UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 DECEMBER 31, 1999
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
For the transition period from __________ to __________
Commission File Number 0-26535
VIAVID BROADCASTING, INC.
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 98-020-6168
- --------------------------- -----------
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
3955 GRAVELEY STREET, BURNABY, BRITISH COLUMBIA V5C 3T4
- ----------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 604-669-0047
------------
Indicate by a check mark 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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class January 28, 2000
----- -----------------
Common Stock 6,546,000 shares
<PAGE>
PART 1 B FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL
The Company's unaudited financial statements for the nine months ending December
31, 1999 are included with this Form 10-QSB. The unaudited financial statements
for the nine months ending December 31, 1999 include:
(a) Consolidated Balance Sheet as of December 31, 1999 and March 31, 1999;
(b) Consolidated Statement of Operations - Nine months ended December 31,
1999 and period from January 20, 1999, the date of incorporation, to
March 31, 1999;
(c) Consolidated Statement of Shareholders' Equity for the period ending
December 31, 1999;
(d) Consolidated Statement of Cash Flows - Nine months ended December 31,
1999 and period from January 20, 1999, the date of incorporation, to
March 31, 1999;
(e) Notes to Consolidated Financial Statements.
The unaudited financial statements have been prepared in accordance with the
instructions to Form 10-QSB and, therefore, do not include all information and
footnotes necessary for a complete presentation of the financial position,
results of operations, cash flows, and stockholders' equity in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. Operating results for the nine months ended
December 31, 1999 are not necessarily indicative of the results that can be
expected for the year ending March 31, 2000.
FINANCIAL STATEMENTS
2
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VIAVID BROADCASTING INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
(UNAUDITED - PREPARED BY MANAGEMENT)
DECEMBER 31, 1999
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VIAVID BROADCASTING INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
===========================================================================================================================
December 31, March 31,
1999 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 81,872 $ 163,406
Accounts receivable 9,830 6,841
-------------- --------------
91,702 170,247
CAPITAL ASSETS (Note 4) 155,623 17,510
-------------- --------------
$ 247,325 $ 187,757
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 15,502 $ 6,866
Due to related parties 62 8,459
-------------- --------------
15,564 15,325
-------------- --------------
SHAREHOLDERS' EQUITY
Capital stock
Authorized
25,000,000 common shares with a par value of $0.001 per share
Issued
6,421,000 common shares (5,884,000 at March 31, 1999) 5,884
6,421
Additional paid-in capital 774,679 238,216
Deficit accumulated during the development stage (549,339) (71,668)
-------------- --------------
231,761 172,432
-------------- --------------
$ 247,325 $ 187,757
===========================================================================================================================
</TABLE>
NATURE AND CONTINUANCE OF OPERATIONS (Note 1)
The accompanying notes are an integral part of these consolidated
financial statements.
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VIAVID BROADCASTING INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
==============================================================================================================================
Period From
Incorporation
Cumulative on
From Nine Month January 20,
Incorporation Period Ended 1999 to
to December 31, December 31, March 31,
1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE $ 25,543 $ 22,107 $ 3,436
--------- --------- ---------
EXPENSES
Consulting 200,201 163,387 36,814
Depreciation 45,758 37,709 8,049
Internet, website and graphics 70,203 70,203 --
Office and miscellaneous 68,827 61,718 7,109
Professional fees 61,023 51,092 9,931
Rent 44,375 36,577 7,798
Salary and benefits 56,096 51,807 4,289
Telephone 9,827 8,713 1,114
Travel and entertainment 18,572 18,572 --
--------- --------- ---------
574,882 499,778 75,104
--------- --------- ---------
LOSS FOR THE PERIOD $(549,339) $(477,671) $ (71,668)
==============================================================================================================================
LOSS PER SHARE $ (0.09) $ (0.08) $ (0.01)
LOSS PER SHARE, FULLY DILUTED $ (0.07) $ (0.06) $ (0.01)
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
VIAVID BROADCASTING INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
==============================================================================================================================
Deficit
Common Stock Accumulated
------------------------------ Additional During the
Number Paid-in Development
of Shares Amount Capital Stage Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issued shares for acquisition (Note 3) 5,100,000 $ 5,100 $ -- $ -- $ 5,100
Issued shares for cash at $0.01 per share 500,000 500 4,500 -- 5,000
Issued shares for cash at $0.50 per share 100,000 100 49,900 -- 50,000
Issued shares for cash at $1.00 per share 184,000 184 183,816 -- 184,000
Loss for the period -- -- -- (71,668) (71,668)
--------- --------- --------- --------- ---------
Balance at March 31, 1999 5,884,000 5,884 238,216 (71,668) 172,432
Issued shares for cash at $1.00 per share 537,000 537 536,463 -- 537,000
Loss for the period -- -- -- (477,671) (477,671)
--------- --------- --------- --------- ---------
Balance at December 31, 1999 6,421,000 $ 6,421 $ 774,679 $(549,339) $ 231,761
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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VIAVID BROADCASTING INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
==============================================================================================================================
Period From
Cumulative Incorporation
From Nine Month on January
Incorporation Period Ended 20, 1999 to
to December 31, December 31, March 31,
1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Loss for the period $(549,339) $(477,671) $ (71,668)
Items not affecting cash
Depreciation 40,323 37,709 2,614
Write-down of goodwill 5,435 -- 5,435
Changes in non-cash working capital items
Increase in accounts receivable (9,830) (2,989) (6,841)
Increase in accounts payable 15,502 8,636 6,866
--------- --------- ---------
Net cash used in operating activities (497,909) (434,315) (63,594)
--------- --------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (195,946) (175,822) (20,124)
Acquisition of subsidiary (335) -- (335)
--------- --------- ---------
Net cash used in investing activities (196,281) (175,822) (20,459)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from common shares 776,000 537,000 239,000
Loans from related parties 62 (8,397) 8,459
--------- --------- ---------
Net cash provided by financing activities 776,062 528,603 247,459
--------- --------- ---------
CHANGE IN CASH FOR THE PERIOD 81,872 (81,534) 163,406
CASH, BEGINNING OF PERIOD -- 163,406 --
--------- --------- ---------
CASH, END OF PERIOD $ 81,872 $ 81,872 $ 163,406
==============================================================================================================================
SUPPLEMENTAL DISCLOSURE FOR NON-CASH OPERATING, INVESTING, AND
FINANCING ACTIVITIES
Shares for purchase of subsidiary $ -- $ -- $ 5,100
Cash paid during the period for interest 222 222 --
Cash paid during the period for income taxes -- -- --
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
VIAVID BROADCASTING INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. NATURE AND CONTINUANCE OF OPERATIONS
ViaVid Broadcasting Inc., a Nevada corporation, was incorporated on January
20, 1999. On January 27, 1999, the Company completed the acquisition of
ViaVid Broadcasting Corp., a Canadian company operating in Vancouver,
British Columbia, Canada.
