UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
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Commission File Number: 000-28675
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Tribeworks, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-3370795
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) (I.R.S. Identification No.)
988 Market Street, San Francisco, CA 94102
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(Address of principal executive offices) (Zip Code)
(415) 674-5555
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
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The number of shares outstanding of registrant's $0.0001 par value common
stock, as of the close of business on September 30, 2000: 16,740,286 shares.
Transitional Small Business Disclosure Format: Yes X No
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TRIBEWORKS, INC.
THIRD QUARTER 2000 REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
--------------------------------
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
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<TABLE>
<CAPTION>
TRIBEWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Sept. 30 2000 Dec. 31, 1999
Unaudited Audited
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 14,071 $ 157,353
Accounts receivable, net 79,310 31,240
Prepaids and deposits 90,316 21,514
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Total current assets $ 183,697 $ 210,107
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Equipment (net of accumulated depreciation of
$8,765 at September 30, 2000 and $1,228 at
December 31, 1999) $ 72,535 $ 14,140
Technology license (net of accumulated amorti-
zation of $39,723 at September 30, 2000 and
$7,223 at December 31, 1999) 90,277 122,777
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Total Assets $ 346,509 $ 347,024
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 114,686 $ 211,631
Accrued other liabilities 56,326 30,160
Due to shareholders 6,232 18,732
Deferred revenue 110,891 97,983
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Total current liabilities $ 288,135 $ 358,506
Obligation to issue common stock - 40,000
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Total liabilities $ 288,135 $ 398,506
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Stockholders' (deficit) equity:
Preferred stock: 50,000,000 shares authorized,
none issued
Common stock: 200,000,000 shares authorized,
$0.0001 par 16,740,286 and 16,010,000 shares
issued and outstanding $ 1,674 $ 1,601
Additional paid in capital 2,472,647 1,103,801
Related party subscription receivable - (5,257)
Accumulated deficit (2,415,947) (1,151,627)
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Total stockholders' equity (deficit) 58,374 (51,482)
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Total liabilities and stockholders' equity $ 346,509 $ 347,024
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See the accompanying notes
</TABLE>
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<TABLE>
<CAPTION>
TRIBEWORKS, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
3 months ended Sept. 30 9 months ended Sept. 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue $ 163,428 $ 51,879 $ 567,468 $ 103,516
Cost of sales 27,657 20,732 64,312 30,765
-------- ----------- ----------- -----------
Gross profit 135,771 31,147 503,156 72,751
Operating expenses:
Product support 36,809 19,817 74,909 48,505
Product development 168,254 84,165 418,504 202,522
Sales and marketing 171,524 101,225 541,250 175,626
General and administrative 307,164 185,852 734,505 331,360
--------- ----------- ----------- -----------
Total operating expenses 683,751 391,059 1,769,168 758,013
--------- ----------- ----------- -----------
Loss from operations (547,980) (359,912) (1,266,012) (685,262)
Interest income 900 - 5,136 -
--------- ----------- ----------- -----------
Loss before income taxes (547,080) (359,912) (1,260,876) (685,262)
Income taxes 2,553 - 3,443 -
--------- ----------- ----------- -----------
Net loss $(549,633) $ (359,912) $(1,264,319) $ (685,262)
========= =========== =========== ===========
Basic and diluted loss per
common share $ (0.03) $ (0.03) $ (0.08) $ (0.05)
Weighted average number of
common shares outstanding 16,652,343 12,863,964 16,398,268 12,863,964
See the accompanying notes
</TABLE>
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<TABLE>
<CAPTION>
TRIBEWORKS, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIED
Cash flows from operating activities
Net loss from operations $ (1,264,320) $ (685,262)
Adjustments to reconcile net loss to net
cash used in operating activities - -
Depreciation and amortization expense 40,037 1,378
Changes in operating assets and liabilities - -
Accounts receivable (48,070) (14,656)
Other receivables, prepaids and deposits (68,802) 12,006
Accounts payable (96,944) 90,566
Deferred revenue 12,908 61,798
Other liabilities 13,645 -
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Net cash used in operating activities (1,411,546) (534,170)
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INVESTING ACTIVITIES
Purchase equipment (65,921) (6,907)
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Net cash used by investing activities (65,921) (6,907)
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FINANCING ACTIVITIES
Proceeds from sale of common shares 1,334,185 -
Proceeds from note payable - 559,768
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Net cash provided by financing activities 1,334,185 559,768
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Net decrease in cash and cash equivalents (143,282) 18,691
Cash and cash equivalents, beginning of period 157,353 37,723
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Cash and cash equivalents, end of period 14,071 56,414
============= =============
Taxes paid during period 3,443 -
Interest paid during period - -
See the accompanying notes
</TABLE>
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TRIBEWORKS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND DEVELOPMENT STAGE RISKS
ORGANIZATION On August 20, 1998 ("Inception") Tribeworks, Inc. (the "Company")
began its business activities. The Company's principal business activities are
developing multimedia software applications for businesses and marketing a
technology known as "iShell." This technology was acquired from two of the
Company's cofounders. Business activities have been financed primarily through
the issuance of equity securities for cash, sales of membership subscriptions,
custom development services and product sales.
On November 2, 1999, Tribeworks Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Pan World Corporation (PWC), a Nevada corporation,
merged with and into Tribeworks, Inc., a California corporation (California
Tribeworks). Subsequent to the merger, California Tribeworks renamed itself
Tribeworks Development Corporation (Tribeworks Development) and PWC, the sole
shareholder of Tribeworks Development, reincorporated as Tribeworks, Inc., a
Delaware corporation. These transactions hereinafter are referred to as the
"Recapitalization". PWC had no significant assets, liabilities or operations
from the date of its incorporation in Nevada on August 20, 1996 through November
2, 1999, and the majority shareholders of California Tribeworks became the
majority shareholders of PWC. Therefore, the Recapitalization was a reverse
acquisition that is being accounted for as a recapitalization.
Unless the context otherwise indicates, "Tribeworks" or "Company" refers to
California Tribeworks prior to the Recapitalization and to Tribeworks, Inc., a
Delaware corporation, after the Recapitalization.
