UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM 10-QSB/A
———————
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
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 of Incorporation) | (IRS Employer 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) 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 ý No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No ý
The number of shares outstanding of each of the issuer’s common stock, as of July 31, 2006: 97,201,626 shares of common stock.
EXPLANATORY NOTE
Video Without Boundaries, Inc. (the “Company”) is filing this Amended Form 10-QSB (the “Amended Form 10-QSB/A”) to restate the Company’s Quarterly Report on Form 10-QSB (the “Original Form 10-QSB”) for the period ended June 30, 2006 as originally filed with the Securities and Exchange Commission on August 21, 2006.
The restatement was undertaken to record the initial fair value of an embedded conversion option within a note payable and to record the change in the value during the current period and to reclassify a reduction in the provision for obsolete inventory and to properly account for all restricted stock and stock warrants issued to employees and third parties.
VIDEO WITHOUT BOUNDARIES, INC.
FORM 10-QSB
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
VIDEO WITHOUT BOUNDARIES, INC.
BALANCE SHEETS
|
| June 30, Restated |
| December 31, Restated |
| ||
|
| Unaudited |
|
|
|
| |
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 9,768 |
| $ | 1,097 |
|
Accounts receivable, net of allowance for doubtful accounts of $61,580 and $6,000 at June 30, 2006 and December 31, 2005, respectively |
|
| 15,901 |
|
| 14,664 |
|
Inventory, net |
|
| 126,141 |
|
| 288,889 |
|
Prepayments and other current assets |
|
| 13,140 |
|
| 67,753 |
|
Total current assets |
|
| 164,950 |
|
| 372,403 |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 8,267 |
|
| 21,070 |
|
Other assets: |
|
|
|
|
|
|
|
Investments (at cost), net of allowance for decline in value |
|
| — |
|
| — |
|
Deposits |
|
| 12,000 |
|
| 12,000 |
|
Total other assets |
|
| 12,000 |
|
| 12,000 |
|
Total assets |
| $ | 185,217 |
| $ | 405,473 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Cash overdraft |
| $ | 29,149 |
| $ | 49,498 |
|
Accounts payable - trade |
|
| 31,195 |
|
| 81,972 |
|
Accrued compensation |
|
| 566,464 |
|
| 528,964 |
|
Other accruals |
|
| 23,666 |
|
| 60,260 |
|
Convertible note payable – related party |
|
| 3,168,041 |
|
| 2,684,810 |
|
Derivative liability |
|
| 4,752,061 |
|
| 4,027,215 |
|
Loan payable – shareholder |
|
| 10,072 |
|
| — |
|
Total current liabilities |
|
| 8,580,648 |
|
| 7,432,719 |
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
Preferred stock - $.001 par value, 5,000,000 shares authorized, |
|
| — |
|
| — |
|
Common stock - $.001 par value, 200,000,000 shares authorized, |
|
| 94,202 |
|
| 86,167 |
|
Additional paid-in capital |
|
| 7,930,735 |
|
| 6,905,469 |
|
Accumulated deficit |
|
| (16,232,868 | ) |
| (13,831,382 | ) |
|
|
| (8,207,931 | ) |
| (6,839,746 | ) |
Treasury stock - at cost |
|
| (187,500 | ) |
| (187,500 | ) |
Total stockholders’ deficit |
|
| (8,395,431 | ) |
| (7,027,246 | ) |
Total liabilities and stockholders’ deficit |
| $ | 185,217 |
| $ | 405,473 |
|
The accompanying notes are an integral part of these financial statements.
1
VIDEO WITHOUT BOUNDARIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| Three Months Ended |
| ||||
|
| 2006 Restated |
| 2005 |
| ||
|
|
|
|
|
|
|
|
Sales |
| $ | 2,450 |
| $ | 9,243 |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| (9,147 | ) |
| 8,582 |
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 11,597 |
|
| 661 |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 496,776 |
|
| 357,093 |
|
Provision for obsolete inventory |
|
| 105,261 |
|
| — |
|
Depreciation |
|
| 6,544 |
|
| 44,614 |
|
Fair value of convertible securities |
|
| 406,000 |
|
| — |
|
Bad debt expense |
|
| 45,580 |
|
| — |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 1,060,161 |
|
| 401,707 |
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (1,048,564 | ) |
| (401,046 | ) |
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
Change in fair value of derivative liability |
|
| 262,420 |
|
| — |
|
Interest and financing expense – related party |
|
| 59,303 |
|
| 49,879 |
|
Total other expenses |
|
| 321,723 |
|
| 49,879 |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,370,287 | ) | $ | (450,925 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
| $ | (0.01 | ) | $ | (0.01 | ) |
|
|
|
|
|
|
|
|
Weighted-average number of shares |
|
| 91,411,626 |
|
| 65,604,126 |
|
The accompanying notes are an integral part of these financial statements.
