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 SEPTEMBER 30, 2012
OR
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER 333-147932
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.) | |
8 N. Highland Ave., Winter Garden, FL | 34787 | |
| (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 November 4, 2012 there were 67,455,867 outstanding shares of the Registrant's Common Stock, $.001 par value.
VIDAROO CORPORATION
SEPTEMBER 30, 2012 QUARTERLY REPORT ON FORM 10-Q
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| PART I - FINANCIAL INFORMATION | |
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PART II - OTHER INFORMATION | |
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| September 30, 2012 | June 30, 2012 | |||||||
| Assets | (UNAUDITED) | |||||||
Current: | ||||||||
Cash and cash equivalents | $ | 52,344 | $ | 67,911 | ||||
Accounts Receivable | 18,728 | 105,876 | ||||||
Other Current Assets | 5,101 | 5,101 | ||||||
Total Current Assets | 76,173 | 178,888 | ||||||
Furniture and Equipment: | ||||||||
Computer equipment | 114,582 | 114,582 | ||||||
Office furniture and fixtures | 14,252 | 14,252 | ||||||
128,834 | 128,834 | |||||||
Less Accumulated depreciation | (110,006 | ) | (106,711 | ) | ||||
Net Furniture and Equipment | 18,828 | 22,123 | ||||||
Other Assets – Deposits | 4,872 | 4,872 | ||||||
Total Assets | $ | 99,873 | $ | 205,883 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 489,759 | $ | 534,408 | ||||
Accrued Salaries | 247,785 | 167,060 | ||||||
Deferred revenue | 32,320 | 35,099 | ||||||
Accrued Interest | 12,835 | 10,433 | ||||||
Convertible secured promissory notes – Current portion | 17,923 | 10,291 | ||||||
Promissory Notes and Notes payable – Current portion | 13,933 | 16,000 | ||||||
Total Current Liabilities | 814,555 | 773,291 | ||||||
Convertible secured promissory notes | 49,113 | 66,690 | ||||||
Promissory Notes and Notes payable | 11,248 | 38,121 | ||||||
Total Liabilities | 874,916 | 878,102 | ||||||
Callable Preferred Stock, $0.001 par value; Callable at $0.10; Issued and Outstanding 35,428,867 and 33,778,173 shares at September 30 and June 30, 2012, respectively | 541,736 | 515,325 | ||||||
Stockholders' (Deficit) Equity: | ||||||||
Common stock, $.001 par value; 200,000,000 shares authorized; | ||||||||
67,455,867 and 67,437,365 issued and outstanding at September 30 and June 30, 2012, respectively | 67,456 | 67,437 | ||||||
Additional paid in capital | 6,918,529 | 6,909,490 | ||||||
Accumulated Deficit | (8,311,164 | ) | (8,176,291 | ) | ||||
Vidaroo Corporation and subsidiaries Stockholders’ (Deficit) | (1,325,179 | ) | (1,199,364 | ) | ||||
Noncontrolling Interest | 8,400 | 11,820 | ||||||
Total Stockholders’ Deficit | (1,316,779 | ) | (1,187,544 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 99,873 | $ | 205,883 | ||||
See accompanying notes to consolidated financial statements.
VIDAROO CORPORATION AND SUBSIDIARY
| 3 Months Ended | 3 Months Ended | |||||||
| 9/30/12 | 9/30/11 | |||||||
REVENUES | $ | 248,871 | $ | 308,290 | ||||
Cost of Sales | (84,076 | ) | (41,957 | ) | ||||
Operating Margin | 164,795 | 266,333 | ||||||
Operating Expenses | ||||||||
Selling, General and Administrative | 300,308 | 318,713 | ||||||
Depreciation and Amortization | 3,295 | 6,396 | ||||||
Stock based compensation | 5,079 | 25,801 | ||||||
Total Operating expenses | 308,682 | 350,910 | ||||||
Loss from Operations | (143,887 | ) | (84,577 | ) | ||||
Interest expense | (15,527 | ) | (57,890 | ) | ||||
Nonoperating gains(losses): Realized gain on troubled debt restructuring | 49,853 | - | ||||||
Unrealized (loss) gain on adjustment to fair market value of financial instruments | (25,312) | 544,577 | ||||||
NET INCOME (LOSS) TO COMMON SHAREHOLDERS OF VIDAROO CORPORATION | $ | (134,873 | ) | $ | 402,110 | |||
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE | $ | 0.00 | $ | 0.01 | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING | 67,446,822 | 66,239,449 | ||||||
See accompanying notes to consolidated financial statements.