The Company was incorporated in order to create a global internet video
broadcasting company that offers a network of video services utilizing
streaming video technology. ViaVid's VBC News 1 Channel provides viewers
with interviews from company officials across the United States and Canada.
Broadcasts on ViaVid are produced live and to tape and are archived on the
ViaVid site for instant on demand video. Interviews can also be linked to
other company's sites allowing ViaVid to gain additional viewers from other
sites. ViaVid has also launched other Channels such as the Entertainment,
Health & Lifestyles and Sports.
ViaVid moved to its new studio and production facility in Burnaby, British
Columbia in November 1999 and has been producing live internet broadcasts
since December 1999.
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred a loss of $549,339 for the period from inception to December 31,
1999. The Company anticipates expending approximately $1,000,000 over the
next twelve month period in pursuing its anticipated plan of operations.
The Company anticipates covering these costs by operating revenues and
additional equity financing. If the Company is unable to complete its
financing requirements or achieve revenue as projected, it will then modify
its expenditures and plan of operations to coincide with the actual
financing completed and actual operating revenues. The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to
continue in existence.
The Company is currently receiving revenues for video production and
hosting services.
2. SIGNIFICANT ACCOUNTING POLICIES
In preparing these financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses
for the period. Actual results in future periods could be different from
these estimates made in the current period. The following is a summary of
the significant accounting policies of the Company:
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, ViaVid Broadcasting Corp. All significant
inter-company balances and transactions have been eliminated.
START-UP AND DEVELOPMENT COSTS
Since inception, certain expenditures have been incurred primarily for
product development, business development, market development and financing
purposes. While these expenditures are intended to benefit future periods,
the Company follows the accounting policy of expensing as incurred those
expenditures not identified with specific projects or financing activities.
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<PAGE>
VIAVID BROADCASTING INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
CAPITAL ASSETS
Capital assets are recorded at cost and are depreciated over their useful
lives on the declining balance method at the following rates:
Computer equipment 30%
Office furniture 20%
Telephone equipment 20%
Video equipment 20%
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and due to related parties. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments. The fair value of these financial instruments approximate
their carrying values, unless otherwise noted.
REVENUE RECOGNITION
Revenue is recognized once the filming and editing has been completed.
FOREIGN CURRENCY TRANSLATION
Financial statements of the Company's Canadian subsidiary are translated
using the temporal method whereby all monetary assets and liabilities are
translated into U.S. dollars at the rate of exchange at the balance sheet
date. Non-monetary assets and liabilities are translated at exchange rates
prevailing at the transaction date. Income and expenses are translated at
rates, which approximate those in effect on transactions dates. Gains and
losses arising from restatement of foreign currency monetary assets and
liabilities at each period end are included in earnings.
LOSS PER SHARE
Loss per share is calculated using the weighted average number of shares
allotted during the period.
SEGMENTED INFORMATION
The Company conducts substantially all of its operations in Canada in one
business segment.
3. ACQUISITION OF VIAVID BROADCASTING CORP.
On January 27, 1999, the Company completed the acquisition of ViaVid
Broadcasting Corp. ("VBC"), a related company having common directors and
officers. VBC is a Canadian company incorporated under the laws of British
Columbia on July 26, 1994. VBC was inactive from incorporation until
October 30, 1998 when it changed its name from 477504 British Columbia Ltd.
to ViaVid Broadcasting Corp.
The Company acquired VBC pursuant to a share exchange agreement whereby the
Company agreed to issue 5,100,000 common shares to the shareholders of VBC
in exchange for their 3,000 common shares. The Company has accounted for
this transaction as a capital transaction. For accounting purposes, the
financial statements of the Company and its subsidiary are deemed to have
been combined for the prior and current accounting periods. As of the date
of acquisition, VBC held no significant assets and liabilities and the
accumulated losses to January 27, 1999 was $355.
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<PAGE>
VIAVID BROADCASTING INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1999
(Unaudited - Prepared by Management)
- --------------------------------------------------------------------------------
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
=======================================================================================================================
Net Book Value
--------------------------------
Accumulated December 31, March 31,
Cost Depreciation 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer equipment $ 117,931 $ 27,933 $ 89,998 $ 10,229
Office furniture 17,441 3,084 14,357 4,953
Telephone equipment 2,723 582 2,141 1,834
Video equipment 57,851 8,724 49,127 494
-------------- -------------- -------------- --------------
$ 195,946 $ 40,323 $ 155,623 $ 17,510
=======================================================================================================================
</TABLE>
5. CAPITAL STOCK
The Company granted 950,000 stock options to directors and employees on
November 24, 1999. Each stock option is exercisable at $1.00 per share
expiring on November 24, 2003.
Subsequent to December 31, 1999, 525,000 of the stock options referred to
above were terminated and the Company issued 125,000 shares on the exercise
of stock options.
6. RELATED PARTY TRANSACTIONS
During the nine month period, the Company entered into the following
transactions with related parties:
a) Paid consulting fees as follows:
- $96,734 (March 31, 1999 - $20,074) to three directors of the
Company
- $22,911 (March 31, 1999 - $6,574) to an officer of the Company
- $Nil (March 31, 1999 - $1,673) to a director of the subsidiary
b) Paid salary of $25,526 (March 31, 1999 - $4,015) to an officer of the
Company.
7. INCOME TAXES
The Canadian operating loss for the period to date of $549,339, may be
carried forward and applied against taxable income in future years. Future
tax benefits which may arise as a result of these losses have not been
recognized in these financial statements. The Company has not commenced
operations in the U.S.A., therefore, there is no income or loss to report.
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may incorrectly
recognize the year 2000 as some other date, resulting in errors. The
effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems
failure
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which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
ViaVid provides its customers with video production and Internet news
broadcasting and dissemination services. The Company broadcasts news and
corporate information for its customers over the Internet through its Web site
at http://www.viavid.com.
The Company is a development stage company which has only recently commenced
business and has earned minimal revenues to date. Its business objective is to
develop an internet video broadcasting company that offers a wide variety of
video services utilizing streaming video technology.
The Company completed the move of its head office and production facilities to
3955 Graveley Street, Burnaby, British Columbia, Canada V5C 3T4 in the beginning
of November, 1999. The Company remains obligated under the lease for its former
premises at Suite 520, 625 Howe Street, Vancouver, British Columbia, Canada V6C
2T6 until February 29, 2000.
RESULTS OF OPERATIONS
Sales. ViaVid's revenues were $22,107 for the nine month period ending December
31, 1999, compared to revenues of $3,436 for the period from January 20, 1999,
the date of its incorporation, to March 31, 1999. The Company achieved revenues
of $6,554 for the quarter ended December 31, 1999 as compared to $9,785 for the
quarter ended September 30, 1999. The decrease in revenues for this quarter is
due to the Company's move into it's new facilities and its concentration on
providing live broadcasts. ViaVid's revenues were achieved primarily from video
production and Internet broadcast services provided to its customers. The
Company also achieved revenues from hosting services provided to customers
Revenue. The Company's revenues are minimal in comparison to its operating
expenses as the Company is currently in the start-up phase of its operations.