2
VIDEO WITHOUT BOUNDARIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| Six Months Ended |
| ||||
|
| 2006 Restated |
| 2005 |
| ||
|
|
|
|
|
|
|
|
Sales |
| $ | 112,881 |
| $ | 30,332 |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 103,509 |
|
| 28,865 |
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 9,372 |
|
| 1,467 |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 1,006,630 |
|
| 720,965 |
|
Provision for obsolete inventory |
|
| 75,927 |
|
| — |
|
Depreciation |
|
| 22,363 |
|
| 88,018 |
|
Research and development expense |
|
| — |
|
| 5,580 |
|
Fair value of convertible securities |
|
| 406,000 |
|
| — |
|
Bad debt expense |
|
| 55,580 |
|
| — |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 1,566,500 |
|
| 814,563 |
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (1,557,128 | ) |
| (813,096 | ) |
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
Change in fair value of derivative liability |
|
| 724,846 |
|
| — |
|
Interest and financing expense – related party |
|
| 119,512 |
|
| 92,011 |
|
|
|
|
|
|
|
|
|
Total other expenses |
|
| 844,358 |
|
| 92,011 |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,401,486 | ) | $ | (905,107 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
| $ | (0.03 | ) | $ | (0.02 | ) |
|
|
|
|
|
|
|
|
Weighted-average number of shares |
|
| 89,026,070 |
|
| 59,100,052 |
|
The accompanying notes are an integral part of these financial statements.
3
VIDEO WITHOUT BOUNBARIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| Six Months Ended |
| ||||
|
| 2006 Restated |
| 2005 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
| $ | (2,401,486 | ) | $ | (905,107 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
| 22,363 |
|
| 88,018 |
|
Bad debt expense |
|
| 55,580 |
|
| — |
|
Provisions for obsolete inventory |
|
| 75,927 |
|
| — |
|
Interest on convertible note payable – related party |
|
| 119,512 |
|
| 92,011 |
|
Change in fair value of derivative liability |
|
| 724,846 |
|
| — |
|
Stock warrants issued under employment agreement |
|
| 10,000 |
|
| — |
|
Stock warrants issued for services |
|
| 396,000 |
|
| — |
|
Selling, general and administrative expenses |
|
| 74,191 |
|
| — |
|
Stock issued for services and compensation |
|
| 18,900 |
|
| 59,250 |
|
Change in assets and liabilities |
|
|
|
|
|
|
|
(Increase) in accounts receivable |
|
| (56,817 | ) |
| (14,418 | ) |
Decrease (Increase) in inventories |
|
| 86,821 |
|
| (115,689 | ) |
Decrease (Increase) in prepayments and other current assets |
|
| 54,613 |
|
| (156,509 | ) |
(Decrease) in cash overdraft |
|
| (20,349 | ) |
| — |
|
(Decrease) Increase in accounts payable |
|
| (50,776 | ) |
| 16,667 |
|
Increase in accrued compensation |
|
| 37,500 |
|
| 63,750 |
|
(Decrease) in other accruals |
|
| (36,594 | ) |
| (32,823 | ) |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (889,769 | ) |
| (904,850 | ) |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (9,560 | ) |
| (19,746 | ) |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| (9,560 | ) |
| (19,746 | ) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from convertible note payable – related party |
|
| 908,000 |
|
| 801,000 |
|
Repayment of shareholder loans |
|
| — |
|
| (14,000 | ) |
Repayment of convertible note payable – related party |
|
| — |
|
| (100,000 | ) |
Proceeds from issuance of stock |
|
| — |
|
| 132,848 |
|
Collection of stock subscription |
|
| — |
|
| 60,000 |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 908,000 |
|
| 879,848 |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 8,671 |
|
| (44,748 | ) |
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 1,097 |
|
| 79,765 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
| $ | 9,768 |
| $ | 35,017 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | — |
| $ | — |
|
Cash paid during the period for income taxes |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
Non-cash movements affecting investing and financing transactions: |
|
|
|
|
|
|
|
Convertible note payable converted to capital – related party |
| $ | 608,400 |
| $ | 166,000 |
|
The accompanying notes are an integral part of these financial statements.