VIDAROO CORPORATION AND SUBSIDIARIES
(UNAUDITED)
| Class A | Additional | |||||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Noncontrolling | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interest | Total | |||||||||||||||||||
Balance at June 30, 2012 | 67,437,365 | $ | 67,437 | $ | 6,909,490 | $ | (8,176,291 | ) | $ | 11,820 | $ | (1,187,544 | ) | |||||||||||
Stock based compensation cost for Employees | 18,502 | 19 | 5,060 | - | - | 5,079 | ||||||||||||||||||
Stock based compensation issued relative to debt conversion | - | - | 3,979 | - | - | 3,979 | ||||||||||||||||||
Unrealized gain on fair value adjustment to noncontrolling interest | - | - | - | - | (3,420) | (3,420) | ||||||||||||||||||
Net loss | - | - | - | (134,873) | - | (134,873) | ||||||||||||||||||
Balance at September 30, 2012 | 67,455,867 | $ | 67,456 | $ | 6,918,529 | $ | (8,311,164 | ) | $ | 8,400 | $ | (1,316,779 | ) | |||||||||||
See accompanying notes to consolidated financial statements.
VIDAROO CORPORATION AND SUBSIDIARIES
| 3 Months Ended | 3 Months Ended | |||||||
| 9/30/12 | 9/30/11 | |||||||
| Cash Flows from Operating Activities: | ||||||||
Net Income (loss) | $ | (134,873 | ) | $ | 402,110 | |||
Adjustments to reconcile net income (loss) to net cash used | ||||||||
by operating activities: | ||||||||
Depreciation | 3,295 | 6,396 | ||||||
Officer salary forgiveness | - | 5,148 | ||||||
Stock-based compensation | 5,079 | 25,802 | ||||||
Realized gain on troubled debt restructuring | (49,853 | ) | - | |||||
Loss (gain) on adjustment to Fair market value of financial instruments | 25,312 | (544,577 | ) | |||||
Net changes in: | ||||||||
Other current assets | - | 2,469 | ||||||
Accrued Salaries | 80,725 | 6,699 | ||||||
Accounts receivable | 87,148 | 37,380 | ||||||
Accounts payable and accrued expenses | (44,649 | ) | 16,218 | |||||
Accrued interest | 15,509 | 56,995 | ||||||
Deferred revenue | (2,779 | ) | (46,625 | ) | ||||
Net Cash Used By Operating Activities | (15,086 | ) | (31,985 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Deposits | - | (3,312 | ) | |||||
Net Cash Used By Investing Activities | - | (3,312 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Repayment of Promissory Notes and Notes Payable | (481 | ) | - | |||||
Net Cash Used By Financing Activities | (481 | ) | - | |||||
Net Decrease in Cash and Cash Equivalents | (15,567 | ) | (35,297 | |||||
Cash and Cash Equivalents, Beginning | 67,911 | 73,598 | ||||||
Cash and Cash Equivalents, Ending | $ | 52,344 | $ | 38,301 | ||||
Supplemental cash flow information: | ||||||||
Noncash Financing Activities: | ||||||||
Promissory Notes and Notes Payable and Accrued Interest converted into Preferred Stock and Warrants to purchase Common Stock | $ | 80,243 | $ | - | ||||
Other: | ||||||||
Interest Paid | 269 | 895 | ||||||
See accompanying notes to consolidated financial statements.
Description of Business
The accompanying financial statements include Vidaroo Corporation (“Vidaroo” or the “Entity”) and its consolidated subsidiaries: E360, LLC (“E360”); Media Evolutions, Inc., d/b/a Vidaroo Productions (“MEV”); Vidaroo Licensing, LLC; Vidaroo Intellectual Property, Inc.; Vidaroo Support Services, LLC. Vidaroo was formed in May 2007 as a Nevada Corporation and was named Gen2Media until April 26, 2010. Vidaroo has a majority ownership interest in E360. Vidaroo has a management agreement with MEV that provides Vidaroo with control of MEV’s operations.
Vidaroo is a video technology company. Vidaroo has developed an online video platform (OVP) that is licensed under a Software-as-a-Service model. Vidaroo also provides video production services that are performed for clients either on location or in Vidaroo’s professional production studio.
