VIDAROO 10-Q 2010 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

OR

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

FOR THE TRANSITION FROM _______ TO ________.

COMMISSION FILE NUMBER 333-139991

VIDAROO CORPORATION  

(Exact Name of Registrant as Specified in its Charter)

Nevada	26-1358844
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7658 Municipal Dr., Orlando, FL	32819
(Address of principal executive offices)	(Zip code)

Issuer's telephone number: (321) 293-3360

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. Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨  No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  As of May 11, 2010, there were 64,908,232 outstanding shares of the Registrant's Common Stock, $.001 par value.

1

VIDAROO CORPORATION

MARCH 31, 2010 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	Page
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		14
Item 4T. Controls and Procedures		16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings		18
Item 1A. Risk Factors		18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3. Defaults Upon Senior Securities		18
Item 4. Submission of Matters to a Vote of Security Holders		18
Item 5. Other Information		18
Item 6. Exhibits		18
SIGNATURES		19

2

 VIDAROO CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2010  (Unaudited)			June 30, 2009
Assets
Current:
Cash and cash equivalents	$	59,389		$	401
Accounts Receivable		104,070			58,576
Other Current Assets		9,015			8,007
Deferred financing costs – current portion		84,440			61,878
Total Current Assets		256,914			128,862
Furniture and Equipment:
Computer equipment		86,930			84,432
Office furniture and fixtures		35,872			26,610
		122,802			111,042
Less Accumulated depreciation		(52,731	)		(36,372	)
Net Furniture and Equipment		70,071			74,670
Intangibles, Net:
Customer list		33,280			54,250
Website platform		33,861			135,434
Patent Pending		8,754			8,754
Intangible Assets, net of accumulated amortization		75,895			198,438
Other Assets – Deposits		14,651			16,202
Deferred financing costs, non-current portion		1,676			27,582
Total Assets	$	419,207		$	445,754
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts Payable	$	289,997		$	406,127
Accrued Salaries		99,915			234,613
Deferred revenue		17,281			28,600
Convertible Secured Promissory Notes		385,000			257,521
Promissory Notes and Notes payable-current portion		588,159			294,845
Total Current Liabilities		1,380,352			1,221,706
Convertible Secured Promissory Notes – noncurrent portion		205,000			-
Promissory Notes – non-current portion		314,500			109,678
Total Liabilities		1,899,852			1,331,384
Stockholders' (Deficit) Equity:
Common stock, $.001 par value; 100,000,000 shares authorized;
64,733,232 and 58,175,191  issued and outstanding at March 31, 2010 and June 30, 2009		64,733			58,175
Additional paid in capital		5,875,304			4,395,036
Accumulated Deficit		(7,688,160	)		(5,627,971	)
Total Stockholders’ Deficit of Vidaroo Corporation		(1,748,123	)		(1,174,760	)
Noncontrolling Interest		267,478			289,130
Total Stockholders’ Deficit		(1,480,645	)		(885,630	)
Total Liabilities and Stockholders’ Deficit	$	419,207		$	445,754

See accompanying notes to consolidated financial statements.

3

VIDAROO CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

	Quarter Ended			Quarter Ended			9 Months Ended			9 Months Ended
	3/31/10			3/31/09			3/31/10			3/31/09
REVENUES	$	413,272		$	61,022		$	1,044,036		$	958,895
Cost of Sales		(137,241	)		(30,078	)		(321,488	)		(414,260	)
Operating Margin		276,031			30,944			722,548			544,635
Operating Expenses
Selling, General and Administrative		376,129			924,731			1,372,146			1,821,837
Depreciation and Amortization		46,413			45,078			138,902			134,287
Stock based compensation		64,189			276,185			739,907			758,791
Total expenses		486,731			1,245,994			2,250,955			2,714,915
Loss from Operations		(210,700	)		(1,215,050	)		(1,528,407	)		(2,170,280	)
Interest expense		(107,580	)		(122,441	)		(553,434	)		(148,809	)
NET LOSS		(318,280	)		(1,337,491	)		(2,081,841	)		(2,319,089	)
Net Loss attributable to Noncontrolling Interest		693			30,720			21,652			42,421
NET LOSS TO COMMON SHAREHOLDERS  OF VIDAROO CORPORATION	$	(317,587	)	$	(1,306,771	)	$	(2,060,189	)	$	(2,276,668	)
BASIC AND DILUTED  NET LOSS PER COMMON SHARE	$	(0.01	)	$	(0.02	)	$	(0.03	)	$	(0.04	)
WEIGHTED AVERAGE SHARES  OUTSTANDING		64,144,417			55,809,365			61,124,217			54,340,733

See accompanying notes to consolidated financial statements.