The Company is subject to a number of risks similar to other companies in a
comparable stage of development including reliance on key personnel, successful
marketing of its services in an emerging market, competition from other
companies with greater technical, financial management and marketing resources,
successful development and enhancement of new services and products, and the
ability to secure adequate financing to support future growth.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNUADITED FINANCIAL INFORMATION The interim consolidated statements are
unaudited. However, in the opinion of management, the interim data includes all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair statement of the results for the interim periods. The financial
statements included herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures included herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the annual financial statements and notes thereto included
in the Company's Form 10-SB/A filed with the SEC on July 10, 2000.
FINANCIAL STATEMENT PRESENTATION For periods prior to the Recapitalization, the
financial statements reflect California Tribeworks financial position, results
of operations and cash flows. For periods subsequent to the Recapitalization,
the financial statements of the Company are presented on a consolidated basis
and include the Company and its only subsidiary, Tribeworks Development. The
Company's operations are conducted through Tribeworks Development. There was no
inter-company activity during the periods presented.
Certain prior period balances have been reclassified to conform to the current
period presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
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TRIBEWORKS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CHANGE IN ACCOUNTING METHOD Beginning April 1, 2000, the Company adopted the
percentage-of-completion method of accounting for recognizing revenue with
respect to custom development services. Revenue is recognized based on the
number of hours worked on projects and estimates of the total number of hours
that will be worked on projects. We believe that this method of accounting is
preferable to the milestone based method of accounting that had been used prior
to April 1, 2000. Under the milestone based method of accounting, revenue is
recognized as each milestone for the development service is completed. This
change in accounting method is not material to prior periods. Therefore, prior
period financial statements have not been restated.
The company did not change its method of accounting for sales of membership
subscriptions or product sales.
NET LOSS PER COMMON SHARE Net loss per common share is computed based on the
weighted average number of common stock and common stock equivalents
outstanding. When dilutive, stock options and warrants are included as common
stock equivalents using the treasury stock method. There was no difference
between basic and fully diluted earnings per share in each of the periods
presented.
As of September 30, 2000, the Company had 1,048,030 and 978,668 outstanding
warrants and options, respectively, which were excluded from the diluted net
loss per share calculation because their effects would be antidilutive.
INCOME TAXES Deferred tax assets primarily consist of a net operating loss (NOL)
carryforward since the Company has not generated taxable income since inception.
There are no significant deferred tax liabilities. Due to the uncertainties
concerning the future ability of the Company to benefit from the net operating
loss carryforward, a valuation allowance was established which reduced the
deferred tax assets to zero. There may be restrictions related to tax laws,
which may further limit the value of any deferred tax asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include
cash, receivables, and accounts payable. The Company believes that the fair
value of these financial instruments approximates their carrying amounts based
on current market indicators, such as prevailing market rates.
RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the staff of the Securities
and Exchange Commission (SEC) released Staff Accounting Bulletin, or SAB, No.
101, "Revenue Recognition", to provide guidance on the recognition,
presentation, and disclosure of revenues in financial statements. In March 2000,
the SEC staff announced that the adoption date for SAB No. 101 would be delayed
until the second quarter of 2000. We believe that our revenue recognition
practices are currently in conformity with the guidelines in SAB No. 101 and
therefore, this announcement will have no impact on our financial statements.
In March 2000, the Financial Accounting Standards Board, or FASB, released FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25," which provides
clarification of Opinion 25 for certain issues such as the determination of who
is an employee, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. Starting July
1, 2000, this guidance will have an impact on our treatment of consultants as
employees, which may result in the Company recording non-cash compensation
expense for non-employees that are granted stock options.
In March 2000, the Emerging Issues Task Force of the FASB, or EITF, issued EITF
00-2, "Accounting for the Costs of Developing a Website." This issue addresses
how an entity should account for costs incurred to develop a website. To date,
we have not capitalized any such costs and believe that our historical and
current practices are in conformity with EITF 00-2 and therefore, this release
will not have a material impact on our financial statements.
In March 2000, the EITF issued EITF 00-3, Application of AICPA SOP 97-2 to
"Arrangements that Include the Right to Use Software Stored on Another Entity's
Hardware." This issue addresses situations where entities license software
applications to a third party and also host those applications. To date we have
not recognized revenues
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TRIBEWORKS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
from applications that are subject to EITF 00-3 and therefore, this release will
not have a material impact on our financial statements.
NOTE 3 MATERIAL CUSTOMER RELATIONSHIPS
During the three and nine months ended September 30, 2000, we reported revenue
of $89,910 and $286,951, respectively, from three customers. These customers
represent 55% and 57% of revenues for the three and nine months ended September
30, 2000, respectively. The revenue recognized from these customers is not
recurring in nature and there are no assurances that these customers, or others
like them, will engage us to provide custom development solutions in the future.
NOTE 4 RELATED PARTY TRANSACTIONS
During the period ended December 31, 1998, certain officers of the Company
loaned $18,732 to the Company to finance some of its start-up costs. The loan is
non-interest bearing and payable on demand. As of September 30, 2000, $6,232
remained unpaid.
NOTE 5 SUBSEQUENT EVENTS
During March and April 2000, the Company executed subscription agreements for
1,000,000 units of securities consisting of one share of common stock and one
warrant to purchase one share of common stock at a price of $2.50 per share for
an aggregate purchase price of $2,000,000 in a private placement of securities.
Each warrant is exercisable within the seven month period following the
subscription date of the unit. At September 30, 2000, $1,390,000 had been
collected by the Company under this offering. An additional $50,000 was
collected subsequently. As of November 8, 2000, $560,000 remains to be
collected. It now appears unlikely that the remainder of the subscribed amounts
will be forthcoming. It is also unlikely that the investors holding warrants
under this offering will exercise them. These securities were offered and sold
pursuant to our exemption from registration under Rule 506, Regulation D of the
Securities Act
During August 2000, the Company changed its pricing model with respect to
membership services. Prior to the change, the Company had two membership
classifications: Free Membership and Silver and Gold Membership. Full Membership
generally cost $2,000 for the first year of membership and $1,000 for subsequent
annual renewals. Under the new plan, Full Membership is being replaced by two
membership groups: Silver Membership and Gold Membership. Silver Membership is
priced less than Full Membership and does not benefit from the same high level
of service previously provided for Full Members. Gold Membership is priced above
Full Membership but will offer a broader range of services and a higher level of
support. After the change, renewing Full Members will have the opportunity to
purchase Gold Memberships for the Full Member renewal price.