The Company is attempting to increase its future revenues by completing its plan
of operations, as discussed below. In addition, the Company commenced "live"
Internet broadcasts in December, 1999. ViaVid's objective is to attract
corporate sponsorship and advertising for these "live" Internet broadcasts.
Operating Expenses. ViaVid's operating expenses were $499,778 for the nine month
period ending December 31, 1999, compared to operating expenses of $75,104 for
the period from January 20, 1999 to March 31, 1999. ViaVid's operating expenses
for the quarter ended December 31, 1999 were $239,963 as compared to $153,304
for the quarter ended September 30, 1999. The increase in operating expenses
during this quarter was due to the move to the new production facilities and the
additional expenses incurred to run a live feed from the studio. The Company
will incur additional operating expenses as it continues to provide live
broadcast feeds of its productions on the Internet. The Company will continue to
have operating expenses in connection with the continued up-grade of its Web
site. The Company also anticipates that operating expenses will
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increase as the number of video productions which the Company produces and
broadcasts for its customers increases.
Net Loss. ViaVid's net loss was $477,671, or $0.08 per share, for the nine
months ending December 31, 1999. Fully diluted loss per share $0.06. Its net
loss was $71,668, or $0.01 per share, for the period from January 20, 1999 to
March 31, 1999. ViaVid's net loss for the quarter ended December 31, 1999 was
$233,409 as compared to $143,519 for the quarter ended September 30, 1999. Its
net loss reflects the fact that the Company has not earned significant revenues
to date.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been financed principally through sales of the
Company's equity securities.
The Company had cash of $81,872 as of December 31, 1999, compared to cash of
$163,406 as of March 31, 1999.
The Company realized net proceeds of $537,000 from the sales of its equity
securities during the nine month ending December 31, 1999. These proceeds were
used to finance the Company's operating activities.
The Company plans on meeting its operating expenses during the next quarter by
focussing on generating revenues through advertisements on the live broadcasts,
video productions for broadcast on its website and hosting of video productions.
PLAN OF OPERATIONS
The Company currently intends to pursue the following plan of operations during
the next twelve months:
A. The Company will continue to develop a customer base of public and
financial companies who will use its services for digital video productions
and Internet broadcasting. The Company anticipates that it will spend
approximately $100,000 on this marketing expense over the next twelve month
period;
B. The Company will continue to develop the VBC News 1 Channel for broadcast
from its Web site. The Company anticipates it will spend approximately
$350,000 on this development expense over the next twelve month period;
C. The Company will evaluate additional channels for broadcast from its Web
site, depending on market demand. The Company anticipates it will spend
approximately $50,000 on additional channels over the next twelve month
period;
D. The Company will evaluate whether to set up an additional office or offices
in additional cities in order to expand its business and meet customer
demand. The Company anticipates it will spend approximately $150,000 on
additional offices over the next twelve month period if it determines to
proceed with an additional office;
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E. The Company will expand its Web site to attempt to extract marketing
information and data from users in order to obtain a basis for earning
advertising revenue. The Company anticipates it will spend approximately
$10,000 on expansion of its Web site over the next twelve month period;
F. The Company will purchase additional equipment to expand its digital video
production studio and video production capabilities. The Company
anticipates it will spend approximately $250,000 on additional production
equipment over the next twelve month period.
In sum, the Company anticipates it will spend approximately $1,000,000 over the
next twelve month period in pursuing its stated plan of operations. Of these
anticipated expenditures, the Company anticipates that approximately $514,000
will be spent on its plan of operations in the next six months. Of this amount,
the Company anticipates that $105,000 will be paid from operating revenues,
approximately $80,000 will be paid from existing cash reserves from previously
completed equity financings and approximately $329,000 will be raised by
additional equity financings. ViaVid does not have any present plans or
commitments to raise this additional capital. ViaVid's actual expenditures and
business plan may differ from this stated plan of operations. Although ViaVid
has no present plans or proposals pending, a strategic alliance relating to one
aspect of streaming content or encoding may cause the Board of Directors to
modify its plans. In addition, ViaVid may modify its plan of operations based on
the available amounts of financing in the event that it cannot obtain the
required equity financings to complete its plan of operations. ViaVid does not
have any arrangement in place for any debt or equity financing which would
enable it to meet its plan of operations.
In the event the Company is not successful in arranging any further sales of
common stock, the Company anticipates that it could sustain its business
operations for approximately six months without additional equity financing
based on its current cash position and revenues.
The Company is currently receiving revenues from video production and hosting
services. The Company anticipates an increase in revenue from production,
advertising and hosting video footage and Web content if it is successful in
increasing its customer base over the next twelve months.
Notwithstanding the above plan of operations, the Company anticipates it will
have continuing operating losses in the foreseeable future. The Company bases
this expectation in part on the following:
A. The Company will incur substantial marketing expense in order to advertise
and promote its Web site, to establish a customer base and to increase the
usage of its Web site.
B. Increased usage of ViaVid's Web site will lead to increased operating
expenses and require additional capital expenditures on new computer
equipment, software and technology.
C. ViaVid's operating expenses will continue to increase as it expands the
technical capabilities of its Web site.
D. ViaVid's operating expenses will increase as it solicits potential
customers and completes video productions for customers for broadcast via
its Web site.
E. ViaVid's operating expenses will increase as it solicits potential
advertisers and attempts to enter into agreements for advertising on its
Web site.
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F. ViaVid's operating expenses will increase as it undertakes to implement
programs to monitor usage of its Web site and develop customer profiles of
its users.
RISKS
YEAR 2000 ISSUE
At the end of 1999 there was a concern that computer systems, software packages,
and microprocessor dependent equipment would cease to function or generate
erroneous data when the Year 2000 arrived. The problem was anticipated with
those systems or products that were programmed to accept a two-digit code in
date code fields. To correctly identify the Year 2000, a four digit date code
field was required to be what is commonly termed "Year 2000 compliant".
We completed an assessment of all internal systems and operations to determine
Year 2000 compliance. Our assessment included an assessment of computer hardware
systems and Web site operations systems. We determined that our internal
computer hardware systems and Web site operations systems and operations were
Year 2000 compliant.
We completed an upgrade of all third party licensed software to ensure Year 2000
compliance. We implemented all Year 2000 software patches for the software used
by us in our operations, including software patches for our Microsoft operating
system. We also investigated the Year 2000 compliance of all computer hardware
purchased by us since commencement of operations. We made inquiries of our
Internet service provided, AT&T Corp., as to the year 2000 compliance of the
Internet service provider's systems and operations and representations were made
that our systems and operations are Year 2000 compliant.
We did not experience any problems with our computer system or Web site
operations as a result of Year 2000 problems. Our Web site and computer systems
were able to continue operations without experiencing any down-time or
interruptions.