4

VIDAROO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT/EQUITY

(UNAUDITED)

	Class A				Additional
	Common Stock				Paid-In		Accumulated			Noncontrolling
	Shares		Amount		Capital		Deficit			Interest			Total
Balance at June 30, 2009		58,175,191	$	58,175	$	4,395,036	$	(5,627,971	)	$	289,130		$	(885,630	)
Stock based compensation cost for Employees		2,301,665		2,302		821,756		-			-			824,058
Common stock issued for professional services		494,338		494		369,199		-			-			369,693
Net loss attributable to noncontrolling interest		-		-		-		-			(21,652	)		(21,652	)
Common stock issued for Options exercised		3,029,038		3,029		146,114		-			-			149,143
Common Stock issued in Private Placement		675,000		675		134,325								135,000
Common Stock issued for extension of debt maturity		58,000		58		8,874								8,932
Net loss		-		-		-		(2,060,189	)		-			(2,060,189	)
Balance at March 31, 2010		64,733,232	$	64,733	$	5,875,304	$	(7,688,160	)	$	267,478		$	(1,480,645	)

See accompanying notes to consolidated financial statements.

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VIDAROO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	9 Months Ended			9 Months Ended
	3/31/10			3/31/09
Cash Flows from Operating Activities:
Net loss	$	(2,060,189	)	$	(2,276,668	)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation		16,359			13,747
Amortization		122,543			120,540
Amortization of deferred financing costs		86,615			8,910
Accretion of interest expense		332,479			107,931
Accretion of Accrued Salaries		20,592			11,440
Common stock and warrants issued for services to
Nonemployees		334,154			299,012
Stock-based compensation		739,907			758,791
Noncontrolling interest in loss of subsidiary		(21,652	)		(42,421	)
Net changes in:
Due to related parties		-			11,728
Other current assets		(1,008)			(6,928)
Deposits		1,551			(16,152	)
Accrued Salaries		(14,945)			94,211
Accounts receivable		(45,494)			(12,894	)
Accounts payable and accrued expenses		(101,130)			145,433
Deferred revenue		(11,319)			25,333
Net Cash Used By Operating Activities		(601,537	)		(757,987	)
Cash Flows from Investing Activities:
Purchase of furniture and equipment		(11,760	)		(35,050	)
Net Cash Used By Investing Activities		(11,760	)		(35,050	)
Cash Flows from Financing Activities:
Proceeds from common stock issuance and option exercise		227,949			241,540
Proceeds from issuance of promissory notes and convertible secured promissory notes		538,000			600,000
Incurrence of deferred financing costs		(53,800	)		(30,500)
Repayments of notes payable		(39,864	)		(12,331)
Net Cash Provided By Financing Activities		672,285			798,709
Net Increase in Cash and Cash Equivalents		58,988			5,672
Cash and Cash Equivalents, Beginning		401			3,079
Cash and Cash Equivalents, Ending	$	59,389		$	8,751
Supplemental cash flow information:
Non-cash Operating activities
Issuance of common stock in exchange for forgiveness of accounts payable		15,000			123,548
Issuance of common stock in exchange for forgiveness of accrued payroll		140,345			84,656
Non-cash financing activities:
Deferred financing costs incurred		20,539			-
Issuance of common stock in exchange for extension of maturity date of indebtedness		8,932			-
Non-cash investing and financing activities:
Debt assumed in connection with purchase accounting related to Media Evolutions		-			88,836
Intangible assets acquired in connection with the purchase accounting related to Media Evolutions		-			79,870
Issuance of common stock in exchange for forgiveness of employee and related party indebtedness.		140,345			337,401
Other disclosures:
Interest Paid		99,171			26,383

                                                                                                                                              0;     

See accompanying notes to consolidated financial statements.