The Company also clarified that, when released, iShell 2.0 software will be
downloadable free of charge but that, at a minimum, a Silver Membership must be
purchased if the iShell 2.0 software is to be used for commercial purposes.
The Company has added a new Director, William Woodward, to its Board of
Directors. He will receive the following compensation for service on the Board
of Directors: 700,000 shares of Tribeworks restricted common stock at no cost,
vesting over a period of two years, warrants to purchase up to 125,000 shares of
common stock at $1.75 per share. The warrants are subject to Mr. Woodward's
investment in the next round of financing presently being planned. Mr. Woodward
is being engaged to address the issue of raising additional funds.
The Company received and accepted the resignation of Michael Arth, Vice
President of Finance and Operations in October 2000. The Company is currently
interviewing candidates for his replacement. On a temporary basis Steven Bennet,
an advisory board member and former acting CFO, has returned to those duties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following discussion contains forward-looking statements that are subject to
risks and uncertainties. There are several important factors that could cause
actual results to differ materially from historical results and percentages and
results anticipated by the forward-looking statements. We have sought to
identify the most risks to our business but cannot predict whether or to what
extent any of such risks may be realized. There can be no assurance that we have
identified all possible risks that might arise. Investors should carefully
consider all of such risks before making an investment decision with respect to
the Company's stock.
OVERVIEW
We develop and distribute software tools and services that we believe make it
easier and less expensive for companies to deploy multimedia content over the
Internet.
The creation and deployment of websites and Internet content is becoming more
complicated. Internet content is changing from the simple delivery of text and
graphics to personal computers, to the more complex delivery of audio, video,
graphics, and animation content to a broad range of devices, such as personal
computers, interactive retail displays, Internet enabled telephones, and hand
held computers.
Traditional graphics and multimedia companies distribute and sell their software
through multiple distribution tiers and packages. In addition, traditional
graphics and multimedia software tools companies generally do not provide their
customers with access to the underlying "source code", which is the computer
language used in writing a software program. The source code is used to
customize or modify software applications.
We have developed iShell, and iShell 2.0, which are software
applications (authoring environment) that allow a developer to create and
deploy electronic content that utilizes interactive features combining audio,
video, animation, and graphics content (Rich-Media). The Rich-Media authoring
environment is used for development of electronic content for the development of
Internet TV and Internet radio stations, Internet connected kiosks, and long
distance learning applications.
We market and sell our products and services through a subscription-based
membership model that allows us to distribute our software directly to our
customers through our website. During August 2000, the Company changed its
pricing model with respect to membership services. Prior to the change, the
Company had two membership classifications: Free Membership and Full Membership.
Full Membership generally cost $2,000 for the first year of membership and
$1,000 for subsequent annual renewals. Under the new plan, Full Membership is
being replaced by two membership groups: Silver Membership and Gold Membership.
Silver Membership is priced less than Full Membership and does not benefit from
the same high level of service previously provided for Full Members. Gold
Membership is priced above Full Membership but will benefit from a higher level
of service. Renewing Full Members will have the opportunity to purchase Gold
Memberships for the Full Member renewal price.
In addition to changing the pricing structure for membership services, the
Company clarified that iShell 2.0 software will be downloadable free of charge
but that, at a minimum, a Silver Membership must be purchased if the iShell 2.0
software is to be used for commercial purposes.
As well as generating revenues from membership sales, we provide custom
development solutions for large customers.
We have sustained losses on a quarterly and annual basis since inception and we
expect to sustain losses for the foreseeable future as we expand our operations.
As of September 30, 2000, we had an accumulated deficit of $2,415,947. Operating
losses resulted primarily from costs incurred in the development and sale of our
products and services. We expect our operating expenses to continue to increase
in all functional areas in order to execute our business plan. As a result, we
anticipate that these operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. We expect to
incur additional losses and continued negative cash flow from operations in the
future. We cannot assure you that we will achieve or sustain profitability.
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Our limited operating history makes the prediction of future operating results
difficult. In view of our limited operating history and the early and rapidly
evolving nature of our business, we believe that period-to-period comparisons of
our operating results, particularly for the three-month periods ended September
30, 2000 and 1999, are not meaningful and should not be relied upon as an
indication of future performance. Our business prospects must be considered in
light of the risks and uncertainties often encountered by early-stage companies
in the Internet-related products and services market. We may not be successful
in addressing these risks and uncertainties. We have experienced significant
percentage growth in revenues in recent periods; however, there are no
assurances that prior growth rates are sustainable or indicative of future
growth rates. It is likely that in some future quarter our operating results may
fall below the expectations of securities analysts and investors. In this event,
the trading price of our common stock may fall significantly.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES
We recorded revenues of $163,428 and $51,879 for the three months ended
September 30, 2000 and 1999, respectively. The 215% increase in revenues is
primarily the result of custom development services provided during the third
quarter of 2000 that were not offered during the third quarter of 1999.
Additionally, we increased the number of paying Members.
Revenues for the three months ended September 30, 2000 include $89,910, or 55%
of total revenues, from three customers. The revenue recognized from these
customers is not recurring in nature and there are no assurances that these
customers, or others like them, will engage us to provide custom development
solutions in the future.
COST OF SALES
Cost of sales increased to $27,657 from $20,732 for the three months ended
September 30, 2000 and 1999, respectively.
OPERATING EXPENSES
Operating expenses increased 75% from $391,059 to $683,751 for the three
months ended September 30, 1999 and 2000, respectively. This increase is
attributable to product development, sales and marketing, and general and
administrative expenses.