4
VIDEO WITHOUT BOUNDARIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006
Note 1 - Basis of Presentation
The accompanying unaudited financial statements for the six-month period ended June 30, 2006 and 2005 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, 2005 is derived from the registrant’s Form 10-KSB/A, as amended, for the year ended December 31, 2005. 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, 2005, included in the registrant’s Form 10-KSB/A, as amended, for the year then ended.
Operating results for the six-month period ended June 30, 2006 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending December 31, 2006.
Note 2 – Restatement of Financial Statements
The restatement was undertaken to record the initial fair value of an embedded conversion option within a note payable and to record the change in the value during the current period and to reclassify a reduction in the provision for obsolete inventory and to properly account for all restricted stock and stock warrants issued to employees and third parties.
As a consequence of changes made to the balance sheets and statements of operations, the statements of cash flows have been restated accordingly.
The components of the restatement are explained in the notes below each table.
|
| As filed |
| Adjustment to Restate |
| Restated |
| |||
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data as at December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
Derivative liability (a) |
| $ | — |
| $ | 4,027,215 |
| $ | 4,027,215 |
|
Additional paid-in capital (b) |
|
| 6,606,869 |
|
| 298,600 |
|
| 6,905,469 |
|
Accumulated deficit (c) |
|
| (9,505,567 | ) |
| (4,325,815 | ) |
| (13,831,382 | ) |
(a) Derivative liability
The Company has recognized the fair value of an embedded conversion option within the note totaling $4,027,215.
(b) Additional paid-in capital
The Company has recorded the fair value of restricted common stock and stock warrants issued to employees under their employment agreements totaling $298,600.
5
(c) Accumulated deficit
The Company has recognized and expensed the fair value of restricted common stock and stock warrants issued to employees under their employment agreements totaling $298,600 and recognized the fair value of an embedded conversion feature within a note totaling $4,027,215.
|
| As filed |
| Adjustment to Restate |
| Restated |
| |||
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data as at June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
Derivative liability (a) |
| $ | — |
| $ | 4,752,061 |
| $ | 4,752,061 |
|
Additional paid-in capital (b) |
|
| 7,226,135 |
|
| 704,600 |
|
| 7,930,735 |
|
Accumulated deficit (c) |
|
| (10,776,207 | ) |
| (5,456,661 | ) |
| (16,232,868 | ) |
(a) Derivative liability
The Company has recognized the initial fair value of an embedded conversion option within the note totaling $4,027,215 and the change in the fair value during the current period totaling $724,846.
(b) Additional paid-in capital
The Company has recorded the fair value of restricted common stock and stock warrants issued to employees under their employment agreements totaling $298,600 and accounted for the fair value of stock warrants issued to an employee under an employment agreement and to a third party for services rendered totaling $406,000.
(c) Accumulated deficit
The Company has recognized and expensed the fair value of restricted common stock and stock warrants issued to employees under their employment agreements totaling $298,600, recognized the initial fair value of an embedded conversion feature within a note totaling $4,027,215 and additionally recorded the change in the fair value during the current period totaling $724,846. Additionally, the Company has recorded an expense totaling $406,000 for the fair value of stock warrants issued to an employee under an employment agreement and to a third party for services rendered.
|
| As filed |
| Adjustment to Restate |
| Restated |
| |||
|
|
|
|
|
|
|
|
|
|
|
Statement of operations for the three months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
Cost of sales (a) |
| $ | 96,114 |
| $ | (105,261 | ) | $ | (9,147 | ) |
Provision for obsolete inventory (b) |
|
| — |
|
| 105,261 |
|
| 105,261 |
|
Change in fair value of derivative liability (c) |
|
| — |
|
| 262,420 |
|
| 262,420 |
|
Fair value of convertible securities (d) |
|
| — |
|
| 406,000 |
|
| 406,000 |
|
(a) Cost of sales
The provision for obsolete inventory has been reclassified from cost of sales and into a separate account within operating expenses.
(b) Provision for obsolete inventory
This account now records the $105,261 increase in the provision for obsolete inventory which was previously part of cost of sales.
6
(c) Change in fair value of derivative liability
The Company recognized the change in the fair value of an embedded conversion option within a note payable totaling $262,420 (see note 6).