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 Entity’s Annual Report on Form 10-K for the year ended June 30, 2012, as filed with the SEC on October 1, 2012 (the “2012 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 subsidiaries E360, MEV, Vidaroo Licensing, LLC, Vidaroo Intellectual Property, Inc., and Vidaroo Support Services, LLC. Vidaroo has a 98% and 95% interest in E360, as of September 30, 2012 and 2011, respectively. Ownership was acquired by Vidaroo in a stock exchange. MEV is controlled by Vidaroo pursuant to a management agreement between the two companies. All significant inter-entity accounts and transactions are eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is generated from monthly subscription fees from subscribers to the OVP. Revenue is recognized ratably over the contract period for each subscriber. Revenue is also generated from professional services rendered in connection with the production of video content. Revenue is recognized when services are rendered or advertising has been delivered 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.
Long-Lived Assets
The Entity evaluates the recoverability of its long−lived assets, including intangibles, for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long−lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. No impairment charges were incurred during the three months ended September 30, 2012 and 2011.
Computer equipment and Office furniture and fixtures are recorded at cost depreciated on a straight line basis over their expected useful lives of 5 and 7 years, respectively.
Noncontrolling Interest
Minority interest represents the portion of E360 not owned by Vidaroo.Stock-Based Compensation
The Entity provides stock based compensation to both its employees and vendors under certain circumstances. The Entity is required 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
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 less estimated valuation allowances. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. 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 and valuation allowances.
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 quarters ended September 30, 2012 and 2011 the Entity had 65,853,927 and 20,556,233 potentially dilutive common shares, respectively, which were not included in the calculation of diluted loss per share.
Financial Instruments
The entity reports its financial and non-financial assets and liabilities that are re-measured and reported at fair value at each reporting period. 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 September 30, 2012.
The Entity 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 instruments since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
The Entity considers its Debt instruments to have Level 3 inputs. Those inputs include the fair value of Vidaroo’s common stock and the number of shares the Entity is offering to convert its current outstanding debt and accrued interest to equity of the Entity.
Research and Development
Based on the nature of the Entity’s software development methodology, costs incurred are considered to be connected with the establishment of technological feasibility in accordance with ASC 985-20-25 “Costs of Software to Be Sold, Leased or Marketed” and therefore are considered Research and Development.
NOTE 3. RECENT ACCOUNTING STANDARDS
On June 16, 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income (Topic 220),” which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. The components of comprehensive income will not be changed, nor does the ASU affect how earnings per share is calculated or reported. These amendments will be reported retrospectively upon adoption. The adoption of the ASU will be required for the Company’s March 31, 2012 Form 10-Q filing, and is not expected to have a material impact on the Company.
In May 2011, the FASB issued an accounting standard update which works to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. The update both clarifies the FASB’s intent about the application of existing fair value guidance, and also changes certain principles regarding measurement and disclosure. The update is effective prospectively and is effective for annual periods beginning after December 15, 2011. Early application is permitted for interim periods beginning after December 15, 2011. The Company is currently evaluating the effect the update will have on its consolidated financial statements.
In January 2010, the FASB issued an accounting standard update on fair value measurements and disclosures. The update requires more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009; except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this update did not have an effect on the Company’s consolidated financial statements.
The recent accounting standards disclosed shall be read in conjunction with the disclosures made in the Entity's Annual Report on form 10-K for the fiscal year ended June 30, 2012.
NOTE 4. RELATED PARTY TRANSACTIONS
As of September 30, 2012, the Entity has an outstanding obligation to both Mark Argenti and Ian McDaniel of $39,478 for incentive compensation under each individual’s employment contract of which $8,223 was earned in the quarter ended September 30, 2012.
Also as of September 30, 2012 and 2011, the Entity had an outstanding payroll obligation of $50,000 and $15,417 to its Officers
NOTE 5. DEBT
Notes Payable
In connection with the management agreement entered into with MEV, Vidaroo became obligated for the repayment of certain notes payable outstanding at the time of the initiation of the management agreement. These notes were guaranteed by Mark Argenti and Ian McDaniel along with a third party obligor. During June, 2010 the third party obligor exercised his right as guarantor on these loans and satisfied the original obligation. During the year ended June 30, 2012, Vidaroo agreed to interest and repayment terms with the obligor. This Note Payable now carries interest at 12% and will begin a repayment schedule commencing on April 1, 2013 and carry equal monthly payments of $2,000 until satisfaction of the both the principal and interest
Convertible Secured Promissory Notes Payable
During the year ended June 30, 2009 the Entity issued debt instruments in the form of promissory notes with a face value of $600,000 (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 Entity.