PRODUCT DEVELOPMENT Product development expenses were $171,524 and $84,165 for
the three months ended September 30, 2000 and 1999, respectively. The increase
is primarily attributable to the additional employees and consultants that were
hired after September 30, 1999 to work on enhancements for our software product,
iShell 2. Product development expense also includes amortization expense
associated with the November 1999 purchase of the iShell license for $130,000.
The license is being amortized over a 36 month period, resulting in $10,833 in
amortization for the quarter ended September 30, 2000.
SALES AND MARKETING Sales and marketing expenses were $171,524 and $101,225 for
the three months ended September 30, 2000 and 1999, respectively. The increase
of 69% was due primarily to the hiring of additional sales and marketing
personnel as well as an increase in expenditures for advertising and attending
trade shows.
GENERAL AND ADMINISTRATIVE General and administrative expenses were $307,164 and
$185,852 for the three months ended September 30, 2000 and 1999, respectively.
The increase was due primarily to increases in personnel and establishing a
presence in New York City and Tokyo. We have secured office space in New York on
a month to month basis. In Tokyo, through a subsidiary, we provide development
and support services for one of our present customers as well as developing new
business opportunities.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
We recorded revenues of $567,468 and $103,516 for the nine months ended
September 30, 2000 and 1999, respectively. The 548% increase in revenues is
primarily the result of custom development services provided during the first
half of 2000 that were not offered during the comparable period in 1999.
Additionally, we increased the number of paying Full Members.
Revenues for the nine months ended September 30, 2000 include $286,851, or 57%,
from three customers. The revenue recognized from these customers is not
recurring in nature and there are no assurances that these customers, or others
like them, will engage us to provide custom development solutions in the future.
COST OF SALES
Cost of sales increased to $64,312 from $30,765 for the nine months ended
September 30, 2000 and 1999, respectively. This increase is primarily due to
fixed authoring fees and royalties paid to the author of an iShell instruction
manual and costs related to the increased volume of sales.
OPERATING EXPENSES
Operating expenses increased 233% from $758,013 to $1,769,168 for the nine
months ended September 30, 1999 and 2000, respectively. This increase is
primarily attributable to product development, sales and marketing, and general
and administrative expenses.
PRODUCT DEVELOPMENT Product development expenses were $418,504 and $202,522 for
the nine months ended September 30, 2000 and 1999, respectively. The increase is
primarily attributable to additional employees and consultants that were hired
after September 30, 1999 to work on product enhancements. Product development
expense also includes amortization expense associated with the November 1999
purchase of the iShell license for $130,000. The license is being amortized over
a 36 month period, resulting in $32,500 in amortization for the nine months
ended September 30, 2000.
SALES AND MARKETING Sales and marketing expenses were $541,250 and $175,626 for
the nine months ended September 30, 2000 and 1999, respectively. The increase
was due primarily to the hiring of additional sales and marketing personnel as
well as an increase in expenditures for advertising, promotions, and attending
trade shows.
GENERAL AND ADMINISTRATIVE General and administrative expenses were $734,505 and
$331,360 for the nine months ended September 30, 2000 and 1999, respectively.
The increase was due primarily to increases in personnel and related hiring
costs, legal and accounting expenses associated with SEC filings, insurance
expense, costs associated with relocating our office, and costs associated with
establishing a presence in New York City and Tokyo.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of $14,071
compared to $157,353 at December 31, 1999.
The Company's capital requirements have been, and will continue to be,
significant. Since inception, the Company has financed its operations primarily
through issuance of stock. Through September 30, 2000, the Company had raised
$2,472,656 from the sale of stock, not including subscriptions receivable. At
September 30, 2000, the principal source of liquidity for the Company was
$14,071 of cash and cash equivalents. The Company received an additional amount
of cash ($50,000) from the sale of stock after the end of the quarter and seeks
further financing to address short-term cash requirements.
For the nine months ended September 30, 2000 and 1999, cash used in operating
activities was $1,411,546 and $534,170 respectively. The increase was due
primarily to the increased cost of building the Company's business.
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Cash used in investing activities for the nine months ended September 30, 2000
and 1999 was $65,921 and $6,907, respectively. All expenditures were for
equipment purchases.
Cash provided by financing activities for the nine months ended September 30,
2000 and 1999 was $1,334,185 and $559,768, respectively. Cash inflow during the
first nine months of 2000 is from sales of our stock and employees/consultants
exercising stock options. Cash inflow during the comparable period in 1999 was
from a note payable.
Our capital requirements depend on numerous factors, including market acceptance
of our products, resources we devote to developing, marketing, selling and
supporting our products, timing of our operations, extent and timing of
investments, potential acquisition of other concerns, and other factors. We
expect to devote substantial capital resources to hire and expand our sales,
support, marketing and product development organizations, to expand marketing
programs, and for other general corporate activities.
During the first half of 2000,in a private placement of securities, the Company
received subscriptions to sell 1,000,000 units of securities consisting of one
share of common stock and one warrant to purchase one share of common stock at a
price of $2.50 per share for an aggregate purchase price of $2,000,000. Each
warrant is to be exercisable within the seven month period following the date of
subscription of the unit. As of September 30, 2000 and November 13, 2000,
$1,390,000 and $1,440,000 had been raised for the Company under this offering,
respectively. As of November 13, 2000, $560,000 remains to be collected under
this offering. As of the date of this filing, it now appears unlikely that the
remainder of the subscribed amounts will be forthcoming.
720,000 warrants were issued as part of the offering. These warrants will expire
at or before the end of November 2000 and it is unlikely that investors holding
these warrants will exercise them.
We do not expect to generate net earnings from our operations within the next
twelve months. Therefore, if we are not able to obtain necessary financing, we
will not be able to maintain operations. The Company received an additional
amount of cash ($50,000) from the sale of stock after the end of the quarter and
seeks further financing to address short-term cash requirements.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
AND MARKET PRICE OF STOCK
WE HAVE A LIMITED OPERATING HISTORY AND THERE IS A GREAT DEGREE OF UNCERTAINTY
AS TO OUR FUTURE RESULTS. WE HAVE NEVER BEEN PROFITABLE AND MAY NEVER ACHIEVE
PROFITABILITY.