We estimate that our total internal cost for ensuring Year 2000 compliance for
all internal systems to be less than $10,000. We did not incur any external cost
in ensuring Year 2000 compliance in view of the fact that we have only recently
commenced operations and purchased computer hardware and software on the basis
of representations by manufacturers as to Year 2000 compliance.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1996
With the exception of historical matters, the matters discussed in this 10QSB
are "forward-looking statements" as defined under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, that involve risks
and uncertainties. Forward-looking statements made herein include, but are not
limited to, the statements in this report regarding the plans and objectives of
management for our future operations, including plans or objectives relating to
our intentions to provide Internet news broadcasting and other dissemination
services and other products or services, as well as any prospective financial
information concerning us. Forward-looking statements made in this report
include the assumptions made by management as to the future growth and business
direction of the Internet, e-commerce through the facilities of the Internet and
the role of video production and Internet news broadcasting and dissemination
services on the Internet. They also include our beliefs as to the importance of
privacy to users, their willingness to divulge certain demographic information
regarding themselves, to view our news
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broadcasting services and programs, as well as our plans to improve the
capabilities of our servers and facilities. They also include our beliefs as to
the willingness of small-cap public companies to broadcast corporate news and
information on the internet and for us to derive revenues from providing this
service. We cannot assure you that our assumptions in this regard or our views
as to the commercial viability of our business plans discussed herein will prove
to be accurate. Likewise, we cannot assure you that we will be successful in
growing our user and customer base as we plan, attracting companies to use our
Internet based broadcast services for the dissemination of their news
information, realizing material amounts of advertising or other revenues or
achieving any commercial advantage relative to other Internet companies. Our
ability to realize revenues from the business plans discussed herein cannot be
assured. If our assumptions are incorrect or our advertising and other growth
plans or plans to realize revenues fail to materialize, we may be unsuccessful
in developing as a viable business enterprise. Under such circumstance your
entire investment will be in jeopardy and may be lost. Our inability to meet our
goals and objectives or the consequences to us from adverse developments in
general economic or capital market conditions and our inability to raise
additional capital could have a material adverse effect on us. We caution you
that various risk factors accompany those forward looking statements and are
described, among other places, under the caption "Risk Factors" herein. They are
also described in our Registration Statement on Form 10-SB, as amended, in our
Quarterly Reports on Form 10-QSB, our Current Reports on Form 8-K and our
Registration Statement SB-2. These risk factors could cause our operating
results, financial condition and ability to fulfill our plans to differ
materially from those expressed in any forward-looking statements made in this
report and could adversely affect our financial condition and our ability to
pursue our business strategy and plans.
RISK FACTORS
RISKS APPLICABLE TO OUR BUSINESS
EXTREMELY LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES
We have had an extremely limited operating history. Our business was established
in January 1999 and our Web site began operations on the Internet in February
1999. Our total revenues since inception through December 31, 1999 were $25,543.
An investor must consider the risks, expenses and difficulties frequently
encountered by companies such as ours, in the early stages of their development
particularly in the new and rapidly evolving market for Internet products,
content and services. We cannot assure you that we will be successful in
addressing such risks. We cannot assure you that our revenue will grow
sufficiently to assure our future success. New companies, such as ours,
experience expenses, difficulties and unforeseen problems that create a higher
risk of business failure. If we are not successful in overcoming these expenses
and difficulties, our business may fail.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The report of our independent auditors on their audit of our financial
statements as of March 31, 1999 contains an explanatory paragraph that describes
an uncertainty as to our ability to continue as a going concern due to our
recurring losses and the necessity to obtain additional financing. At both March
31, 1999 and December 31, 1999, we did not have available to us the funds
necessary to meet our anticipated capital needs. At December 31, 1999, we had
cash of $81,872. We anticipate that our expenses for the quarter ended March 31,
2000 will exceed this amount. Accordingly, in order to meet our plan of
operations, we will need to raise additional capital. We have no present plans
or commitments to raise this additional capital. There can be no assurance that
any additional financing will be available to us on favorable terms, or at all.
If adequate funds
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are not available or not available on acceptable terms, we may not be able to
fund our business plans as we desire, or, develop or enhance services or respond
to competitive pressures. Any such inability could have a material adverse
effect on our business, results of operations and financial condition.
Additional funds raised through the issuance of equity or convertible debt
securities, will result in reducing the percentage ownership of our stockholders
and, our stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of the rights of our
Common Stock.
As a result of our limited Internet operating history, we have limited
meaningful historical financial data upon which our planned operating expenses
can be based. Accordingly, our anticipated expense levels in the future are
based in part on our expectations as to future revenue and will become, to a
large extent, fixed. Revenues and operating results generally will depend on the
volume of, timing of and ability to complete transactions, which are difficult
to forecast.
In addition, there can be no assurance that we will be able to accurately
predict our revenue, particularly in light of the unproven manner in which we
intend to derive our Internet revenue, the intense competition for the sale of
products and services on the Web, revenue-sharing opportunities, our limited
operating history and the uncertainty as to the broad acceptance of the Web as a
news broadcasting medium. We may be unable to adjust our spending in a timely
manner to compensate for disappointing results of our marketing efforts and
efforts to develop Internet revenue, any unexpected revenue shortfall or other
unanticipated changes in the Internet industry. Our failure to accurately make
such predictions or adjustments in our spending would have a material adverse
effect on our business, results of operations and financial condition.
POSSIBLE INABILITY TO IMPLEMENT OUR BUSINESS STRATEGY
Our business strategy includes completion of the following business objectives:
o Attracting public companies and other financial industry customers who are
prepared to pay for having us prepare digital video productions and
broadcast these video productions on our Web site. We have only recently
begun to seek payment from customers for these video productions;
o Continuing to expand the usage of our Web site by attracting both financial
industry customers and viewers;
o Expanding the functionality and capability of our Web site;
o Attracting advertising to our Web site and establishing other revenue
generating opportunities for our Web site;
o Responding to competitive developments;
o Implementing and executing our business strategy successfully; and
o Continuing to develop and upgrade our technologies and our Web site.
If we are not successful in implementing all components of our business strategy
successfully, our operating results and financial condition may be harmed and
our business may fail.
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POSSIBLE INABILITY TO GENERATE REVENUES AND PROFITABLE OPERATIONS
We have earned minimal revenues to date and we are presently not profitable. Our
business and marketing strategy contemplates that we will earn revenues from
public customers who pay for the broadcast of digital video productions on the
Internet via our Web site and through advertising posted on our Web site. If we
are not able to generate revenues from these activities or if the revenues
generated do not exceed the operating costs of our business, then our business
will not be profitable and our business may fail.
ANTICIPATED LOSSES IN FUTURE PERIODS
We incurred a loss of $71,668 for our first fiscal period ending March 31, 1999.