(d) Fair value of convertible securities
The Company recognized the fair value of convertible securities totaling $406,000, issued under an employment agreement and for services rendered using the “Black Scholes” pricing model (see note 8).
|
| As filed |
| Adjustment to Restate |
| Restated |
| |||
|
|
|
|
|
|
|
|
|
|
|
Statement of operations for the six months |
|
|
|
|
|
|
|
|
|
|
Cost of sales (a) |
| $ | 179,436 |
| $ | (75,927 | ) | $ | 103,509 |
|
Provision for obsolete inventory (b) |
|
| — |
|
| 75,927 |
|
| 75,927 |
|
Change in fair value of derivative liability (c) |
|
| — |
|
| 724,846 |
|
| 724,846 |
|
Fair value of convertible securities (d) |
|
| — |
|
| 406,000 |
|
| 406,000 |
|
(a) Cost of sales
The provision for obsolete inventory has been reclassified from cost of sales and into a separate account within operating expenses.
(b) Provision for obsolete inventory
This account now records the $75,927 increase in the provision for obsolete inventory which was previously part of cost of sales.
(c) Change in fair value of derivative liability
The Company recognized the change in the fair value of an embedded conversion option within a note payable totaling $724,846 (see note 6).
(d) Fair value of convertible securities
The Company recognized the fair value of convertible securities totaling $406,000, issued under an employment agreement and for services rendered using the “Black Scholes” pricing model (see note 8).
Note 3 – 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 $16.2 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, a related party/shareholder of the Company has 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 July 1, 2006 through July 31, 2006 the Company has received approximately $89,000 as advances from the related party/shareholder. 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.
7
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 4 – Inventory
Inventory has been written down to its net realizable value at June 30, 2006 of $126,141 and the results of operations include a charge of $75,927.
Note 5 – Convertible Note Payable – Related Party
The Company is obligated to a related party for $3,168,041 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 six months ended June 30, 2006 the Company incurred interest on the note totaling $119,512.
On December 3, 2005, the Company and a related party/creditor entered into an agreement which amended a prior agreement concerning the terms and conditions attached to the conversion of outstanding debt into restricted or free trading stock of the Company. The original agreement conveyed upon the related party the right to convert amounts owed to him at a price of one ($.01) cent per share without restrictions as to time periods. Based upon the terms and conditions of the amended agreement, the related party, 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 December 3, 2005, the related party shall be limited in respect to the amount of outstanding debt he will be permitted to convert in any one quarter. This limitation has been set at three (3%) percent of the outstanding stock of the Company. On May 15, 2006 the limitation was increased to nine (9%) percent of the outstanding stock of the Company (see note 8).
Note 6 – Derivative Liability
A note payable with a related party contains an embedded conversion option which allows the holder to convert up to 9% of the Company’s then issued and outstanding stock each quarter into restricted common shares at 40% of the closing price of the stock on the date of conversion (see note 5). The Company adopted the provisions of SFAS No. 123R to compute the estimated fair value of $4,752,061 at June 30, 2006, and expensed $724,846 to reflect the increase in the value of the liability during the six months ended June 30, 2006. The following assumptions were made in estimating fair value:
Risk-free rate |
| 4.45% |
Volatility |
| 96% |
Note 7 – Loans Payable
The Company is obligated to a shareholder for $10,072 advanced to fund operations. The loan is non-interest bearing, unsecured and repayable on demand.
Note 8 – Common Stock Transactions
On April 5, 2006 the capital stock of the Company was increased to 200 million common shares.
During the six months ended June 30, 2006 a related party converted $608,400 in notes payable into 7,900,000 shares of restricted common stock at prices ranging $0.07 to $0.09 per share (see note 5).
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During the six months ended June 30, 2006 the Company issued 135,000 shares of restricted common stock to a third party for consulting services provided at $0.14 per share.
During the six months ended June 30, 2006 the Company recognized the estimated fair market value of 4,400,000 stock warrants to be issued to a third party under a service agreement, using the Black Scholes model and expensed a total of $396,000 at $0.09 per warrant share (see note 2).
During the six months ended June 30, 2006 the Company recognized the estimated fair market value of 100,000 stock warrants issued to an employee under an employment agreement, using the Black Scholes model and expensed a total of $10,000 at $0.10 per warrant share (see note 2).
Note 9 – Related Parties
During the six months ended June 30, 2006, the Company expensed an amount of $100,000 for the salary of the President. As of June 30, 2006 a total of $566,464 for the period January 1, 2002 through June 30, 2006 was unpaid and has been accrued.
