications, services and
content are kept current and competitive
MediaREADYTM 5000
The MediaREADYTM 5000, suggested retail price $699, allows users to 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.
Portable Media Centers
MediaREADYTM Flyboy
In December 2004, the Company announced the development of the MediaREADYTM
Flyboy, an ultra-slim portable MPEG4 media player and recorder. This portable
device allows the user to record up to 40 hours of video, store over 100,000
digital pictures, or hold over 6,000 songs on its 20 GB hard drive while
enjoying it all on the move. The Flyboy has a pleasant to watch 3.5 inch LCD
screen with built-in speakers. The internal USB 2.0 hard drive allows Flyboy to
receive files from another MediaREADYTM unit or a PC. The Company is focused on
delivering portable media technology in combination with the MediaREADYTM line
allowing consumers to take their media on the go.
11
MediaREADYTM Flyboy Features:
o MPEG4 Video Player/Recorder - record up to 40 hours of video on Flyboy
and watch it on 3.5 inch LCD screen or connect it to a TV for
convenient playback. Supports Real One player.
o MP3 Player - hold up to 370 hours (6,000 songs) of MP3 music. You can
transfer your entire MP3 collection in no time at all via USB 2.0
connection.
o Digital Picture Storage - store over 100,000 digital pictures
(1600x1200 pixels). View pictures on the LCD screen. Includes 3x zoom
functionality.
o Digital Voice Recorder - records meeting notes, to do list or a jam
session with the Flyboy's built-in microphone.
o Data Storage Centre - when connected to other MediaREADYTM devices or
a PC, the Flyboy is an external hard drive for transporting and
storing data files.
o Built-In Speaker and Earphone output - whether you want to entertain
your neighbours or keep it private, the Flyboy lets you plug in your
earphones or crank it up over your built-in speakers.
The MediaREADYTM Flyboy has been shipping commercially since June 2005.
Future Products
OEM Licensing
To architect and build this new breed of device requires a skill-set in both
hardware and software that most Consumer Electronics (CE) and Personal Computer
(PC) makers do not possess. The management of aftermarket media/application
deployment is going to require a technological and networking understanding
beyond most of today's manufacturers. Some of the largest CE companies in the
world are building teams to try to better understand and manage this opportunity
(per recent Panasonic and Sony press releases). Others will simply buy the
capability in from outside organizations or by acquisition. In both the CE and
PC media centre markets, hardware designs, software and networking solutions
like this are traditionally licensed or acquired by the manufacturer.
In July 2004, we announced our plans to license the MediaREADYTM 4000,
MediaREADYTM 5000, and the MediaREADYTM Module to consumer electronics
manufacturers interested in deploying a variety of competitive broadband-enabled
devices. All of our MediaREADYTM products are tightly integrated hardware
designs which provide broadband media capabilities, fast time-to-market and
recurring revenue opportunities for licensees. The MediaREADYTM 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.
As our products are groundbreaking and today unrivalled at the retail level, we
are already getting interest from other consumer electronics companies in
licensing our solutions. Licensing fees are one-time in nature and book only
when a new device is deployed.
Again in line with our "provide the industry model", OEM licensing of our
MediaREADYTM products will expand our content consumer base as well as increase
the economies of scale for producing our MediaREADYTM product line. Several
discussions with major branded OEMs have already taken place and we are in the
early stages of forming these relationships.
MediaREADYTM Delivery Network (MRDN)
While the sale of our hardware will constitute the bulk of our near-term
revenue, we expect direct sales and sales commissions from third-party licensees
to grow as more licensed devices are deployed. Direct sales and commissions from
aftermarket consumer purchases over our MRDN generated over the life of the
device. We expect that as the installed base grows, non-license fee revenues
will rapidly eclipse our base licensing revenue. Most general system and OS
patches are expected to be free to the end-user, but we will offer enhanced
bundled upgrades at least once a quarter at prices ranging from 5 - 50 per unit
(games packs, advanced photo managers, ITV applications, etc.)
Demand for the Company's products has been such that a number of content
providers have agreed to provide content to the Company for distribution to
deployed products. The provision of this content to the Company's customers is
highly profitable and further enhances the products offered. The Company is
planning to launch a pilot of our Media on Demand service mid 2006 on deployed
MediaREADYTM 4000 and MediaREADYTM 5000 units. The pilot's goals are as follows:
o To deliver DVD quality movies direct to MediaREADYTM devices
o To provide subscription based Media on Demand - music & video delivery
services
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o Determine technology and financial requirements for large-scale
deployment of VWB MediaREADYTM Delivery Network (MRDN) for broader
product support in late 2006
The Company has partnered with a variety of companies involved with distribution
of media over the IP channel. These consist of three categories:
o Online media distributors
o Niche and independent content owners
o Major studio and label content owners.