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NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Vidaroo Corporation (“Vidaroo” or the “Company”), formerly Gen2Media Corporation, and its consolidated subsidiaries, E360, LLC (E360) and Media Evolutions (MEV) is a video technology company providing an online video platform, creation of video content and advertising on its online video network.  Vidaroo engages audiences on digital platforms through its proprietary video distribution and syndication platform.  The presentation of media content is done through collaboration with channel partners, fee-based clients and licensees of our technology.  Through a combination of original and acquired programming, Vidaroo is focused on delivering content that appeals to key demographics attractive to advertisers and distributors on radio, printed news, cable television, satellite, m obile and digital media platforms, and consumer products.  Vidaroo supports its ability to create original programming through its professional production studio and its proprietary digital playback system.  Vidaroo’s content creation capabilities include in-house production of content, creation and support of video imagery for top line names in the entertainment business, and support of video production for traditional media.  Vidaroo also provides its software under licensing arrangements whereby Vidaroo receives a monthly subscription fee for use of its software.

Basis of Presentation

Unaudited Interim Financial Statements

The accompanying unaudited consolidated quarterly financial statements have been prepared on a basis consistent with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or any future period. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2009, as filed with the SEC on September 28, 2009 (the “2009 Annual Report”).

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates presented and the reported amounts of revenues and expenses during the reporting periods presented. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include estimates of revenues and related receivables expected to be collected, valuations of intangible assets and stock-based compensation. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.

Basis of Consolidation

The accompanying consolidated financial statements include the accounts and transactions of Vidaroo and its subsidiary E360 as well as MEV.  Vidaroo has a 95% interest in E360, which was acquired by Vidaroo in a stock exchange.  MEV is controlled by Vidaroo pursuant to a management agreement between the two companies effective July 14, 2008.  The consolidation of MEV was treated as a purchase in the quarter ended September 30, 2008.  All significant intercompany accounts and transactions are eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the prior year balances to conform to the current year presentation.

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NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue is generated from the creation of video content for its clients, advertising on Vidaroo’s network of websites, and license fees from its Software as a Service online video platform.  Revenue includes the production of video content for fee based clients, fees and revenue sharing associated with the use of our online video player by our channel partners, and monthly subscription fees from licensing agreements.    

Revenue is recognized when services are rendered in accordance with the terms of the agreement provided that the collection of the associated receivable is reasonably assured and there are no remaining significant obligations.

Website Platform

Website platform includes capitalized costs incurred during the application and infrastructure development stage in accordance with EITF 00-02.  Development of the website was completed in July 2007 and has been placed in service.  Website platform has an estimated useful life of 3 years and is being amortized over 36 months on a straight-time basis.

Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived assets.  This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  No impairment charges were incurred d uring the periods ended March 31, 2010 and 2009.

Minority Interest

Minority interest represents the portion of E360 not owned by Vidaroo.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.  SFAS 123(R) requires companies to measure the cost of employee service received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.

Income Taxes

The Company follows the provisions of the Interpretations No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN 48").  FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has not recognized a liability as a result of the implementation of FIN 48. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit as of the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of FIN 48. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax expense as the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Deferred income taxes are recognized for the tax consequences of temporary differences between the financial reporting bases and the tax bases of the Company's assets and liabilities in accordance with SFAS No. 109, "Accounting for Income Taxes." Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to realized. Income tax expense is the tax payable or refundable for the period plus or minus change during the period in deferred tax assets and liabilities.

8

Earnings per Common share

Basic earnings per common share excludes potentially dilutive securities and is computed by dividing net earnings(loss) by the weighted average number of common shares outstanding during the period.  Fully diluted earnings per share are not displayed as the impact of including those shares would be anti-dilutive. For the nine months ended March 31, 2010 and 2009, the Company had 12,109,510 and 8,093,254 potentially dilutive common shares, respectively, which were not included in the calculation of diluted loss per share as the effect would have been antidilutive.

Financial Instruments

In July 2008, the Company adopted SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157") to value its financial assets and liabilities. The adoption of SFAS No. 157 did not have a significant impact on the Company's results of operations, financial positions or cash flows. SFAS No. 157 defines fair value, establishes a framework for measuring fair value as the exchange price that would be paid by an external party for an asset or liability (exit price). SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when fair value is calculated. Three levels of inputs may be used to measure fair value:

▪  Level 1 - Active market provides quoted prices for identical assets or liabilities;

▪  Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable with market data; and

▪  Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumption that market participants would use in pricing.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2010. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial statements which include cash, trade receivables, borrowings, related party notes payable, accounts payable and accrued liabilities are valued using Level 1 inputs and are immediately available without market risk to principal. Fair values were assumed to approximate carrying values for these financial inst ruments since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The Company does not have other financial assets that would be characterized as Level 2 or Level 3 assets.