During the six months ended June 30, 2006 the Company expensed $10,072 in overhead costs incurred and paid by the President with a corresponding increase in amounts due for loans payable (see note 7).
During the six months ended June 30, 2006 the Company expensed $64,119 in overhead costs incurred and paid by a related party with a corresponding increase in amounts due for a convertible note payable (see note 5).
During the six months ended June 30, 2006 the Company expensed interest cost to a related party totaling $119,512 (see note 5).
Note 10 – Commitments
On June 1, 2006 the Company entered into a one year contract with an organization to develop and implement a proactive marketing program designed to create extensive financial market and investor awareness for the Company. The agreement calls for a monthly payment of $12,500 and an annual budget of not less than $200,000 for third party marketing costs. The agreement further calls for the issue of 4,400,000 Warrants (see note 8), with each Warrant representing the right to purchase one share of Common Stock for $0.17 per share at any time through the third year following issuance. The Holder may not exercise Warrants to the extent that immediately following such exercise Holder would beneficially own 5% or more of the outstanding Common Stock of the Company. Notwithstanding any other provisions of the agreement the Holder is not permitted to effect a “net” exercise of the Warrants prior to one year from the date hereof. No Warrants have currently been issued under this agreement. The Warrants will expire on May 15, 2009.
Note 11 – 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, but can not assure that a settlement will be forthcoming and that the Company loss will consist of their forfeited deposit.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report on Form 10-QSB, as amended, 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.
The following is a discussion of the financial condition and results of operations of Video Without Boundaries, Inc. (“the Company”) for the six months ended June 30, 2006 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, as amended, and our financial statements and notes contained in our annual report on Form 10-KSB/A, as amended, for the year ended December 31, 2005. Historical results may not be indicative of future performance.
OVERVIEW
The Company is developing new products and services in regard to its media convergence business within the home entertainment marketplace. 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, the Company is attempting to capitalize on the growth of this market through its professional services division 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.
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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:
·
The number of client purchase orders completed
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Seasonality
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The number of days during the quarter
·
Marketing and business development expenses
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Pricing changes
·
Economic conditions generally or in the information technology products and services markets
The Company expects these trends to continue.
The Company’s MediaREADY™ products are the first consumer electronic products to achieve the long-awaited promise of convergent home entertainment. All MediaREADY™ 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 MediaREADY™ units to download, play, and manage digital movies, music and pictures from the Internet, or from a home networked PC. The recently announced MediaREADY™ 5000 also adds the ability to record live TV and burn DVDs. Similar in size to a standard DVD player, the MediaREADY™ products retail from $449 to $899.
BROADBAND MEDIA MARKETPLACE
Nielsen//NetRatings, a global leader in Internet media and market research recently reported the following:
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The number of active broadband users from home increased 28 percent year-over-year, from 74.3 million in February 2005 to 95.5 million in February 2006. Broadband composition among the U.S. active online population has seen vigorous growth during the past three years, increasing at least ten percentage points annually and hitting an all-time high of 68 percent for active Internet users in February 2006.
·
From February 2003 to February 2004, broadband composition grew twelve percentage points, from 33 percent to 45 percent. In February 2005, it increased another ten percentage points to 55 percent. This year, February saw broadband composition reach an all-time high of 68 percent, increasing an impressive 13 percentage points over the previous February.
·
Overall Internet penetration in the U.S. has stabilized over the past few years, reaching 74 percent at home in February 2006.
·
World broadband market grows with almost 10 percent and the number of broadband subscribers in the third quarter soared to over 187.8 million with more than 15.6 million new subscribers since the second quarter of 2005. Asia-Pacific, with 5.55 million, followed by Europe, has been the biggest regions in terms of nominal subscriber gain followed by the Americas and Middle East- Africa. At the same time the region has registered the lowest relative quarterly gain compared to the other regions. Europe, with nearly 5.5 million net gains or 10.5 percent quarterly growth, is the second largest broadband market in the world.
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 consumers 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
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resulting in new convergence devices being introduced to consumers that allow for:
·
Universal Playback and storage of all digital media rented and purchased by the consumer
·
Consumers to have “on-demand” or immediate access to all digital media purchased & available for rental.