We have a limited operating history upon which an evaluation of our business and
prospects can be based. We have never been profitable and may never achieve
profitability. Our prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development, particularly in light
of the uncertainties relating to the new and evolving markets in which we intend
to operate and in light of the uncertainty as to market acceptance of our
business model. We will be incurring costs in marketing our products and
services to clients and in building an administrative organization. To the
extent that revenues do not match these expenses, our business, results of
operations and financial conditions will be materially adversely affected. There
can be no assurance that we will be able to generate sufficient revenues from
the Silver and Gold Memberships, custom development solutions, and third party
products to achieve or maintain profitability on a quarterly or annual basis in
the future. Even if we are able to achieve profitability in any period, we may
not be able to sustain or increase profitability on a quarterly or annual basis.
WE EXPECT TO INCUR OPERATING LOSSES FOR THE FORESEEABLE FUTURE AS WE CONTINUE TO
DEVELOP AND MARKET OUR BUSINESS.
We have incurred operating losses each year since our inception. We expect to
continue to incur losses for the foreseeable future as we increase our sales and
marketing, research and development and administrative expenses. As a result, we
cannot be certain when or if we will achieve sustained profitability. Failure to
become and remain profitable may adversely affect the market price of our common
stock and our ability to raise capital and continue operations.
We expect high variability and uncertainty as to our future operations and
financial results. As we continue to develop and market our business, our
quarterly operating results may fluctuate as a result of a variety of factors.
Many of these factors are outside our control, including demand for the
development of Internet-based Rich-Media applications, the introduction of new
sites and services by our competitors, price competition or pricing changes in
the industry, technical difficulties or system downtime, general economic
conditions, and economic conditions specific to the Internet and related media.
Due to these factors, among others, our operating results may fall below our
expectations and the expectations of investors.
WE ANTICIPATE THAT WE DO NOT HAVE SUFFICIENT FUNDS TO ENABLE US TO MAINTAIN OUR
OPERATIONS FOR THE NEXT TWELVE MONTHS. WE WILL NEED ADDITIONAL FUNDS TO MAINTAIN
OUR SHORT TERM OPERATIONS. WE CANNOT ASSURE YOU THAT FUNDS WILL BE AVAILABLE TO
US OR AVAILABLE ON COMMERCIALLY REASONABLE TERMS.
Based on current levels of operations, we anticipate that our existing capital
resources will not be sufficient to enable us to maintain our operations through
the next twelve months. In addition, we will require additional funds to sustain
and expand our sales and marketing and research and development activities.
Adequate funds for these and other purposes, whether through additional equity
financing, debt financing or other sources, may not be available when needed or
available on commercially reasonable terms acceptable to us, or may result in
dilution to existing stockholders. The inability to obtain sufficient funds from
operations and external sources would have a material adverse effect on our
business, results of operations and financial condition.
A SUBSTANTIAL PORTION OF OUR REVENUES DEPENDS ON OUR ABILITY TO ATTRACT SILVER
AND GOLD MEMBERS WHO WILL PAY A MONTHLY OR ANNUAL FEE. ATTRACTING FEE-GENERATING
SILVER AND GOLD MEMBERS OR CONVERTING OUR FREE MEMBERS TO SILVER AND GOLD
MEMBERS MAY BE A DIFFICULT AND TIME-CONSUMING PROCESS, THE SUCCESS OF WHICH
CANNOT BE GUARANTEED.
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We have a two-tiered subscription structure. Only Silver and Gold Members pay
fees. The Free Members are not paying for their usage of our service and are not
obligated to convert to Silver and Gold Member status. We cannot assure that we
will be able to attract sufficient numbers of Silver and Gold Members or convert
Free Members to achieve profitability. If we are unable to attract Silver and
Gold Members or convert Free Members, our business and financial operations
could be materially adversely affected.
OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED BY THE INDUSTRIES THAT USE
RICH-MEDIA APPLICATIONS.
Our future success depends on our ability to create, license, and deliver
sophisticated tools for the development of Rich-Media applications in the (i)
media and entertainment industries, (ii) advertising industry, (iii) corporate
communications industry, and (iv) educational industry. If our products and
related services are not widely accepted, our ability to sell custom solutions
and increase the Tribeworks memberships will be hampered. There can be no
assurance that our products and tools will be attractive to a sufficient number
of users to generate revenues. If we are unable to evolve our present products
and to develop new products that allow us to attract, retain, and expand a loyal
membership base, our business, results of operations and financial condition
will be materially adversely affected.
THE RICH-MEDIA MARKET IS INTENSELY COMPETITIVE. WE CANNOT ASSURE YOU THAT WE
WILL BE ABLE TO ACHIEVE MARKET ACCEPTANCE.
The Rich-Media market is intensely competitive. We expect the competition to
increase as new competitors enter the market. Our competitors may have greater
technical, marketing, and other resources. We believe that the primary
competitive factors in providing Rich-Media application services and tools to
Internet-based organizations are name recognition, value-added services, ease of
use, price, quality of service, availability of customer support, reliability,
technical expertise, and experience. To the extent that we are not able to
attract sources of revenues from Silver and Gold Members, custom development
services, and sales of our products, our business, results of operations, and
financial condition will be materially adversely affected.
A number of companies currently offer services or products that compete directly
or indirectly with our current products and service offerings. These companies
include Macromedia, Adobe Systems, Meta Creations, Asymetrix, and Autodesk.
These companies market a variety of products addressing our target markets,
including software tools for authoring and delivering interactive information
targeted to computer-based training specialists and educators, as well as
multimedia professionals. They also offer graphics and publishing products for
on-line and print-based publishing. In addition, competitors also provide
extensive product training to support their products. If we are unable to
introduce competitive products with competitive training and consulting
services, our business, results of operations, and financial condition will be
materially adversely affected.
Most of our current and potential competitors in the Internet services and
graphics and multimedia industries have longer operating histories, greater name
recognition and larger existing customer base than us. These competitors may be
able to respond faster to new or emerging technologies and changes in customer
requirements. Because of their greater resources, they will be able to make more
responsive changes to market conditions. Accordingly, there can be no assurance
that we will be able to compete successfully in the Internet business.