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 $0.25 per share; a conversion price of 30% less than price per share obtained in the next round of financing completed by the Entity; a conversion price of 30% less than the price per share paid in the event of a sale of the Entity, or $0.13 per share in the event the Entity does not raise a minimum of $1 million in additional financing within one year of issuance.
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 these 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 will be accreted to interest expense over the 1-year term of the debt. During the year ended June 30, 2011 and 2010, $0 and $342,479, respectively, was accreted to interest.
During the year ended June 30, 2010, the Entity and the holders of the Notes agreed to extend the terms of repayment for these notes. The notes were either extended through August 1, 2010, March 31, or June 30, 2011. Under the terms of the extensions, the holders were provided with additional consideration. Those Note holders that extended through August were provided with additional shares of Common Stock and those that extended through 2011 received an increase in the interest rate from 12% to 13%.
As of June 30, 2011, the Entity defaulted on its obligation to pay interest and repay principal on these Notes.
During the year ended June 30, 2012, Vidaroo and the holders of the Convertible Secured Promissory Notes came to agreement to restructure the terms of the Notes. Of the $590,000 outstanding, holders of $390,000 of the Notes agreed to accept 10,499,922 shares of preferred stock plus 3,658,549 warrants to purchase Common Stock of Vidaroo at an exercise price of $0.10 in exchange for $290,000 outstanding plus accrued interest.
Also during the year ended June 30, 2012, the holders of $200,000 of the Convertible Secured Promissory Notes agreed to a repayment schedule starting in April, 2013 and the conversion of accrued interest into 1,837,920 shares of preferred stock and 640,397 warrants to purchase shares of common stock at an exercise price of $0.10.
Promissory Notes Payable
During the years ended June 30, 2011 and 2010 the Entity issued debt instruments in the form of promissory notes with a face value of $538,000 and $331,500, respectively (the “Promissory Notes”) and bear interest at 12%. These Promissory Notes were issued in two traunches. Traunch I had an original face value of $231,500 and was due and payable one year from issuance. Traunch I was issued during the fourth quarter of the year ended June 30, 2009 and therefore 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. Monthly interest payments were required.
During the year ended June 30, 2011, the Entity defaulted on its obligation to pay interest and repay principal on these Notes.
During the year ended June 30, 2012, the Entity negotiated with the holders of these notes to restructure the terms of the obligation. The Entity and certain holders of the Notes agreed to convert $760,000 of the $863,570 still outstanding plus the related accrued interest into 19,782,796 shares of Preferred Stock and 6,893,034 warrants to purchase its Common Stock exercisable at $0.10 as of June 30, 2012. During the three months ended September 30, 2012, the Entity finalized agreements with holders of an additional $65,000 of the obligation plus accrued interest into 1,650,693 shares of Preferred Stock and 575,161 warrants to purchase its Common also exercisable at $0.10.
The remaining balance of $34,000 was unable to be negotiated shall remain a short-term obligation of Vidaroo.
NOTE 6. FAIR VALUE MEASUREMENTS
The Notes Payable, Convertible Secured Promissory Notes and Promissory Notes are stated at fair value. Fair value is as follows:
| Face value | Adjustment to face value | Fair value as of September 30, 2012 | ||||||||||
Promissory Notes and Notes Payable | $ | 75,129 | $ | (49,948 | ) | $ | 25,181 | |||||
Convertible Secured Promissory Notes Payable | 200,000 | (132,964 | ) | 67,036 | ||||||||
Accrued interest | 38,293 | (25,458 | ) | 12,835 | ||||||||
Total | $ | 313,422 | $ | (208,370 | ) | $ | 105,052 | |||||
The Level 3 inputs used include the number of shares offered to the holders of the Notes along with fair value of the Company’s Common Stock for those Note holders that converted these debt instruments into Equity during the year ended June 30, 2012 and the three months ended September 30, 2012.
Noncontrolling interest is also stated at fair value. Fair value is as follows:
Face value | Adjustment to face value | Fair value as of September 30, 2012 | ||||||||||
Noncontrolling interest | $ | 110,400 | $ | (102,000 | ) | $ | 8,400 | |||||
The Level 3 inputs used include the number of shares provided to the holders of the Noncontrolling interest that converted into Vidaroo’s Common Stock during the year ended June 30, 2012, along with fair value of the Company’s Common Stock.
NOTE 7. CAPITAL STOCK
The Entity’s authorized capital stock consists of 200,000,000 shares of Class A common stock with a par value of $0.001. The Entity also has authorized 100,000,000 shares of preferred stock with a par value of $0.001.