·
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:
·
Simple to use devices that conform to existing consumer behavior and media needs
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Conceptual bridge between the “home PC” and the living room environment
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Robust Digital Rights Management (DRM) solution to support secure IP media delivery
PRINCIPAL PRODUCTS
MediaREADY™ Digital Media Centers
MediaREADY™ 4000
The MediaREADY™ 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 MediaREADY™ 4000 is a product that was designed to provide for the consumer’s changing needs. 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 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.
MediaREADY™ 4000 Highlights
·
Media Jukebox - burn and manage music, movies and pictures on the MediaREADY™ 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 - Provides easy access to a consumer’s music collection from the TV screen, creates play lists of favorite songs
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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
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Play Music and Video from PC on the TV - Access all the pictures, music and video stored on the PC from the TV
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Download and stream full-Screen DVD quality video and music over the Internet on one’s TV
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High speed internet browsing with TV-centric website portal to provide the best surfing experience on the TV
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Enhanced DVD/CD Player with 5.1 Digital Surround
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Create and manage multiple email accounts
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TV-friendly games of all genres and skill levels
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Simple to use Karaoke feature to sing along with one’s entire music collection or access new content on demand
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Wireless Keyboard and Remote Controls both with trackball mouse built in for easy navigation
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Unmatched level of connectivity for USB, 1394, Component or composite video peripherals
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Remotely upgradeable to ensure the latest applications, services and content are kept current and competitive
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MediaREADY™ 5000
The MediaREADY™ 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
With the 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 their homes. The world is moving away from the storefront delivery of media to a new all-digital distribution system. Consumers are becoming used to the benefits and quality of digital media goods and online digital media. For example, 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 and Internet Protocol (IP) distribution methods, is resulting in new Convergence devices being introduced to consumers that allow for:
·
Universal Playback and storage of all digital media rented and purchased by the consumer;
·
Consumers to have “on-demand” or immediate access to all digital media purchased & available for rental; and
·
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 behaviour requires:
·
Simple to use devices that conform to existing consumer behaviour and media needs;
·
Products which easily enable access to and management of online and in-home digital media;
·
A conceptual bridge between the “home PC” and the living room environment;
·
The ability to create or support mobility; and
·
Exploitation on the concept of technology as fashion
MediaREADY™ Flyboy
The MediaREADY™ Flyboy, an ultra-slim portable MPEG4 media player and recorder 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 MediaREADY™ unit or a PC. The Company is focused on delivering portable media technology in combination with the MediaREADY™ line allowing consumers to take their media on the go.
MediaREADY™ Flyboy Features:
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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.
·
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.
·
Digital Picture Storage - store over 100,000 digital pictures (1600x1200 pixels). View pictures on the LCD screen. Includes 3x zoom functionality.
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·
Digital Voice Recorder - records meeting notes, to do list or a jam session with the Flyboy’s built-in microphone.
·
Data Storage Centre - when connected to other MediaREADY™ devices or a PC, the Flyboy is an external hard drive for transporting and storing data files.
·
Built-In Speaker and Earphone output - whether you want to entertain your neighbors or keep it private, the Flyboy lets you plug in your earphones or crank it up over your built-in speakers.
MediaREADY™ CoPilot
The MediaREADY™ CoPilot, a new flash-based MPEG-4 portable, retails for under $200 and features AV input recording allowing for easy connection to DVD Player, VCRs, cable and satellite set-top boxes for simple recording of TV and movies. Additional "pluses" includes video playback and recording on its 512MB flash drive. The unit memory is also expandable via its SD card slot enabling the CoPilot to store more than 5 hours of video at 320 x 240 @ 30f/s resolution. The CoPilot also supports MP3, WAV, and WMA formats and Line In Audio for simple playback and recording of music.
Other features include:
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Internal microphone for voice recording
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Photo viewing
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Video output for playback of video onto TV
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Games
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Calendar
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Clock
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Built-in speakers
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FM radio
MediaREADY™ Glider
The MediaREADY™ Glider, a portable FM radio recorder, MP3 and MP4 video player and FM radio recorder. Available in both 1GB and 2GB varieties which provide over 15 and 30 hours of music or over 8 and 16 hours of video storage respectively.
Product Features:
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1.8" OLED screen with 65K color display
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Built in FM turner with 40 Channel station memory
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Software supports simple conversion of MP1/MP2/WMA/WMV/ASF/WAV/MTV formatted files to supported playback formats
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7 user chosen Equlaizer settings: POP, Classic, Jazz, Rock, Soft, Dbb, Normal;
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External voice recording for capturing audio meetings, taking dictation or general reminders
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No drivers needed for USB 2.0 connection to your Windows 2000/XP/ME PC
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Built in rechargeable lithium battery with long life operation
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Tel-book function to make your address book portable
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
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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.