We incurred a loss of $477,671 for the nine month period ending December 31,
1999. We expect that our operating expenses will increase as we implement our
business and marketing strategy due to the following factors:
o We will incur substantial marketing expense in order to advertise and
promote our Web site, to establish a customer base and to increase usage of
our Web site.
o We expect that increased usage of our Web site will lead to increased
operating expenses and require additional capital expenditures on new
computer equipment, software and technology.
o We expect our operating expenses will continue to increase as we expand the
technical capabilities of our Web site.
o We expect our operating expenses will increase as we solicit potential
customers and complete video productions for customers for broadcast via
our Web site.
o We expect our operating expenses will increase as we solicit potential
advertisers and attempt to enter into agreements for advertising on our Web
site.
o We expect our operating expenses will increase as we undertake to implement
programs to monitor usage of our Web site and develop customer profiles of
Web site users.
If our operating expenses increase as anticipated, we will realize losses for
the foreseeable future.
LOCAL NATURE OF OUR PRESENT OPERATIONS
We focused our operations initially on public companies located in Vancouver,
British Columbia. We are able to provide services to companies located in other
markets, but our ability to provide on-location productions has been constrained
by financial and manpower limitations. At present, we have produced only a few
events outside the Vancouver area. Our objective is to expand production of news
and information throughout the United States and Canada, as well as elsewhere.
This sort of expansion, however, is subject to available funding and our ability
to market our services in diverse areas. There can be no assurance that we will
be successful in developing our business plan throughout these areas.
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DEPENDENCE ON ADVERTISING REVENUE
We intend to derive the principal portion of our revenue from the sale of
advertising on our Internet site, and we intend that advertising revenue will
continue to be the principal source of our revenue in the foreseeable future.
Our ability to generate advertising revenue will depend on several factors,
including:
o the continued development of the Internet as an advertising medium,
o the pricing of advertising on other Internet sites,
o the amount of traffic on our site,
o pricing pressures, delays and new product launches,
o our ability to achieve, demonstrate and maintain user demographics
attractive to advertisers, and
o our ability to develop and retain a skilled advertising sales force.
Others engaged in seeking to attract users to their Internet sites have
significantly greater assets and substantially larger advertising budgets than
we have. These limitations on our advertising budget can be expected to
adversely affect our ability to attract users to our site.
We believe Internet advertising typically slows in the first quarter of the
year. Seasonality and cyclicality in the level of Internet advertising
expenditures generally could become more pronounced in the future as the
Internet becomes more accepted as an advertising vehicle.
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE
ON KEY PERSONNEL
In developing our business plan, we expect to be required to establish and
manage multiple relationships with various strategic providers of services,
technology licensors, marketers and other third parties. To date, only a limited
number of such relationships have been established. These requirements to enter
into these relationships will be exacerbated in the event of our material growth
or in the number of third party relationships, and there can be no assurance
that our systems, procedures or controls will be adequate to enable us to
establish and enter into these relationships, to support any substantial growth
in our operations or that our management will be able to implement or manage any
growth effectively.
To effectively manage growth, we must establish, implement and improve
operational, financial and management information systems and expand, train and
manage our employee base. Our development is and will continue to be
substantially dependent on the abilities and performance of our executive
officers and other key employees. The loss of the services of any of our
executive officers or other key employees could have a material adverse effect
on our prospects, business development, and results of operations and financial
condition. Competition for senior management, experienced sales and marketing
personnel, qualified Web engineers and other employees is and is expected to
continue to be intense. There can be no assurance that we will be successful in
attracting and retaining such personnel. There can be no assurance that we may
not experience difficulty from time to time in hiring and retaining the
personnel necessary to support the
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growth of our business. Our failure to successfully manage our personnel
requirements would have a material adverse effect on our business, results of
operations and financial condition.
Our performance is substantially dependent on the continued services and
performance of our senior management and other key personnel, including Brian
Kathler, President and a Director, Paul Watkins, a Director, Robert Gamon, a
Director, David Formosa, a Director, James King, a Director, and Cheryl Watkins,
Secretary and Treasurer. Cheryl Watkins is the wife of Paul Watkins. We do not
have long-term employment agreements with any of our key personnel and maintain
no "key person" life insurance policies. Our future success also depends on our
ability to identify, attract, retain and motivate highly skilled, technical,
managerial, sales, marketing and customer service personnel. Competition for
such persons is intense. We cannot assure you that we will be able to attract or
retain such personnel. The failure to do so could have a material adverse effect
on our business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTIES FOR INTERNET TRAFFIC
We believe that traffic originating from links we intend to seek to establish on
other Internet sites (particularly search engines, directories and other
navigational tools managed by Internet service providers and Web browser
companies) will be an important segment of the overall traffic on our Internet
site. These linking arrangements are expected to be either short-term contracts
and/or be able to be terminated with little notice. There is intense competition
for these types of linking arrangements. We cannot assure you that these
arrangements will be able to be created or that advertising or links will be
available on reasonable commercial terms or at all. Likewise, we cannot assure
you that any such relationships, once established, will be maintained and
continued. Our failure to establish and retain these links can be expected to
adversely affect our ability to attract persons to our site.
DEPENDENCE ON LICENSED TECHNOLOGY
We rely on certain technology licensed from third parties for use in operating
and managing our Internet site and providing related services to users and
advertisers. We cannot assure you that such technology licenses will be
available at all, that they will be available on reasonable commercial terms or
that they will operate as intended.
RISKS APPLICABLE TO INTERNET BUSINESS ACTIVITIES
UNPREDICTABILITY OF FUTURE REVENUE; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS
As a result of the evolving nature of the Internet and our limited operating
history, we cannot accurately forecast our revenue. Current and future expense
levels are based principally on anticipated future revenues and, as we increase
the scope of our activities, these expenses, to a large extent, will increase
and become fixed. Accordingly, we may be unable to adjust spending to compensate
for shortfalls in our anticipated revenues. If our revenues do not materialize
as anticipated, this could have an immediate material adverse effect on our
business, financial condition and results of operations which could lead to an
investor's loss of his investment in our company.
Our quarterly operating results may fluctuate significantly because of a variety
of factors, many of which are outside our control, including:
o overall usage levels of the Internet and of our sites in particular,
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o demand for Internet advertising and the loss of advertisers,
o seasonal trends in Internet use and advertising,
o the amount and timing of our capital expenditures,
o costs relating to the expansion of our operations and the introduction of
new sites and services and Channels,
o price competition or pricing changes in Internet advertising, and
o costs relating to technical difficulties or system downtime.
Quarterly comparisons of our results of operations are not expected to be a
reliable indication of our future performance.