THE OPEN SOURCE AND FREE SOFTWARE BUSINESS MODELS ARE UNPROVEN IN THE GRAPHICS
AND MULTIMEDIA INDUSTRY, AND WE MAY FAIL TO ACHIEVE MARKET ACCEPTANCE.
We have not demonstrated the success of our business model, which gives our
customers the right to freely use and modify our software. No other company has
built a successful business following such a model, and few open source software
products have gained widespread commercial acceptance. This is partly due to the
lack of viable open source industry participants to offer adequate service and
support on a long-term basis. In addition, we are not able to provide industry
standard warranties and indemnities for our products. Independent parties over
whom we exercise no control or supervision develop components of these products.
If open source software should fail to gain widespread commercial acceptance, we
will not be able to sustain our revenue growth and our business could fail. We
cannot assure that we will be able to achieve market acceptance.
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THE LINUX OPEN SOURCE COMMUNITY OR THE TRIBEWORKS DEVELOPER COMMUNITY MAY REACT
NEGATIVELY TO OUR SOFTWARE AND BUSINESS STRATEGY, WHICH COULD MATERIALLY HARM
OUR REPUTATION AND BUSINESS.
Although we allow customers access to the underlying source code of our software
products, we believe that many of our customers do not wish to license product
enhancements to us or to potential customers. One of the most important
characteristics of Linux is that it has developed an open source system. We do
not follow a strict open source model with respect to our software. In
particular, we allow proprietary product enhancement, we limit the
redistribution of our software, and we do not make our products available under
a General Public License, which is available on www.opensource.org. These
restrictions on our software run counter to current trends in the Linux open
source community, which advocates unlimited distribution of software and the use
of General Public Licenses. The Linux open source community is a diverse group
of software developers, and companies that have advocated the use of Linux, an
alternative operating system to Microsoft's Windows.
The approach we take towards our software, which allows proprietary product
enhancements, and our decision to forego use of General Public Licenses may
result in a negative reaction from the Linux-based open source community. This
type of negative reaction, if widely shared by our customers, developers or the
rest of the open source community, could harm our reputation, diminish the
Tribeworks brand and result in substantially decreased revenue.
In addition, the Tribeworks developer community, which contributes software,
testing, and technical support to other members, could react negatively to our
current or future business strategy. A negative reaction by our community could
have a negative effect on the willingness of our members and contributors to
share their improvements to our software. We would then have to develop our own
improvements without the benefit of the potentially valuable contributions of
third parties. As a result, we would incur higher development costs and our
business and revenues could be adversely affected.
OUR SOFTWARE DEPENDS ON APPLE'S QUICKTIME TECHNOLOGY TO FUNCTION PROPERLY. WE
CANNOT ASSURE YOU THAT APPLE WILL CONTINUE TO DEVELOP THE QUICKTIME TECHNOLOGY
OR DISTRIBUTE IT FREE OF CHARGE.
Our iShell product line currently requires installation of Apple Computer's
QuickTime software in order to function properly on both Windows and Macintosh
systems. Apple's QuickTime technology competes directly with Rich-Media
technologies from Microsoft and Real Networks, which our technology does not
support. We have no control over whether, and cannot assure that, Apple's
QuickTime will maintain or enlarge its current market share against these
competitive technologies. In addition, although Apple's QuickTime technology has
been under development for more than eight years, we cannot assure that Apple
will continue to develop the technology or distribute it free of charge to
consumers. Apple may also substantially alter its business or licensing strategy
with QuickTime in a way that could adversely impact our business, resulting in
increases in our development costs.
WE CANNOT ASSURE YOU THAT THE MARKET WILL ACCEPT THE INTERNET AS A VEHICLE FOR
RICH-MEDIA APPLICATIONS.
Use of the Internet-based Rich-Media by individuals and business users is at an
early stage of development. Market acceptance of the Internet as a medium for
Rich-Media applications, information, entertainment, commerce, advertising, and
education is subject to a high level of uncertainty. We depend on the Internet
to market our Rich-Media products. Our ability to succeed will depend, in part,
in the development of Internet infrastructure to support delivery of Rich-Media
content. If Internet-based Rich-Media applications are not widely accepted by
consumers or businesses, or appropriate Internet infrastructure does not become
available, our business, financial condition, and operating results will be
materially adversely affected.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO ESTABLISH AND MAINTAIN THE
TRIBEWORKS BRAND, WHICH IS CRITICAL TO OUR EFFORTS TO ATTRACT AND EXPAND OUR
MARKET.
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We believe that establishing and maintaining the Tribeworks brand is a critical
aspect of our efforts to attract and expand our Internet audience. The
importance of brand recognition will increase due to the growing number of
Internet sites and the relatively low barriers to entry in providing Internet
services, tools, products, and content. If we fail to promote and maintain our
brand, or if we incur excessive expenses in an attempt to promote and maintain
our brand, our business, financial condition and operating results will be
materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ADDRESS POTENTIAL MARKET OPPORTUNITIES
WHILE MANAGING OUR EXPENSES. IF WE ARE UNABLE TO MANAGE OUR EXPENSES, OUR
BUSINESS AND FINANCIAL CONDITIONS WILL BE MATERIALLY ADVERSELY AFFECTED.
Our future success depends upon our ability to address market opportunities
while managing our expenses to match our ability to finance our operations. Our
need to manage expenses will place a strain on our management and operational
resources. If we are unable to manage our expenses effectively, our business,
financial condition, and operating results will be materially adversely
affected.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL AND THE CONSULTING SERVICES PROVIDED BY
KEEPSAKE. WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES AND MAY NOT
BE ABLE TO RETAIN THE SERVICES OF KEEPSAKE AFTER THE EXPIRATION OF THE KEEPSAKE
SOFTWARE AGREEMENT.
Our performance and success substantially depends on the services of Duncan
Kennedy, our President and CEO, as well as on our ability to recruit, retain and
motivate our other officers and key employees.