The Company plans to license the MediaREADY™ 4000, MediaREADY™ 5000, and the MediaREADY™ Module to consumer electronics manufacturers interested in deploying a variety of competitive broadband-enabled devices. All of our MediaREADY™ products are tightly integrated hardware designs which provide broadband media capabilities, fast time-to-market and recurring revenue opportunities for licensees. The MediaREADY™ 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 receiving 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 MediaREADY™ products will expand our content consumer base as well as increase the economies of scale for producing our MediaREADY™ product line. Several discussions with major branded OEMs have already taken place and we are in the early stages of forming these relationships.
MediaREADY™ 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 on deployed MediaREADY™ 4000 and MediaREADY™ 5000 units. The pilot’s goals are as follows:
·
To deliver DVD quality movies direct to MediaREADY™ devices
·
To provide subscription based Media on Demand - music & video delivery services
·
Determine technology and financial requirements for large-scale deployment of VWB MediaREADY™ Delivery Network (MRDN) for broader product support
The Company has partnered with a variety of companies involved with distribution of media over the IP channel. These consist of three categories:
·
Online media distributors
·
Niche and independent content owners
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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 MediaREADY™ 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 MediaREADY™ subscriber, both the Company 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 fueled a surge in development of a new breed of online content. Individually produced movies, TV shows, news,
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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 expressing a desire for a means to have this content also delivered on their televisions. The Company has made significant progress in getting early commitments from independent and select major studio/label contacts to utilize their content. As the MediaREADY™ 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
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:
·
Consolidates several popular devices (and features) into one universal unit
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Is easily and inexpensively upgradeable via software downloads
·
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:
·
Purchases of value-added applications through the MediaREADY™ platform
·
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 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. 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.
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COMPETITION
Broadband Media Device Competition
Industry: Product Line Example
PC Manufacturers: Multimedia PC “Media Station”
·
Form factor (design), connectivity and usability are not living room & stereo/TV friendly
·
Designed for early adopter market
·
Expensive (averaging $2,000)
Networking/Wireless Approach: Media Receiver
·
Requires PC and extensive PC proficiency from the user
·
Expensive (averaging $849)
Consumer Electronics Manufacturers: Media Server
·
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 on the Company.
While as of June 30, 2006, 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
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 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
Six months ended June 30, 2006 compared to the six months ended June 30, 2005.
Revenues
Net Revenues are comprised of product and services revenues, net of returns and allowances. For the six months ended June 30, 2006 net revenues were $112,881 compared to $30,332 for the six months ended June 30, 2005. Net revenues increased $82,549 or 272.1%, The increase was a result of orders of our MediaREADY™ products.
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Gross Profit
Gross Profit for the six months ended June 30, 2006 was $9,372 compared to $1,467 for the six months ended June 30, 2005. Gross profit increased $7,905 or 538.9%.
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 six months ended June 30, 2006 were $1,006,630 compared to $720,965 for the six months ended June 30, 2005. General and administrative expenses increased $285,665 or 39.6%. The increase was due to expenditures related to the developed our MediaREADY™ products and services.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2006, the Company had cash and negative net working capital of $9,768 and ($8,415,698), 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
Revenue Recognition
Sales generally are recorded after receipt of a written purchase order by the buyer, the issue of a written sales agreement by the Company that requires the signature of the authorized representatives of the Company and its customer which is binding, and shipment of the product to the customer (when title and risks and rewards of ownership have passed), or when services are rendered to third-parties, in accordance with “SAB 104”.
Consignment sales are not initially recognized because the Company considers that it still retains the risks and rewards of ownership. Revenue is not recognized until an actual sale occurs to a third-party.
Use of Estimates
The preparation of 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 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 and consists solely of finished goods. The Company out sources the manufacture of its products for sale and accordingly excludes any general and administrative costs from inventory. Company records inventory provisions for obsolete and slow-moving items.
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.
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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.
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 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 June 30, 2006. 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.
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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
| Certification | |
| 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.
Date: January 29, 2008
| VIDEO WITHOUT BOUNDARIES, INC. | |
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| By: | /s/ V. JEFFREY HARRELL |
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| V. Jeffrey Harrell, President & CEO |
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