DEPENDENCE ON GROWTH IN INTERNET USE AND ACCEPTANCE AS AN ADVERTISING AND
COMMERCE MEDIUM
Our future revenue will depend largely on the widespread acceptance and use of
the Internet as an information source and as an advertising and commerce
vehicle. Rapid growth in Internet use is a recent trend and market acceptance of
the Internet as an advertising and commercial medium is highly uncertain. The
Internet may not be accepted as a viable advertising and commerce medium for
distribution of information and engaging in commerce for a number of reasons,
including:
o inadequate development of the network infrastructure,
o inadequate development of enabling technologies,
o insufficient commercial support for Internet advertising,
o concerns about privacy and security among users, and
o lack of widely accepted standards for measuring the effectiveness of
advertising on the Internet.
RAPID TECHNOLOGICAL CHANGE
The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. We will be required to continually improve the performance,
features and reliability of our infrastructure and Internet site, particularly
in response to competition and changing customer demands. We cannot assure you
that we will be successful in responding rapidly, cost-effectively or adequately
to such developments.
COMPETITION
The business of broadcasting news through the Internet is new, rapidly evolving
and extremely competitive. We compete with a variety of other companies who
offer competing means of broadcasting financial news and corporate information
through the Internet, substantially all of
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whom are larger and more well established than we are. We expect new competitors
to enter into this market due to the expansion of use of the Internet and
changes in technology that will increase the ability of companies to use video
streaming technology on the Internet. Substantially all of our current
competitors have significantly greater financial, technical, marketing and other
resources than we do. If we experience increased competition in the business of
broadcasting news and video productions on the Internet, our ability to obtain
customers and achieve revenues for our services will be limited. In addition,
the potential rates that we may be able to charge for advertising on our Web
site may decrease if the growth of the Internet and electronic commerce brings
increased competition.
Competition among Internet content providers, including news broadcasters, is
intense and is expected to increase significantly in the future. The market for
Internet content sites is rapidly evolving and barriers to entry are low,
enabling newcomers to launch competitive sites at relatively low cost. We
believe we compete most directly with Pseudo Programs, Inc. However, we also
generally compete for users and advertisers with a large number of Internet
portals, search sites and content aggregators, general news sites (such as those
provided by CNN and ABC) and general purpose online service providers (such as
America Online and MSN). In addition, we compete with traditional media content
businesses such as newspapers, magazines, radio and television. In order to
compete successfully and attract users, advertisers and strategic partners, we
must provide high quality, engaging content in a timely and cost-effective
manner. We cannot assure you that we will be able to do so. Moreover, increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could have a material adverse effect on our business,
financial condition and results of operations.
NEW SERVICE RISKS
Our future success may depend in part on our ability to expand our Internet site
to include new subject matters and services and other Internet sites. Costs
related to developing new content areas and services are expensed as they are
incurred while revenue related to these new content areas and services typically
builds over time and, accordingly, our profitability from year to year may be
adversely affected by the number and timing of new launches. In addition, we
cannot assure you that any new areas or services will be developed in a timely
or cost-effective manner or that they will be successful.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
We believe brand identity is important to attracting and expanding our user
base, Internet traffic and advertising and commerce relationships. We believe
the significance of brand and name recognition will intensify as the number of
Internet sites increases. We cannot assure you that we will be able to continue
to develop our brand.
RISK OF CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS
The performance and reliability of our Internet site and network infrastructure
are critical to our reputation and ability to attract and retain users,
advertisers and strategic partners. Any system error or failure, or a sudden and
significant increase in traffic, may result in the unavailability of our site
and significantly delay response times. Individual, sustained or repeated
occurrences could result in a loss of potential or existing users, advertisers
or strategic partners. In addition, because our advertising revenue is expected
to directly relate to the number of advertisements we deliver to users, system
interruptions or delays would reduce the number of impressions delivered and
thereby reduce our revenue.
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Our systems and operations are vulnerable to interruption or malfunction due to
certain events beyond our control, including natural disasters,
telecommunications failures and computer hacking. We also rely on Web browsers
and online service providers to provide Internet access to our sites. We cannot
assure you that we will be able to expand our network infrastructure, either
internally or through use of third-party hosting systems or service providers,
on a timely basis sufficient to meet demand. We presently have only a limited
amount of redundant facilities or systems, no formal disaster recovery plan and
no sufficient business interruption insurance to compensate for losses that may
occur. Any interruption to our systems or operations could have a material
adverse effect on our business, financial condition and results of operations.
Substantially all of our communications hardware and computer hardware is
located at a leased facility in Burnaby, British Columbia, Canada. Our systems
are vulnerable to damage from earthquake, fire, floods, power loss,
telecommunications failures, break-ins and similar events. We do not presently
have fully redundant systems and have not yet completed implementing a formal
disaster recovery plan. Despite our implementation of network security measures,
our servers are also vulnerable to computer viruses, physical or electronic
break-ins, attempts by third parties deliberately to exceed the capacity of our
systems and similar disruptive problems. If our computer systems fail to operate
for any of these reasons, then we will not be able to operate our Web site or
achieve revenues from customers and advertisers and our business will be harmed.
SECURITY RISKS
Our system may be vulnerable to unauthorized access, computer viruses and other
security problems. A user who circumvents security measures could misappropriate
proprietary information or cause interruptions or malfunctions in our
operations. We may be required to expend significant resources to protect
against the threat of such security breaches or to alleviate problems caused by
such breaches. Although we intend to continue to implement industry-standard
security measures, such measures may be inadequate.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally. There are currently
few laws or regulations directly applicable to access to or commerce on the
Internet. However, due to the increasing popularity and use of the Internet, a
number of legislative and regulatory proposals are under consideration by U.S.
and Canadian federal, state, provincial, local and foreign governmental
organizations. It is possible that a number of laws or regulations may be
adopted with respect to the Internet relating to such issues as user privacy,
user screening to prevent inappropriate uses of the Internet by, for example,
minors or convicted criminals, taxation, infringement, pricing, content
regulation, quality of products and services and intellectual property ownership
and infringement. The adoption of any such laws or regulations may decrease the
growth in the use of the Internet, which could, in turn, decrease the demand for
our community, increase our cost of doing business, or otherwise have a material
adverse effect on our business, results of operations and financial condition.
Moreover, the applicability to the Internet of existing laws governing issues
such as property ownership, copyright, trademark, trade secret, obscenity, libel
and personal privacy is uncertain and developing. Any new legislation or
regulation, or application or interpretation of existing laws, could have a
material adverse effect on our business, results of operations and financial
condition. There can be no assurance that any legislation will not be enacted in
the future that could expose us to substantial liability. Legislation could also
dampen the growth in the use of the Web generally and decrease the acceptance of
the Web as a communications and commercial medium. The result could, thereby,
have a material adverse effect on our business, results of operations and
financial condition.
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It is also possible that our use of "cookies" to track demographic information
and user preferences and to target advertising may become subject to laws
limiting or prohibiting their use. A "cookie" is a bit of information keyed to a
specific server, file pathway or directory location that is stored on a user's
hard drive, possibly without the user's knowledge. A user is generally able to
remove cookies. Germany, for example, has imposed laws limiting the use of
cookies, and a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of our
use of cookies could limit our effectiveness in targeting of advertisements,
which could have a material adverse effect on our business, results of
operations and financial condition.