Online Media Distributors:
Rhapsody, Napster, iTunes, Movielink and CinemaNow are all examples of online
businesses that utilize the Internet to distribute content on behalf of the
content owner. The MediaREADYTM products are compatible with all of these
services, and in the short-term, selected services will be made available on all
units. The company is currently negotiating "bounty" fees for each service, so
that for every new MediaREADYTM subscriber, both VWB and the licensee receive
either a one time or residual royalty on all media sales of each service. These
services will increase consumer satisfaction levels of compatibility with
main-stream digital media service. Other examples of announced content partners
within this market are: Blastro.com (music videos); King Biscuit (music and
video); Live365 (internet radio); and Ingrooves (specialty music distributor).
Niche and Independent Content Owners:
The introduction of high speed data access to the masses has fuelled a surge in
development of a new breed of online content. Individually produced movies, TV
shows, news, music, etc. are proliferating throughout the internet. VLogs,
streaming TV stations, and the introduction of video search engines by Google
and Yahoo further feed the phenomenon. People are now watching the Internet and
calling for a means to have this content play out on their televisions where it
belongs. The company has made significant progress in getting early commitments
from independent and select major studio/label contacts to utilize their
content. As the MediaREADYTM products are launched through retailers, the
company will pursue other independent content providers.
Major Studio and Label Content Owners:
The company has met with representatives from all major studios and labels
regarding this opportunity. In addition, we have been negotiating with a major
distributor who has IP distribution rights from six of the major movie studios
as well as major record labels and clearing houses for online distribution of
music services.
STRATEGY
Product Marketing and Sales Approach
Me MediaREADYTM 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 MediaREADYTM 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, the
Company will also receive incremental revenue streams based upon:
o Purchases of value-added applications through the MediaREADYTM
platform
o Professional services revenue based upon customized value-added
applications
CUSTOMERS
The Company continues to focus on long-term relationships with clients that will
range from retail consumers to small, medium, and large business customers.
Agreements and purchase orders that may be entered into in connection with
product sales are generally on an order by order basis. If our clients terminate
purchase orders or if the Company is unable to enter into new engagements or
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sell its new products and services, our business, financial condition and
results of operations could be materially and adversely affected. In addition,
because a proportion of the Company's expenses is relatively fixed, a variation
in the number of products sold can cause significant variations in operating
results from quarter to quarter.
The Company's product sales will vary in size; therefore, a customer that
accounts for a significant portion of the Company's revenues in one period may
not generate a similar amount of revenue in subsequent periods. During the
period ended March 31, 2005, no customer accounted for more than 10% of the
Company's revenues. Furthermore, based upon recent informal discussions with
various prospective customers, the Company does not currently believe that it
will derive a significant portion of its revenues from a limited number of
clients in the near term. However, we can not assure that this will be the case
and in such an event, any cancellation, deferral, or significant reduction in
future orders could have a material adverse affect on the Company's business,
financial condition, and results of operations.
COMPETITION
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)
Many of the Company's 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 the Company. 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 effect on the
Company.
While as of March 31, 2005, the Company had no portion of the converging digital
media on demand, enhanced home entertainment and emerging interactive consumer
electronics market due to its development and testing of products for
distribution launch in the United States, we have recently entered the retail
market on a limited basis through a limited number of distributors. There can be
no assurances that we will be able to further penetrate retail markets in the
future because of the need for the Company to raise additional capital to fund
its sales and marketing efforts.
OTHER DEVELOPMENTS
Acquisition of Graphics Distribution, Inc.:
On August 11, 2004 (with an effective date of June 1, 2004) the Company entered
into a stock purchase agreement with the sole shareholder of a privately-held
company engaged in the business of selling and distributing electrical products.
The principal terms of the agreement provide for the Company to acquire all of
the issued and outstanding shares of the acquired entity for a purchase price of
$1,500,000 plus the issuance of 1,000,000 restricted common stock shares in the
acquiring entity. Additional consideration included in this stock purchase
agreement required the Company to collateralize an existing line of credit in
the amount of $2,500,000 as well as retain the services of the selling
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shareholder, pursuant to a consulting agreement dated August 11, 2004, for a
term consistent with the fulfillment of the stock purchase agreement. The
Company, at time of closing, gave its initial deposit of $350,000, but has
defaulted on the remaining balance due and is also in default of the
collateralization provision. Management has written off the deposit of $350,000
and is actively negotiating with the seller a resolution to this matter.