SFAS No. 157 is effective for non-financial assets and liabilities for the Company's fiscal year beginning July 1, 2009. The Company is currently assessing the impact of this pronouncement as it relates to non-financial assets and liabilities.

NOTE 3. RECENT ACCOUNTING STANDARDS

On June 12, 2009 the FASB issued two statements that amended the guidance for off-balance-sheet accounting of financial instruments: SFAS No. 166, Accounting for Transfers of Financial Assets, and SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS No. 166 revises SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and will require entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets, the FASB said. The statement eliminates the concept of a qualifying special-purpose entity, changes the requirements for the derecognizing of fi nancial assets, and calls upon sellers of the assets to make additional disclosures about them.

SFAS No. 167 amends FASB Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, by altering how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated, the FASB said. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity's purpose and design and the parent company's ability to direct the entity's actions.  SFAS Nos. 166 and 167 will be effective at the start of the first fiscal year beginning after November 15, 2009. We do not expect SFAS Nos. 166 or 167 to have a material impact on the Company’s financial position and results of operations.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles and establishes the FASB Accounting Standards Codification™ (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. All existing accounting standard documents are superseded by the Codification and any accounting liter ature not included in the Codification will not be authoritative. However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for interim and annual reporting periods ending after September 15, 2009. Therefore, beginning with the Company’s quarter ending September 30, 2009, all references made by it to GAAP in its financial statements will use the new Codification numbering system. The Codification does not change or alter existing GAAP and, therefore, does not have a material impact on the Company’s financial position and results of operations.

9

In May 2009, the FASB issued SFAS 165, Subsequent Events. SFAS 165 should not result in significant changes in the subsequent events that an entity reports. Rather, SFAS 165 introduces the concept of financial statements being available to be issued. Financial statements are considered available to be issued when they are complete in a form and format that complies with generally accepted accounting principles (GAAP) and all approvals necessary for issuance have been obtained.  We do not expect the adoption of SFAS 165 to have a material impact on our financial position, results of operations, or financial disclosure.

The recent accounting standards disclosed should be read in conjunction with the disclosures made in the Company's Annual Report on form 10-K for the fiscal year ended June 30, 2009.

NOTE 4.  ACQUISITION

On July 14, 2008, Vidaroo entered in a management agreement with MEV. MEV provides production services to some of the largest names in the entertainment business. The terms of the agreement require Vidaroo to manage all the business and financial operations of MEV. In exchange for these services Vidaroo shall receive all revenues, profits and cash flows generated by MEV and shall pay all bills and obligations of MEV. Based on these terms, Gen 2 has control of MEV and therefore this transaction was treated as a purchase in the quarter ended September 30, 2008.

The acquisition has been accounted for in accordance with SFAS No. 141 "Business Combinations" and accordingly, the consolidated statements of operations include the results of MEV since the date of acquisition, July 14, 2008. The excess of the purchase price over the fair value of acquired assets and liabilities assumed is allocated to an intangible asset related to MEV's customer lists.

The statement of operations includes revenues and earnings incurred after the date of acquisition, July 14, 2008. On an unaudited proforma basis, had the acquisition occurred on July 1, 2008, the results for the periods presented would have been identical to those presented in the Consolidated Financial Statements, as there were no transactions during the period from July 1, 2008 to the date of acquisition, July 14, 2008.

There was no cash consideration paid for this acquisition. The purchase price of $79,870 was determined by taking the difference between MEV's assets of $8,966 and its debt of $88,836 as of the date of the acquisition.

NOTE 5. RELATED PARTY TRANSACTIONS

During 2008, the Company issued notes payable to three of its shareholders, to fund operations.  $75,513 was outstanding under these notes payable as of June 30, 2008.  This loan required interest only payments, bore interest at 12%, was secured by all the assets of the Company, and personally guaranteed by the three officers of the Company.  During August 2008 these notes were satisfied through issuances of shares for $50,000 of the obligation and exercising of options for $25,000 for an aggregate of 1,000,000 shares.

As of June 30, 2008, there was an additional $411,972 in non-interest bearing amounts due to related companies and certain of its officers that related to working capital needs.  During August 2008, 2,411,170 shares were issued in satisfaction of $241,117 of this obligation.  