In addition, a number of legislative proposals have been made at the U.S. and
Canadian federal, state, provincial and local level that would impose additional
taxes on the sale of goods and services over the Internet and certain
jurisdictions have taken measures to tax Internet-related activities. The U.S.
Congress enacted the Internet Tax Freedom Act on October 21, 1998 which imposes
a national moratorium in the United States on state and local taxes on Internet
access services, on-line services, and multiple or discriminatory taxes on
electric commerce effective October 1, 1998 and ending three years after its
enactment. There can be no assurance that, once such moratorium is lifted, some
type of U.S. federal and/or state taxes will be imposed upon Internet commerce,
and there can be no assurance that such legislation or other attempts at
regulating commerce over the Internet will not substantially impair the growth
of commerce on the Internet and as a result, our opportunity to derive financial
benefit from these activities may be adversely affected.
In addition to the foregoing areas of recent legislative activities, several
telecommunications carriers are currently seeking to have telecommunications
over the Web regulated by the U.S. Federal Communications Commission (the "FCC")
in the same manner as other telecommunications services. In addition, because
the growing popularity and use of the Web have burdened the existing
telecommunications infrastructure and many areas with high Web use have begun to
experience interruptions in phone service, local telephone carriers have
petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions is granted, or the relief sought is otherwise granted,
the costs of communicating on the Web could increase substantially, potentially
slowing growth in use of the Web. This could, in turn, decrease demand for our
services or increase our cost of doing business.
Due to the global nature of the Web, it is possible that, although our
transmissions over the Internet originate primarily in British Columbia, Canada,
the governments of various states in the United States and foreign countries
might attempt to regulate our transmissions or prosecute us for violations of
their laws. There can be no assurance that violations of local laws will not be
alleged or charged by state or foreign governments, that we might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on our business, results of operations and financial
condition.
In addition, as our services are available over the Internet in multiple foreign
countries, provinces, states and other jurisdictions, such jurisdictions may
claim that we are required to qualify to do business as a foreign corporation in
each of those jurisdictions. We are qualified to do business only in British
Columbia, and our failure to qualify as a foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties and could
result in our inability to enforce contracts in such jurisdictions. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
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application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on our business, results of
operations and financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB; ABSENCE OF LIABILITY INSURANCE
Because materials may be downloaded by users of our Web site and subsequently
distributed to others, there is a potential that claims will be made against us
for defamation, negligence, copyright or trademark infringement, personal injury
or other theories based on the nature, content, publication and distribution of
these materials, including financial and other information disseminated by use
of our Web site by the small-cap public companies that are our customers. Such
claims have been brought, and sometimes successfully pressed, against OSPs for
example, in the past. We have received inquiries from time to time from third
parties regarding such matters, all of which have been resolved to date without
any payments or other material adverse effect on us.
In addition, the increased attention focused upon liability issues as a result
of these lawsuits and legislative proposals could impact the overall growth of
Internet use. We could also be exposed to liability with respect to the offering
of third party content that may be accessible through our Web site, or through
content and materials that may be posted by Members on their personal Web sites
or chat rooms, or on-line discussions offered by us. Such claims might include,
among others, that by directly or indirectly hosting the personal Web sites of
third parties, we are liable for copyright or trademark infringement, or other
wrongful actions by such third parties through such Web sites.
It is also possible that if any third party content information provided on our
web site contains errors, third parties could make claims against us for losses
incurred in reliance on such information. Even to the extent that such claims do
not result in liability to us, we could incur significant costs in investigating
and defending against such claims. The imposition on us of potential liability
for information carried on or disseminated through our systems could require us
to implement measures to reduce our exposure to such liability, which may
require the expenditure of substantial resources and limit the attractiveness of
our services to Members and visitors.
Currently, we do not carry general liability insurance intended to protect us
from any liability arising out of the foregoing. In any event, however,
insurance may not cover all potential claims to which we are exposed or may not
be adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of our
insurance coverage would have a material adverse effect on our business, results
of operations and financial condition. In addition, the increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could impact the overall growth of Internet use.
RELIANCE ON INTELLECTUAL PROPERTY RIGHTS
To establish and protect our trademark, service mark and other proprietary
rights in its products and services, we rely on a combination of:
o copyright, unfair competition, trademark, service mark and trade
secret laws and
o confidentiality agreements with our licensees and other third parties
and confidentiality agreements and policies covering its employees.
We cannot assure you that these measures will be adequate, that we will be able
to secure registrations for all of our marks in the U.S. or internationally or
that third parties will not infringe upon or misappropriate our proprietary
rights. Any infringement or misappropriation, or litigation
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relating to intellectual property rights, may have a material adverse effect on
our business, financial condition and results of operations.
We have applied to the United States Trademark office for registration of
"ViaVid" as a trademark in the United States. We have also applied to the Canada
Patent and Trademark Office for registration of "ViaVid" as a trademark in
Canada. No trademark has been issued to us for "ViaVid" in either the United
States or Canada. We are not aware of any other companies currently using the
name "ViaVid". We have conducted searches of trademark databases in both the
United States and Canada and have not found any registration of the name
"ViaVid" as a trademark. There is no assurance that we will be able obtain a
trademark for the "ViaVid" name, or that once obtained it will stand up to
objections by others who have made prior use of the name. Also, there can be no
assurance that we will obtain any significant commercial advantage from this
trademark if granted or that we will have the financial resources to protect our
rights in the name through legal proceedings or otherwise. It is also possible
that our competitors or others will adopt product or service names similar to
"ViaVid" or other similar service marks or trademarks, thereby impeding our
ability to build brand identity and possibly leading to customer confusion. Our
inability to protect the name "ViaVid" adequately could have a material adverse
effect on our business, results of operations and financial condition.
Legal standards relating to the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related business are uncertain and
evolving. In particular, new registration and ownership priority procedures may
be adopted which may make it more difficult for us to retain or obtain desirable
domain names.
CONTROL BY PRINCIPAL STOCKHOLDERS AND POTENTIAL CONFLICTS OF INTEREST
Our officers and Directors own approximately 79% of our outstanding shares of
Common Stock. As a result, such persons could elect all the members of our
Board. Such persons could also control those actions requiring the approval of
the holders of a majority of our voting stock, including amendments to our
Articles of Incorporation and any business combinations. Such persons
concentration of ownership could prevent a change in control of our company that
might otherwise be beneficial to stockholders.
DIFFICULTIES IN CREATING AWARENESS OF OUR WEB SITE
We believe that development and awareness of our Web site is critical to our
success in attracting consumers and advertisers. The importance of customer
awareness will increase as low barriers to entry encourage the proliferation of
Web sites. We intend to increase our marketing and advertising spending in order
to attract and retain users and advertisers, and to promote and maintain
awareness of our Web site in response to competitive pressures. If we are
unsuccessful in building strong recognition of our Web site and if our marketing
efforts are not successful, we will not be successful in attracting customers
for our Web site and earning revenues from our Web site with the result that our
business will be harmed.