The Entity has previously filed a registration statement with the SEC that went effective July 11, 2008 and is therefore a reporting public company. The Entity filed a form 15c2-11 with FINRA and requested permission to trade on the OTC Bulletin Board. The Entity’s stock began trading on October 3, 2008.
NOTE 8. STOCK BASED COMPENSATION
The following table represents activity for the Entity’s outstanding stock options and warrants as of and for the three months ended September 30, 2012:
| Number of Shares Outstanding Under Options and Warrants | Weighted Average Exercise Price | |||||||
Balance, June 30, 2012 | 62,616,180 | $ | 0.08 | |||||
Granted | 575,155 | 0.10 | ||||||
Forfeited or expired | (1,520,000 | ) | 0.05 | |||||
Balance, September 30, 2012 | 61,671,335 | $ | 0.09 | |||||
Exercisable, September 30, 2012 | 56,520,180 | $ | 0.09 | |||||
The following table is a summary of the Entity’s non-vested stock options
| Number of shares | Weighted-Average Grant-Date Fair Value | |||||||
Non-vested balance, June 30, 2012 | 7,065,392 | $ | 0.08 | |||||
Granted | 575,155 | 0.10 | ||||||
Vested | (1,100,642 | ) | 0.08 | |||||
Forfeited/Expired | (1,388,750) | 0.05 | ||||||
Non-vested balance, September 30, 2012 | 5,151,155 | $ | 0.05 | |||||
Unrecognized compensation cost related to unvested stock options and warrants at September 30, 2012 was $45,155 and are expected to be recognized over a weighted average period of 21 months.
The total intrinsic value of options exercised during the three months ended September 30, 2012 and 2011 and was $0. The aggregate intrinsic value of the outstanding options at September 30, 2012 and 2011 was $0.
NOTE 9. 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:
| 9/30/12 | 6/30/12 | |||||||
Accumulated Net loss | $ | 8,311,164 | $ | 8,176,291 | ||||
Valuation allowance | (8,311,164 | ) | (8,176,291 | ) | ||||
Net deferred tax assets | $ | – | $ | - | ||||
NOTE 10. GOING CONCERN
Through September 30, 2012, the Entity has accumulated losses of $8,311,164. The Entity expects to generate revenues from its SaaS platform and Production service offerings. The Entity will either receive a monthly fee for its software platform and engagement fees for its production services.
The Entity 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 Entity 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 Entity to obtain necessary financing to fund ongoing operations. The Entity’s financial statements do not reflect any adjustments that might result from the outcome of this uncertainty. The future of the Entity hereafter will depend in large part on the Entity’s ability to monetize its investment in its technology and services, and successfully raise capital from external sources to pay for planned expenditures. The Entity 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 11. CONTRACTUAL OBLIGATIONS
Given the cash flow difficulties of the Entity, there are various contractual obligations under which the Entity has not met its economic requirements. The economic impact of these instances of noncompliance have been accounted for in the Entity’s Consolidated Financial Statements. Management does not believe that any of the individual instances of noncompliance other than those disclosed herein would have a material adverse effect on the Entity and therefore require further disclosure.
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 "Entity," "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 Entity'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 MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011. Our fiscal year runs from July 1 to June 30.
Revenue
Revenue decreased $59,419 to $248,871 in the quarter ended September 30, 2012 as compared to 2011. While there is an overall decrease in Revenue, SaaS revenue increased from $119,000 to $127,000. While the increase in revenue is 7%, we have seen a shift in the number of clients served with a 60% growth in the number of on-demand accounts on a year over year basis. The year over year revenue decrease was predominantly driven by slower demand for our Production services. The episodic nature of these of these services caused lower revenue with a smaller number of engagements than in the prior year.
Cost of Sales
During the quarter the Entity incurred cost of sales in conjunction with the direct provision of services to our clients. These expenses consist of bandwidth to deliver licensing of the online video platform, sales commissions, and production personnel as well as equipment to facilitate the provision of our production services. Cost of sales increased by $42,119 to $84,076 in the quarter ended September 30, 2012 as compared to 2011. The increase was due predominantly to a higher cost structure required for the current year production services, which included additional professional services of $22,000 and incentive compensation of $16,000 which was not incurred in the prior year.
Operating Margin
The operating margin generated by the services and technologies provided during the quarter ended September 30, 2012 decreased by $101,538 to $164,795 in comparison to the quarter ended September 30, 2011. The operating margin on the services and technologies produced an Operating Margin of 66% in comparison to 86% in the prior year. The decrease in Margin was predominantly driven by the increased cost related to production services as the Software licensing service remained stable.