During July, 2008, the company entered into an agreement with MEV to provide management services.  In exchange for management of the business and financial operations, Vidaroo has the right to all revenue and profit and is obligated to pay all financial obligations of MEV.  MEV was owned and operated by certain directors and officers of Vidaroo.

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NOTE 6.  INDEBTEDNESS

Convertible Secured Promissory Notes

During the year ended June 30, 2009, the Company issued debt instruments in the form of convertible secured promissory notes (the “Notes”). The Notes carry interest at 12% and are due and payable in full at the earlier of either minimum equity financing of $1 million or one year. Interest can be received monthly or accrued and paid at maturity at the option of the holder. The Notes are secured by all assets of the Company.

The holders of the Notes have the option, but not the obligation, to convert the outstanding principal into common stock at any time under any of the following terms: A conversion price of $.25 per share; a conversion price of 30% less than price per share obtained in the next round of financing completed by the Company; a conversion price of 30% less than the price per share paid in the event of a sale of the company, or $0.13 per share in the event the Company does not raise a minimum of $1 million in additional financing.

The notes contain warrants to purchase shares valued at 20% of the face value of the note assuming a stock value of $0.25 per share and an exercise price of $0.001 per share. If the value of common stock at the time of conversion is less than $0.25, the payee shall receive additional warrants to bring the total value of warrants issued under this program to be equal to 20% of the face value of the Note. The Notes also included a beneficial conversion feature as the obligations can convert into equity for an exercise price less than the share price at the time of issuance at the option of the holder. Based on these features, the proceeds from debt were split between the value of the warrants and the debt. Further, the debt obligation must have value assigned to the beneficial conversion feature. These valuations cause the proceeds from the se notes to be allocated to additional paid capital with $248,953 assigned to the value of the warrants and the remaining $351,047 assigned to the beneficial conversion feature. The face value of the debt has been accreted to interest expense over the 1-year term of the debt.  During the quarter and nine months ended March 31, 2010 and 2009, $30,014 and $332,479, and $100,821 and $107,931,respectively, was accreted to interest expense.

During the quarter ended March 31, 2010, the holders of these notes have agreed to extend the terms of maturity.  The Company has provided additional consideration to the Note holders for extending the maturity dates.  The additional consideration provided was either an increase in the interest rate being paid to 13% or additional shares of common stock of 200 shares for every $1,000 invested.  The terms of the extensions extended the maturity dates to various dates between August 1, 2010 and June 30, 2011.

Promissory Notes

During the year ended June 30, 2009 and the nine months ended March 31, 2010,  the Company issued debt instruments in the form of promissory notes with a face value of $869,500 (the “ Promissory Notes”) and bear interest at 12%. These Promissory Notes were issued in two traunches.  Traunch I has a face value of $231,500 and was originally due and payable one year from issuance.  Traunch I was issued during the fourth quarter of the year ended June 30, 2009, and was originally due during the quarter ending June 30, 2010.  Traunch II has a face value of $638,000 and was originally due and payable on December 31, 2010.  Interest is paid monthly.  During the quarter ended March 31, 2010, $477,000 of these Notes’ maturity dates were extended in exchange for additional interest increasing the rate of interest paid to 13%.  The maturity dates were extended through March 31 or June 30, 2011.

Notes Payable

In connection with the management agreement entered into with MEV, Vidaroo became obligated for the repayment of certain notes payable currently outstanding.  These notes originally consisted of a term loan and a line of credit. The notes are secured by a personal guarantee from Richard Brock, Ian McDaniel and Mark Argenti.  The term loan originated on September 20, 2005 with a face value of $100,000 and requires monthly payments of principal and interest over a five year period maturing on September 20, 2010 and bears interest at 6.75%.  On June 30, 2009, MEV agreed to convert the outstanding balance on the line of credit to a term loan and repay it over a 15 month period maturing on September 20, 2010 with an interest rate of 6.5%.  There was $33,158 outstanding at March 31, 2010 on thes e Notes.

Schedule of Maturities

	Due within 1 year		Due years 2-5		Balance
Convertible Notes	$	385,000	$	205,000	$	590,000
Promissory Notes		555,000		314,500		869,500
Notes Payable		33,158		-		33,158
Total	$	973,158	$	519,500	$	1,492,658

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NOTE 7.  CAPITAL STOCK

The Company’s authorized capital stock consists of 100,000,000 shares of Class A common with a par value of $0.001. 64,733,232 shares were outstanding as of March 31, 2010.