We do not currently have employment contracts with key officers or employees,
and they could terminate their relationship with us. Our success also depends on
our ability to attract and retain additional qualified employees in the San
Francisco Bay Area. Competition for qualified personnel in the San Francisco Bay
Area is intense and there are a limited number of persons with knowledge of and
experience in our field of business. There can be no assurance that we will be
able to attract and retain key personnel. The loss of one or more key employees
or of our key service providers could have a material adverse effect on the
Company.
In addition, Mr. Soquet (one of our co-founders and a director) performs
software development services for us through Keepsake, the Belgian entity owned
by him. Pursuant to the Keepsake Software Agreement, Keepsake agreed to provide
necessary services to us through November 2000. In the event that we are unable
to retain Mr. Soquet's services after termination of the Keepsake Software
Agreement, our business and financial condition could be materially and
adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP SERVICES THAT MEET OUR CUSTOMERS'
REQUIREMENTS. WE MAY NOT BE ABLE TO MEET THOSE REQUIREMENTS IF WE ARE UNABLE TO
KEEP PACE WITH TECHNOLOGY TRENDS AND THE EVOLVING RICH-MEDIA INDUSTRY STANDARDS.
Our success depends on our ability to develop and provide new services that meet
our customers' changing requirements. The Internet is characterized by rapidly
changing technology, evolving industry standards, changes in customer needs and
frequent new service and product innovations. Our future success will depend, in
part, on our ability to assess and effectively use unproven technologies and
unproven standards. We must evaluate and utilize technical standards developed
by industry committees. We must also evaluate and use proprietary multimedia
development software provided by companies such as Apple, Microsoft, and Real
Networks to continue to develop our technological expertise, enhance our current
services, develop new services that meet changing customer needs, and influence
and respond to merging industry standards and other technological changes on a
timely and cost-effective basis. If we fail to adequately assess or utilize
these standards or proprietary technologies at the appropriate time in the
market place, the competitive advantages of our products and services and our
business, financial condition, and operating results could be materially
adversely affected.
WE ARE ENTIRELY DEPENDENT ON THE INTERNET WHICH REMAINS AN UNCERTAIN MEDIUM FOR
COMMERCE.
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Use of the Internet by consumers is at an early stage of development, and market
acceptance of the Internet as a medium for commerce is subject to uncertainty.
Our future success will depend on our ability to increase revenues, which will
require the development and widespread acceptance of the Internet as a medium
for commerce. There can be no assurance that the Internet will be a successful
commercial channel. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network for delivery of content, or complementary services,
such as high-speed modems and security procedures for financial transactions.
The viability of the Internet may prove uncertain due to delays in the
development and adoption of new standards and protocols to handle increased
levels of Internet activity or due to increased government regulation. If use of
the Internet does not continue to grow, or if the necessary Internet
infrastructure or complementary services are not developed to effectively
support growth that may occur, our business, results of operations and financial
condition could be materially adversely affected.
INCREASING GOVERNMENTAL REGULATION ON ELECTRONIC COMMERCE AND LEGAL
UNCERTAINTIES COULD LIMIT OUR GROWTH.
The adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase our cost of doing business or otherwise harm
our business. Federal, state, local and foreign governments are considering a
number of legislative and regulatory proposals relating to Internet commerce. As
a result, a number of laws or regulations may be adopted regarding Internet user
privacy, security, taxation, pricing, quality of products and services, and
intellectual property ownership, which may also be applicable to us. How
existing laws will be applied to the Internet, in areas such as property
ownership, copyrights, trademarks, trade secrets, and obscene or indecent
communications, is uncertain.
CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS COULD SUBSTANTIALLY REDUCE THE
PRODUCTS WE SELL AND UNDERMINE OUR REPUTATION FOR RELIABILITY AMONG OUR
CUSTOMERS AND POTENTIAL CUSTOMERS.
The satisfactory performance, reliability and availability of our Internet sites
and our network infrastructure are critical to attracting Internet users and
maintaining relationships with subscribing customers. System interruptions that
result in the unavailability of our Internet sites and slower response times for
users could reduce the number of products and multi-media services we deliver
and reduce the attractiveness of our services to members and subscribers. Any
disruption of our services would materially adversely affect our business,
financial condition and results of operations.
OUR INTERNET OPERATIONS ARE LOCATED IN A SINGLE FACILITY, WHICH IS LOCATED IN
THE SAN FRANCISCO BAY AREA IN CALIFORNIA. A NATURAL DISASTER IS POSSIBLE AND
COULD RESULT IN PROLONGED INTERRUPTION OF OUR BUSINESS.
Our Internet operations are located in the San Francisco Bay Area. This area is
seismically active. With our operations centralized in a single facility, a
natural disaster, such as an earthquake, fire, or flood, could substantially
disrupt our manufacturing operations or destroy our facilities. This could cause
delays and cause us to incur additional expenses and adversely affect our
reputation with our customers. In addition, since the real estate market in the
San Francisco Bay Area is extremely competitive and is likely to remain
competitive, an alternative facility may not be available on commercially
reasonable terms if we suffer a catastrophic loss from a natural disaster.
WE ARE SUSCEPTIBLE TO PARTIES WHO MAY COMPROMISE OUR SECURITY MEASURES, WHICH
COULD CAUSE US TO EXPEND CAPITAL AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Hackers may be able to circumvent our security measures and could misappropriate
proprietary information or cause interruptions in our Internet operations. In
the past, computer viruses or software programs that disable or impair computers
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our users, which could
disrupt our network or make our systems inaccessible to users. Any of these
events could damage our reputation among our customers and potential customers
and substantially harm our business. We may be required to expend capital and
resources to protect against the threat of security breaches or to alleviate
problems caused by these breaches. Consumer concern over Internet security has
been, and
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could continue to be, a barrier to commercial activities requiring consumers to
send their credit card information over the Internet. Computer viruses,
break-ins, or other security problems could lead to misappropriation of
proprietary information and interruptions, delays or cessation in service to our
customers. Moreover, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet as a merchandising medium.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OR WE MAY INFRINGE
THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY RESULT IN LAWSUITS AND
PREVENT US FROM SELLING OUR PRODUCTS.