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 $18,405 to $300,308 for the quarter ended September 30, 2012 as compared to 2011. This decrease relates primarily to reduced professional fees from the prior year, specifically related to legal fees in the prior year as well as lower occupancy costs as we completed our move to a lower cost facility in the prior year. These decreases were offset somewhat by additional advertising expense associated with the promotion of our OVP.
Stock based Compensation
Stock based compensation decreased by $20,722 to $5,079. The expense associated with stock based compensation in the prior year quarter had higher amounts of vesting related to awards for recruitment of certain officers whereas the current year quarter relates to ongoing recognition of vesting at a lower level. This was due to the renegotiation of Executive Officer contracts in the fourth quarter of the year ended June 30, 2012.
Loss from Operations
Loss from Operations increased by $59,310 to $143,887. The increase in the loss was driven by the lower Operating Margin, offset somewhat by the decreased Operating Expenses.
Interest expense
Interest expense decreased by $42,381 to $15,509. The decrease is due to the conversion of a significant portion of the outstanding indebtedness into Equity during the fourth quarter of the year ended June 30, 2012.
Nonoperating Gains
The realized gain on troubled debt restructuring did not exist in the prior year as the debt was converted into Equity on the fourth quarter of the year ended June 30, 2012 with continuation of a portion of the settlement into the three months ended September 30, 2012.
Unrealized gain on adjustment to the fair market value of financial instruments decreased by $519,265 to $25,312. The decrease relates to the nature of the troubled debt restructuring. While ongoing negotiations caused the larger gain on the prior year, the significant reduction in the outstanding balance of our debt during the year ended June 30, 2012 caused the current year adjustment to be much lower.
Liquidity and Capital Resources
The Entity had net working capital of $(738,382) at September 30, 2012, a degradation of $143,979 compared to June 30, 2012. The degradation is due to the Operating losses sustain during the three months ended September 30, 2012
The Entity has incurred operating losses since its inception. The Entity’s auditor has emphasized uncertainty regarding our ability to continue as a going concern in his audit report for the year ended June 30, 2012. As shown in the accompanying financial statements, the Entity has an accumulated deficit of $8,311,164 as of September 30, 2012.
Other components of the Entity’s working capital and changes therein are discussed as follows:
Cash and Cash Equivalents. For the three month period ended September 30, 2012, cash and cash equivalents decreased to $52,344 from $67,911 at June 30, 2012.
Cash Flows from Operating Activities. Net cash used by operating activities was $15,086 for the three months ended September 30, 2012, a decrease of $16,899 over the first quarter of the prior year. The change in cash flows from operating activities is primarily attributable to the use of working capital assets and liabilities to support our Operating Losses.
Cash Flows from Financing Activities. Net cash used by financing activities was $481 for the three months ended September 30, 2012, and consisted solely of the repayment of a small amount of our outstanding debt.
N/A.
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 September 30, 2012. 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 September 30, 2012, 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 Entity intends to remediate the deficiencies through the deployment of additional personnel and implementation of an audit committee.
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 September 30, 2012 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 September 30, 2012.
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 reasonable assurance level.
Changes in Internal Control Over Financial Reporting
None.
PART II
OTHER INFORMATION
In August, 2011, a judgment in favor of our former lessor was granted in the amount of $151,924. The Entity does not dispute that the premises were vacated prior to lease termination and is currently in settlement discussions. This case was originally filed by Sand Lake West Business Park, Inc. on May 25, 2011 in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida.
None.
None
As of September 30, 2012, we have $29,000 of outstanding Promissory Notes that we have not met our contractual obligation for the payment of principal and interest. We have attempted to convert these Notes into Equity, similar to the conversions that occurred in the year ended June 30, 2012 but have been unable to come to terms with the Note holders.
None.
This report is required to be filed by November 14, 2012. Under the provisions of the Securities Exchange Act of 1934, Release No. 68224 issued on November 14, 2012, this report will be filed on or before November 21, 2012 and considered to be timely filed. The delay is due to the Chief Financial Officer being delayed in his travel back to our headquarters due to the effects of Hurricane Sandy and its aftermath.
There were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.
| Exhibit Number | Description | |
| EX-101.INS** | XBRL INSTANCE DOCUMENT | |
| EX-101.SCH** | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT | |
| EX-101.DEF** | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| EX-101.LAB** | XBRL TAXONOMY EXTENSION LABELS LINKBASE | |
| EX-101.PRE** | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
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: November 14, 2012 | 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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