The Company is a reporting public company.  The Company filed a form 15c2-11 with FINRA and requested permission to trade on the OTC Bulletin Board.  The Company’s stock began trading on October 3, 2008.

NOTE 8.  STOCK BASED COMPENSATION

In November, 2009, the Board of Directors of the Company approved the Vidaroo Corporation 2009 Non-Qualified Stock Option Plan.  The Plan permits the issuance of Stock Options to employees, officers and independent contractors of Vidaroo with flexibility provided to the vesting period and exercise period at the discretion of the board.  Vesting periods range from fully vested at the time of the award to 3 year vesting periods.  Exercise periods range from 5 years to infinite lives.  In addition to Options issued under the Plan, the Company has issued Stock Options and warrants outside of the Plan to its Officers and certain professional service providers.  Vesting and Exercise periods are similar for both types of Options and warrants issued.

During the quarter and nine months ended March 31, 2010, the Company issued options and warrants for 635,000 and 4,731,325 shares, respectively of common stock, principally in connection with the recruitment and retention of directors, officers, and employees.  Additionally, during the quarter and nine months ended March 31, 2009, the Company issued options and warrants for 600,000 and 4,900,000 shares, respectively of common stock, principally in connection with the recruitment of directors and officers.  During the nine months ended, March 31, 2009 the Company accelerated the vesting of options for 5,000,000 shares previously issued to certain advisors.  These options fully vested during the period in exchange for an agreement to exercise said options.  

Based on these activities compensation cost of $9,000 and $334,153 was recognized during the quarter and nine months ended March 31, 2010, respectively, and $276,185 and $758,791 was recognized in the quarter and nine months ended March 31, 2009, resepctively.  Additionally, Common Stock and Warrants issued to nonemployees for services generated cost of $9,000 and $334,154 in the quarter and nine months ended March 31, 2010, respectively and $299,012 in the same periods of the prior year. Unrecognized compensation cost related to unvested stock options and warrants at March 31, 2010 was $390,951 and are expected to be recognized over a weighted average period of 27 months.

	Number of Shares Outstanding Under Options and Warrants		Weighted Average Exercise Price
Outstanding, June 30, 2009		6,279,039	$	0.14
Granted		4,731,325		0.30
Exercised		(3,029,038)		0.05
Forfeited or expired		(410,278)		0.58
Outstanding, March 31, 2010		7,571,048	$	0.24
Exercisable, March 31, 2010		2,974,167	$	0.17

                                                                                                                                              0;             

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 A summary of the Company’s non-vested stock options is as follows:

	Number of shares			Weighted-Average Grant-Date Fair Value
Non-vested balance, June 30, 2009		568,603		$	0.56
Granted		4,731,325			0.14
Vested		(2,197,149	)		0.21
Forfeited/Expired		(410,279	)		0.57
Non-vested balance, March 31, 2010		2,692,500		$	0.17

The total intrinsic value of options exercised during the nine months ended March 31, 2010 and 2009 and was $315,020 and $0, respectively. The aggregate intrinsic value of the outstanding options at March 31, 2010 was $0 as fair value was less than the exercise price on options outstanding.

NOTE 9.  GOING CONCERN

The company became operational during the year ended June 30, 2009.  Through March 31, 2010, the Company has accumulated losses of $7,688,160.The Company expects to generate revenues from corporate clients and partners in the way of advertising revenue, through the delivery of the client’s content, platform and technology via the internet as well as for its production services and software as a service.  The Company will either receive a fee for those services, or will share in the revenue generated from the clients and partners through use of its technology.

The Company faces all the risks common to companies in their early stages of operations including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth.  In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations.  The Company’s financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.  The future of the Company hereafter will depend in large part on the Company’s ability to monetize its investment in its technology and services, and successfully rai se capital from external sources to pay for planned expenditures. The Company continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business.  However, there are no assurances that any such financing can be obtained on acceptable terms, if at all.