Management anticipates, but can not assure that a settlement will be forthcoming
and that the Company loss will consist of their forfeited deposit.
RESULTS OF OPERATIONS
Three months ended March 31, 2005 compared to the three months ended March 31,
2004.
REVENUES
Net Revenues are comprised of product and services revenues, net of returns and
allowances. Net revenues for the quarter ended March 31, 2005 were $21,089
compared to $2,553 for the quarter ended March 31, 2004. The increase was a
result of initial orders of our MediaREADYTM products.
GROSS PROFIT
Gross Profit for the quarter ended March 31, 2005 was $806 compared to ($757)
for the quarter ended March 31, 2004.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include general office expenses,
administrative expenses, advertising costs, personnel costs, and professional
fees. General and administrative expenses for the quarter ended March 31, 2005
were $363,872 compared to $264,200 for the quarter ended March 31, 2004. The
increase was a result of the re-focusing of the Company as we develop and
manufacture our MediaREADYTM products.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005, the Company had cash and net working capital of $18,482
and ($2,653,537), respectively. The Company believes that its current working
capital, and cash generated from operations will not 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Revenues
The Company recognizes revenues on product sales when the product is shipped and
title has passed to customer. Service revenue is recognized when the services
are performed.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.
Inventory
Inventory is valued using the first-in, first-out method of accounting and is
stated at the lower of cost or net realizable value.
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Property and Equipment
Property and equipment is recorded at cost, net of accumulated depreciation,
which is provided for by a charge to operations over the estimated useful life
of the assets using the straight-line method. The useful life of the assets is
3-4 years.
Expenditures that extend the useful life of the respective assets are
capitalized and depreciated over the lives of the respective assets.
Maintenance, repairs and other expenses that do not extend their useful life are
expensed as incurred.
Financial Instruments
The Company's financial instruments are cash, accounts receivable, loans
receivable, accounts payable, accrued expenses, and notes payable. The recorded
values of cash, accounts receivable, loans receivable, accounts payable, and
accrued expenses approximates their fair values based on their short-term
nature. The fair value of notes payable is based on current rates at which the
Company could borrow funds with similar remaining maturities, and the carrying
amount approximates fair value.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax base. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. If
it is more likely than not that some portion of a deferred tax asset will not be
realized, a valuation allowance is recognized.
Convertible Debentures
Convertible debentures with beneficial conversion features, are accounted for in
accordance with guidance supplied by Emerging Issues Task Force ("EITF") No 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios" and EITF No. 00-27 "Application of
Issue 98-5 to Certain Convertible Instruments."
In addition, since the debt is convertible into equity at the option of the note
holder at the date of issuance at beneficial conversion rates, an embedded
Beneficial Conversion Feature ("BCF") has been recorded as discount against the
debentures in the accompanying balance sheet and as an increase to additional
paid-in capital at the time of issuance.
For convertible debt, the recorded debt discount is calculated at the issuance
date as the difference between the conversion price and the relative fair value
of the common stock into which the security is convertible. The discount has
been accredited through interest and financing costs during 2003.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Corporation to concentration
of credit risk consist primarily of accounts receivable. The Company believes
that it is not exposed to any significant credit risk on accounts receivable
Item 3. Controls and Procedures
The Company's principal executive, financial and accounting officer evaluated
the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of the end of the period covered by this report.
Based on the evaluation, such person concluded at that time that the Company's
16
disclosure controls and procedures as of the end of the period covered by this
report, have been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Company in
reports filed under the Securities Exchange Act of 1934, is recorded, processed,
summarized and reported within the time period specified in the SEC's rules and
forms. There have been no changes in our internal controls or in other factors
that could significantly affect internal controls that occurred during the
quarter ended March 31, 2005 except as follows; the Company has retained the
services of two consultants with substantial auditing, accounting and business
experience. Their services are expected to enhance our controls and procedures
as we begin to maintain and ship products. The Company believes that a control
system, no matter how well designed and operated, cannot provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings against the Company.
Item 2. Unregistered Sales of Equity 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
31 Certification
32 Certification Pursuant to 18 USC Section 1350, Section 906 of the
Sarbanes-Oxley Act of 2002
No Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Video Without Boundaries, Inc.
Date: December 16, 2005 By: /s/ V. JEFFREY HARRELL
--------------------------
V. Jeffrey Harrell, President & CEO
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