UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
---------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
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Commission File Number: 000-28675
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Tribeworks, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3308801
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
988 Market Street, San Francisco, CA
94102
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(Address of principal executive offices) (Zip Code)
(415) 674-5555
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
The number of shares outstanding of registrant's $0.0001 par value common
stock, as of the close of business on June 30, 2000: 16,558,857 shares.
Transitional Small Business Disclosure Format: Yes X No
--- ---
TRIBEWORKS, INC.
SECOND QUARTER 2000 REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- -------------------------------- ----
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
- ----------------------------
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
TRIBEWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
JUNE 30, 2000 DEC. 31, 1999
UNAUDITED AUDITED
------------- -------------
ASSETS
- ------
Cash and cash equivalents $ 190,133 $ 157,353
Accounts receivable, net 74,041 31,240
Prepaids and deposits 73,408 21,514
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Total current assets 337,582 210,107
------------- -------------
Equipment (net of accumulated depreciation of $5,517 at June 30, 2000 and
$1,228 at December 31, 1999) 62,105 14,140
Technology license (net of accumulated amortization of 28,890 at June 30,
2000 and $7,223 at December 31, 1999)
101,110 122,777
------------- -------------
Total assets $ 500,797 $ 347,024
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 112,674 $ 211,631
Accrued other liabilities 41,647 30,160
Due to shareholders 6,232 18,732
Deferred revenue 82,548 97,983
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Total current liabilities 243,101 358,506
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Obligation to issue common stock -- 40,000
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Total liabilities 243,101 398,506
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Stockholders' (deficit) equity:
Preferred stock: 50,000,000 shares authorized, none issued
Common stock: 200,000,000 shares authorized, $0.0001 par value 16,558,857
and 16,010,000 shares issued and outstanding
1,656 1,601
Additional paid in capital 2,122,353 1,103,801
Related party subscription receivable -- (5,257)
Accumulated deficit (1,866,313) (1,151,627)
------------- -------------
Total stockholders' equity (deficit) 257,696 (51,482)
------------- -------------
Total liabilities and stockholders' equity $ 500,797 $ 347,024
============= =============
<FN>
See accompanying notes to unaudited financial statements
</FN>
3
TRIBEWORKS, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
Revenue $ 239,177 $ 35,205 $ 404,040 $ 51,637
Cost of sales 23,945 6,480 36,655 10,033
--------------- --------------- --------------- ---------------
Gross profit 215,232 28,725 367,385 41,604
--------------- --------------- --------------- ---------------
Operating expenses:
Product support 18,162 18,024 38,100 28,688
Product development 139,037 69,357 250,250 118,357
Sales and marketing 210,965 55,329 369,726 74,401
General and administrative 267,442 113,653 427,341 145,508
--------------- --------------- --------------- ---------------
Total operating expenses 635,606 256,363 1,085,417 366,954
--------------- --------------- --------------- ---------------
Loss from operations (420,374) (227,638) (718,032) (325,350)
Interest income 3,391 -- 4,236 --
--------------- --------------- --------------- ---------------
Loss before income taxes (416,983) (227,638) (713,796) (325,350)
Income taxes 890 -- 890 --
--------------- --------------- --------------- ---------------
Net loss $ (417,873) $ (227,638) $ (714,686) $ (325,350)
=============== =============== =============== ===============
Basic and diluted loss per share
$ (0.03) $ (0.02) $ (0.04) $ (0.03)
=============== ============== ============== ==============
Weighted average number of shares
outstanding 16,512,636 12,863,964 16,269,834 12,863,964
=============== ============== ============== ==============
<FN>
See accompanying notes to unaudited financial statements
</FN>
4
TRIBEWORKS, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
------------- ------------
OPERATING ACTIVITIES
Net loss from operations $ (714,686) $ (325,350)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization expense 25,955 600
Changes in operating assets and liabilities
Accounts receivable (42,801) (9,462)
Other receivables, prepaids and deposits (51,894) 3,932
Accounts payable (98,956) 36,153
Deferred revenue (15,435) 44,030
Other liabilities (1,014) --
------------- ------------
Net cash used in operating activities (898,831) (250,097)
INVESTING ACTIVITIES
Purchase equipment (52,253) --
------------- ------------
Net cash used by investing activities (52,253) --
FINANCING ACTIVITIES
Proceeds from sale of common shares 983,864 --
Proceeds from note payable -- 269,782
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Net cash provided by financing activities 983,864 269,782
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Net increase in cash and cash equivalents 32,780 19,685
Cash and cash equivalents, beginning of period 157,353 37,723
------------- ------------
Cash and cash equivalents, end of period $ 190,133 $ 57,408
============= ============
Taxes paid during period $ 890 $ --
Interest paid during period $ -- $ --
NON CASH EVENT:
Related party rec. - options exercise for 25,667 common shares $ 1,283
Purchase of consulting services for cash and 3,190 shares valued
at $ 6,380
<FN>
See accompanying notes to unaudited financial statements
</FN>
5
TRIBEWORKS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 ORGANIZATION AND DEVELOPMENT STAGE RISKS
ORGANIZATION On August 20, 1998 ("Inception") Tribeworks, Inc. (the "Company")
began its business activities. The Company's principal business activities are
developing software applications for Internet media developers through the
Internet and marketing a technology known as "iShell." This technology was
acquired from two of the Company's cofounders. Business activities have been
financed primarily through the issuance of equity securities for cash, sales of
membership subscriptions, custom development services and product sales.