NOTE 10.  INCOME TAXES

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The components of deferred tax assets are as follows:

	3/31/10			6/30/09
Accumulated Net loss	$	7,688,160		$	5,577,222
Valuation allowance		(7,688,160	)		(5,577,222	)
Net deferred tax assets	$	-		$	-

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Vidaroo is a full service provider of a proprietary digital media network and related online digital strategies for leading media and entertainment companies. Vidaroo engages audiences on digital platforms through provision of media content either directly or through collaboration with channel partners.  Through a combination of original and acquired programming and other entertainment content, Vidaroo is focused on providing content that appeals to key demographics attractive to advertisers and distributors or radio, printed news, cable television, satellite, mobile and digital media platforms, and consumer products.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. References in this section to "Vidaroo Corporation," “Vidaroo,” the "Company," "we," "us," and "our" refer to Vidaroo Corporation and our direct and indirect subsidiaries on a consolidated basis unless the context indicates otherwise.

This quarterly report contains forward looking statements relating to our Company's future economic performance, plans and objectives of management for future operations, projections of revenue mix and other financial items that are based on the beliefs of, as well as assumptions made by and information currently known to, our management. The words "expects," "intends," "believes," "anticipates," "may," "could," "should" and similar expressions and variations thereof are intended to identify forward-looking statements. The cautionary statements set forth in this section are intended to emphasize that actual results may differ materially from those contained in any forward looking statement.

The following discussion and analysis should be read in conjunction with the consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Overview

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing in this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED MARCH 31, 2010 COMPARED TO THE THREE AND NINE MONTHS ENDED MARCH 31, 2009.  

Revenue

Revenue increased $352,250 to $413,272 and $85,141 to $1,044,036 in the quarter and nine months ended March 31, 2010, respectively, as compared to 2009.  Revenue increased in both the quarter and on a year to date basis as a result of the diversification of revenue amongst each of the Company’s business units.  Content creation continues to be the leading source of the Company’s revenue as the acquisition of the MEV business has continued to see demand from major entertainers, providing strong ongoing revenue for the Company.  The Company has also experienced growth in both its advertising network and software licensing business units.

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Cost of Sales

During the quarter, the Company incurred cost of sales in conjunction with the direct provision of services to our clients.   These expenses consist of professional support and production personnel as well as equipment to facilitate the provision of our content creation services, and bandwidth to serve advertising on the Vidaroo Network of websites and to the Company’s software licensees.  Cost of sales increased by $107,163 to $137,241 in the quarter ended March 31, 2010 but decreased by $92,772 to $321,488 in the nine months ended March 31, 2010, respectively as compared to 2009.  The increase in the quarter was due to greater volume of business, predominantly in the content creation unit.  This business unit was also the driver for the year to date decrease as the business in the prior year carried a higher cost burden due the heavy equipment needs of the engagements in that period.

Operating Margin

The operating margin generated during the quarter and nine months ended March 31, 2010 increased by $245,087 to $276,301 and by $177,913 to $722,548, respectively, in comparison to the prior year.  The operating margin percentage increased for both the quarter and nine months, increasing to 66.8% from 50.7% in the quarter and to 69.2% from 56.8% for the nine months.  The primary driver in the increased margin comes for the content creation business as that business unit drove a majority of the Company’s revenue. The established infrastructure and technology in place at the company allows the provision of our products and services to the marketplace at a low cost ratio for each new client engagement or advertising campaign allowing for a strong margin.  

Selling General and Administrative

Selling General and Administrative costs generally consist of salaries, professional fees, office expenses and other administrative costs.  These costs decreased by $548,602 to $376,129 and $449,691 to $1,372,146 for the quarter and nine months ended March 31, 2010, respectively, as compared to the prior year.  The most significant decrease in the quarter is related to stock based compensation for nonemployees as this expense decreased by $290,000 and $200,000 for the quarter and nine months, respectively.  Salary expense also demonstrated a significant decrease in both the quarter and on a year to date basis going down by $150,000 and $230,000, respectively.  The reduction relates to decreased expenses for executive and employee compensation as the Company has allowed the turnover of certain execut ives to be filled with internal candidates and personnel have taken increased incentive compensation in the form of equity.

Stock based Compensation

Stock based compensation decreased by $211,996 to $64,189 and $18,884 to $739,907 for the three and nine months ended March 31, 2010, respectively.  The increase for the quarter ended March 31, 2010 is due to the provision of equity incentives for certain officers of the Company in the prior year.  The year to date amounts are relatively consistent with the prior year’s balances.  