We rely on copyright and trade secret laws to protect our trademarks, content,
and proprietary technologies and information. However, there can be no assurance
that such laws will provide sufficient protection to us, other parties will not
develop technologies that are similar or superior to ours, or, given the
availability of our products' source-code, other parties will not copy or
otherwise obtain and use our content or technologies without authorization.
There are no pending lawsuits against us regarding infringement of any existing
patents or other intellectual property rights or any material notices that we
are infringing the intellectual property rights of others. However, there can be
no assurance that third parties will not assert infringement claims in the
future. If any claims are asserted and determined to be valid, there can be no
assurance that we will be able to obtain licenses of the intellectual property
rights in question or obtain licenses on commercially reasonable terms. Our
involvement in any patent dispute or other intellectual property dispute or
action to protect proprietary rights may have a material adverse effect on our
business, operating results, and financial condition. Adverse determinations in
any litigation may subject us to liabilities, require us to seek licenses from
third parties, and prevent us from marketing and selling our products. Any of
these situations can have a material adverse effect on our business, operating
results, and financial condition.
Effective trademark, copyright, and other intellectual property protection may
not be available in every country in which our technology is distributed or made
available through the Internet. There can be no assurance that our means of
protecting our proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar technology.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT CUSTOMERS FROM OUTSIDE THE
UNITED STATES. JURISDICTIONS OUTSIDE THE UNITED STATES MAY IMPOSE TAX AND
REGULATORY BURDENS ON OUR BUSINESS, WHICH COULD HAVE A MATERIAL ADVERSE AFFECT
ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.
Our future success will be affected by our ability to attract customers and
subscribe members from countries outside the United States. We believe that the
growth of the Internet in foreign countries will outpace growth of the Internet
in the United States in the next decade. Because our products advance
development of Rich-Media content, we expect to derive revenues from Canada,
Japan and Western Europe. Foreign countries could impose withholding taxes or
otherwise tax our foreign income, impose tariffs, embargoes or exchange
controls, or adopt other restrictions on foreign trade or restrictions relating
to use or access of or distribution of software through electronic means. The
laws of certain countries also do not protect our intellectual property rights
to the same extent as the laws of the United States. In addition, we are subject
to the United States export control regulations that may restrict our ability to
market and sell our products to certain countries outside of the United States.
Failure in successfully marketing our products in international markets could
have a material adverse effect on our business, operating results and financial
conditions.
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WE EXPECT QUARTERLY REVENUE AND OPERATING RESULTS TO VARY IN FUTURE PERIODS,
WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.
Our limited operating results have varied widely in the past, and we expect they
will continue to vary from quarter to quarter as we attempt to commercialize our
product. Our quarterly results may fluctuate for many reasons, including:
- limited operating history;
- dependence on Silver and Gold Membership fees to provide
future revenue; and
- lack of experience in commercializing products for e-commerce.
As a result of these fluctuations and uncertainties in our operating results, we
believe quarter-to-quarter or annual comparisons of our operating results are
not a good indication of our future performance. In addition, at some point in
the future, these fluctuations may likely cause us to perform below the
expectations of public market analysts or investors. If our results fall below
market expectations, the price of our common stock will be adversely affected.
OUR STOCK PRICE IS VOLATILE AND, AS A RESULT, YOU COULD LOSE SOME OR ALL OF YOUR
MONEY.
We believe that various factors may cause the market price of our common stock
to fluctuate, including announcements of:
- new products by us or our competitors;
- developments or disputes concerning intellectual property
proprietary rights;
- our failing to achieve our operational milestones; and
- changes in our financial conditions or securities analysts'
recommendations.
The stock markets, in general, and the shares of Internet companies, in
particular, have experienced extreme price fluctuations. These broad market and
industry fluctuations may cause the market price of our common stock to decline.
In addition, the low trading volume of our stock will accentuate price swings of
our stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide internet software and services. Our financial results could be
affected by factors such as changes in interest rates. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
services less competitive in foreign markets. We do not use derivative
instruments to hedge our risks. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since our investments are
in short-term instruments. Due to the nature of our short-term investments, we
anticipate no material market risk exposure. Therefore, no quantitative tabular
disclosures are presented.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
In a private placement offering in March and April 2000, the Company entered
into subscription agreements with seven accredited investors. Pursuant to the
subscription agreements, the Company sold 1,000,000 units of securities
consisting of one share of common stock and one warrant to purchase one share of
common stock at a price of $2.50 per share for an aggregate purchase price of
$2,000,000. Each warrant is exercisable within the seven month period following
the subscription date of the unit. As of September 30, 2000, $1,390,000 had been
collected by the Company under this offering. An additional $50,000 has
subsequently been collected. As of November 3, 2000, $540,000 remains to be
collected under this offering. The Company does not believe that these amounts
will be forthcoming. These securities were offered and sold pursuant to our
exemption from registration under Rule 506, Regulation D of the Securities Act.
The proceeds from the private placement are being used for working capital.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K
None
Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
2.1 Form of Agreement of Merger between Tribeworks, Inc., a
California corporation, and Tribeworks Acquisition corporation,
dated November 2, 1999 (Incorporated by reference to Exhibit 2.1
to the Registrant's Form 10-SB/A filed July 10, 2000).
3.1 Articles of Incorporation of Tribeworks, Inc., a Delaware
Corporation (Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-SB/A filed July 10, 2000).
3.2 Bylaws of Tribeworks, Inc., a Delaware Corporation (Incorporated
by reference to Exhibit 3.2 to the Registrant's Form 10-SB/A
filed July 10, 2000).
10.1 Software Agreement by and between Tribeworks, Inc., a California
corporation, Keepsake SPRL, and Gilbert Amar dated November 1999
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Form 10-SB/A filed July 10, 2000).
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Tribeworks, Inc.,
a Delaware corporation
Date: November 13, 2000 /s/ DUNCAN J. KENNEDY
---------------------------------------
Duncan J. Kennedy,
President and Chief Executive Officer
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