The success of our business will depend on acceptance of our business format by
customers of the video production and Internet broadcast service that we offer.
There is no assurance that potential customers will accept the format of our Web
site. Potential customers have a variety of competing means for which to
disseminate corporate information and news, both via the Internet and through
traditional commercial means. If we are not successful in creating an awareness
of our Web site and attracting users to our Web site, then we will not be
successful in achieving revenues and our business will be harmed.
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EXPENSE OF TECHNOLOGICAL DEVELOPMENTS AND EQUIPMENT UPGRADES
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and consumer demands. It
is possible that the introduction of new technology could render our existing
Web site technology and the services we offer obsolete. We anticipate that the
introduction of new technology will require us to continually upgrade and change
our Web site technology in order to maintain our competitive position and offer
competitive services. We anticipate that the incorporation of new technology
into our Web site will result in us incurring increased operating expenses. If
we are required to incur these expenses and increased revenues do not match
these expenses, our business will be harmed. If we do not incorporate new
technology into our Web site operations, then our competitive position and our
ability to attract customers and advertisers may be harmed.
RISKS APPLICABLE TO THE MARKET FOR OUR COMMON STOCK
NO ACTIVE PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to January 4, 2000, there was no active public market for our Common
Stock. Since then, our Common Stock has been quoted on the OTC Bulletin Board.
There can be no assurance that an active trading market for our Common Stock
will be sustained or that the market price of our Common Stock will not decline
based upon market or other conditions. The market price may bear no relationship
to our revenues, earnings, assets or potential and may not be indicative of our
future business performance. The trading price of our Common Stock has been and
can be expected to be subject to wide fluctuations in response to variations in
our quarterly results of operations, the gain or loss of significant strategic
relationships, unanticipated delays in our development, changes in estimates by
analysts, announcements of technological innovations or new solutions by us or
our competitors, general conditions in the technology and Internet sectors and
in Internet-related industries, other matters discussed elsewhere in this report
and other events or factors, many of which are beyond our control.
In addition, the stock market in general and the technology and Internet sectors
in particular have experienced extreme price and volume fluctuations which have
affected the market price for many companies in industries similar or related to
us and which have been unrelated to the operating performance of these
companies. These market fluctuations, as well as general economic, political and
market conditions, may have a material adverse effect on the market price of our
Common Stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such companies. Such litigation, if instituted, and irrespective of the outcome
of such litigation, could result in substantial costs and a diversion of
management's attention and resources and have a material adverse effect on our
business, results of operations and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of our Common Stock in the public market or the
perception that such sales will or could occur could materially and adversely
affect the market price of our Common Stock or our future ability to raise
capital through an offering of our equity securities. We had, as of January 26,
2000, 6,546,000 shares of common stock outstanding. Of such shares, 5,120,000
shares were held by officers and Directors of the Company. The 5,120,000 shares
held by officers and directors, together with an additional 1,017,000 shares, or
an aggregate of 6,137,000 shares, are "restricted securities" as such term is
defined in Rule 144 under the Securities Act. Restricted
26
<PAGE>
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. Approximately 409,000 shares of our Common
Stock are freely transferable under U.S. Federal securities laws.
In addition, a Registration Statement on Form SB-2 was filed on February 3, 2000
to enable the public offer and sale of 1,017,000 shares sold in 1999 in the
private sale of our securities. These shares are included among the "restricted
securities" described above. The sale of these shares or the perception that
such sales will or could occur could materially and adversely affect the market
price for our Common Stock.
On January 27, 2000, Kathler Holdings Inc., Paul Watkins, Cheryl Watkins and
549419 BC Ltd., our principal shareholders, notified us that they sold or intend
to sell an aggregate of 195,000 shares of Common Stock pursuant to Rule 144.
Subsequent to the sale of those shares, the shares become freely transferrable
under U.S. Federal securities laws. The sale of these shares or the perception
that such sales will or could occur could materially and adversely affect the
market price for our common stock.
We have filed a Form S-8 registration statement under the Securities Act to
register all shares of Common Stock issuable pursuant to outstanding options and
all shares of Common Stock reserved for issuance under our 1999 Stock Option
Plan. Such registration statement became effective immediately upon filing in
December 1999 and the shares issuable on exercise of options granted under the
1999 Stock Option Plan are covered by that registration statement. The shares
issuable on exercise of the options granted under the Plan are eligible for
sale, subject to Rule 144 limitations applicable to affiliates. As of January
26, 2000, we have options outstanding under the 1999 Stock Option Plan to
purchase 300,000 shares at a price of $1.00 per share and 407,000 shares at a
price of $3.50 per share. An aggregate of 125,000 shares were issued on exercise
of options granted under the 1999 Stock Option Plan on January 5 and 6, 2000 and
are included in the shares described above that are freely transferrable under
U.S. Federal securities laws. In addition, there are 243,000 shares reserved for
the future grant of options under the Plan. We intend to attract employees to
work for us through the grant of options to purchase these shares. These options
granted to attract additional employees may be immediately exercisable and the
shares freely transferrable. The sale of these shares or the preception that
such shares will be sold could have an adverse effect on the market price for
our Common Stock.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending or threatened against the Corporation.
Item 2. Changes in Securities and Use of Proceeds
The Registrant completed the issue of 497,000 common shares to a total of six
(6) purchasers pursuant to Regulation S during the period from May 15 through
October 7, 1999. Each purchaser represented to the Registrant that the purchaser
was a "Non-U.S. Person". The Registrant did not engage in distribution of this
offering in the United States. Each purchaser represented their intention to
acquire the securities for investment only and not with a view to their
distribution. The Registrant made a determination that each of the purchasers
was a sophisticated purchaser. Appropriate legends were affixed to the stock
certificates issued in accordance with Regulation S. All purchasers had adequate
access to sufficient information about the Registrant to make an informed
investment decision. None of the securities were sold through an underwriter and
accordingly, there were no underwriting discounts or commissions involved.
27
<PAGE>
The Registrant completed the issue of 35,000 common shares to a total of three
(3) purchasers pursuant to Regulation D of the Act on November 8, 1999. An
additional 5,000 shares were issued to one purchaser on December 1, 1999. Each
purchaser represented to the Registrant that the purchaser was an "accredited
investor". Each purchaser represented their intention to acquire the securities
for investment only and not with a view to their distribution. Appropriate
legends were affixed to the stock certificates issued in accordance with
Regulation D. All purchasers had adequate access to sufficient information about
the Registrant to make an informed investment decision. None of the securities
were sold through an underwriter and accordingly, there were no underwriting
discounts or commissions involved.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K
during the quarter ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 28, 2000 By: /s/ Brian Kathler
-------------------------------
President
(Principal Executive Officer and
Principal Accounting Officer)
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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