Interest expense

Interest expense decreased by $14,861 to $107,580 for the three months ended March 31, 2009 and increased by $404,625 to $553,434 for the nine months ended March 31, 2010.  The decrease in the current quarter is reflective of a decrease in interest expense associated with the accretion of non–cash interest on the Convertible Promissory Notes of $60,000 offset by other increased charges for interest of approximately $45,000 due to additional borrowings.  The increase on a year to date is due both to the accretion of interest on the Secured Promissory Notes as well as additional interest expense associated with the accumulated indebtedness.

Net Loss

The net loss decreased by $989,184 to $317,587 and $216,479 to $2,060,189 for the three and nine months ended March 31, 2010 and 2009, respectively.  The decreased loss in the quarter was primarily due to improved Revenue and Operating Margin, and decreased expenses in the areas of Selling General and Administrative costs as well as Stock Based Compensation.  The improvement in Operating Margin and Selling General and Administrative Costs was offset by Stock Based Compensation and interest charges.  The decrease in the year to date loss was a function of improved Operating Margin, and decreased Selling General and Administrative costs offset by additional interest expense.

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Liquidity and Capital Resources

The Company had net working capital of $(1,123,458) at March 31, 2010, a degradation of $30,594 compared to June 30, 2009.  The Company issued debt, net of deferred financing costs of $484,200 and received proceeds from the issuance of equity and the exercise of stock options of 227,949 to fund working capital needs in the nine months ended March 31, 2010.

The Company has incurred losses since its inception.  The Company’s auditor has emphasized uncertainty regarding our ability to continue as a going concern in his audit report for the year ended June 30, 2009. As shown in the accompanying financial statements, the Company realized net losses from operations of $2,060,189 for the nine months ended March 31, 2010 resulting in an accumulated deficit of $7,688,189 as of March 31, 2010.

Other components of the Company’s working capital and changes therein are discussed as follows:

Cash and Cash Equivalents. For the nine month period ended March 31, 2010, cash and cash equivalents increased by $58,988 to $59,389 from $401 at June 30, 2009. The increase in cash equivalents is primarily attributable the operating activities use of cash of $601,537 funded by the financing activities of $672,285.

Cash Flows from Operating Activities. Net cash used by operating activities was $601,537 for the nine months ended March 31, 2010, an improvement of $167,267 over the first nine months of the prior year.  The change in cash flows from operating activities is primarily attributable to the improvement in operational results as indicated in the Consolidated Statement of Operations ofsett by the use of cash for working capital needs including Accounts Receivable and Accounts payable and accrued expenses.

Cash Flows from Financing Activities. Net cash provided by financing activities was $672,285 for the nine months ended March 31, 2010.  This cash was generated from the issuance of additional indebtedness in the form of notes payable and common stock and cash collected from the exercise of stock options.

Noncash transactions.  During the nine months, the Company issued Common Stock and Warrants valued at $334,153 in exchange for professional services and issued Common Stock and Stock Options to officers and employees valued at $739,907.  The Company also incurred noncash interest expense of $332,479 related to its Secured Convertible Promissory Notes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

N/A.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of June 30, 2009. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2010, our disclosure controls and procedures were ineffective due to the lack of segregation of duties and the lack of audit committee oversight. Upon the acquisition of adequate capital the Company intends to remediate the deficiencies through the deployment of additional personnel and implementation of an audit committee.

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Management’s Quarterly Report on Internal Control Over Financial Reporting

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f).  Management conducted an assessment as of March 31, 2010 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on that evaluation, management concluded that our internal control over financial reporting was ineffective as of March 31, 2010.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the control procedure may deteriorate.

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report. As required by SEC Rule 13a-15(b), our company carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, management concluded that our disclosure controls and procedures were ineffective at the resonable assurance level.

Changes in Internal Control Over Financial Reporting

None.

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 PART II

OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.  

ITEM 1A. RISK FACTORS

None.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

There were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

ITEM 6 - EXHIBITS

Exhibit Number	Description
31.1	Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
31.2	Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
32.1	Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2	Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VIDAROO CORPORATION
DATE: May 17, 2010	By:	/s/ Mark Argenti
		Mark Argenti
		Chief Executive Officer (principal executive officer)
	By:	/s/ Thomas Moreland
		Thomas Moreland
		Chief Financial Officer and Treasurer (Principal financial and accounting officer)

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