On November 2, 1999, Tribeworks Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Pan World Corporation (PWC), a Nevada corporation,
merged with and into Tribeworks, Inc., a California corporation (California
Tribeworks). Subsequent to the merger, California Tribeworks renamed itself
Tribeworks Development Corporation (Tribeworks Development) and PWC, the sole
shareholder of Tribeworks Development, reincorporated as Tribeworks, Inc., a
Delaware corporation. These transactions hereinafter are referred to as the
"Recapitalization". PWC had no significant assets, liabilities or operations
from the date of its incorporation in Nevada on August 20, 1996 through November
2, 1999, and the majority shareholders of California Tribeworks became the
majority shareholders of PWC. Therefore, the Recapitalization was a reverse
acquisition that is being accounted for as a recapitalization.
Unless the context otherwise indicates, "Tribeworks" or "Company" refers to
California Tribeworks prior to the Recapitalization and to Tribeworks, Inc., a
Delaware corporation, after the Recapitalization.
The Company is subject to a number of risks similar to other companies in a
comparable stage of development including reliance on key personnel, successful
marketing of its services in an emerging market, competition from other
companies with greater technical, financial management and marketing resources,
successful development and enhancement of new services and products, and the
ability to secure adequate financing to support future growth.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNUADITED FINANCIAL INFORMATION The interim consolidated statements are
unaudited. However, in the opinion of management, the interim data includes all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair statement of the results for the interim periods. The financial
statements included herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures included herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the annual financial statements and notes thereto included
in the Company's Form 10-SB/A filed with the SEC on July 10, 2000.
FINANCIAL STATEMENT PRESENTATION For periods prior to the Recapitalization, the
financial statements reflect California Tribeworks financial position, results
of operations and cash flows. For periods subsequent to the Recapitalization,
the financial statements of the Company are presented on a consolidated basis
and include the Company and its only subsidiary, Tribeworks Development. The
Company's operations are conducted through Tribeworks Development. There was no
inter-company activity during the periods presented.
Certain prior period balances have been reclassified to conform to the current
period presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
CHANGE IN ACCOUNTING METHOD Beginning April 1, 2000, the Company adopted the
percentage-of-completion method of accounting for recognizing revenue with
respect to custom development services. Revenue is
6
TRIBEWORKS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIATED FINANCIAL STATEMENTS
(UNAUDITED)
recognized based on the number of hours worked on projects and estimates of the
total number of hours that will be worked on projects. We believe that this
method of accounting is preferable to the milestone based method of accounting
that had been used prior to April 1, 2000. Under the milestone based method of
accounting, revenue is recognized as each milestone for the development service
is completed. This change in accounting method is not material to prior periods.
Therefore, prior period financial statements have not been restated.
The company did not change its method of accounting for sales of membership
subscriptions or product sales.
NET LOSS PER COMMON SHARE Net loss per common share is computed based on the
weighted average number of common stock and common stock equivalents
outstanding. When dilutive, stock options and warrants are included as common
stock equivalents using the treasury stock method. There was no difference
between basic and fully diluted earnings per share in each of the periods
presented.
As of June 30, 2000, the Company had 873,030 and 695,097 outstanding warrants
and options, respectively, that were excluded from the diluted net loss per
share calculation because their effects would be antidilutive.
INCOME TAXES Deferred tax assets primarily consist of a net operating loss (NOL)
carryforward since the Company has not generated taxable income since inception.
There are no significant deferred tax liabilities. Due to the uncertainties
concerning the future ability of the Company to benefit from the net operating
loss carryforward, a valuation allowance was established which reduced the
deferred tax assets to zero. There may be restrictions related to tax laws,
which may further limit the value of any deferred tax asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include
cash, receivables, and accounts payable. The Company believes that the fair
value of these financial instruments approximates their carrying amounts based
on current market indicators, such as prevailing market rates.
RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the staff of the Securities
and Exchange Commission (SEC) released Staff Accounting Bulletin, or SAB, No.
101, "Revenue Recognition", to provide guidance on the recognition,
presentation, and disclosure of revenues in financial statements. In March 2000,
the SEC staff announced that the adoption date for SAB No. 101 would be delayed
until the second quarter of 2000. We believe that our revenue recognition
practices are currently in conformity with the guidelines in SAB No. 101 and
therefore, this announcement will have no impact on our financial statements.
In March 2000, the Financial Accounting Standards Board, or FASB, released FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25," which provides
clarification of Opinion 25 for certain issues such as the determination of who
is an employee, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. Starting July
1, 2000, this guidance will have an impact on our treatment of consultants as
employees, which may result in the Company recording non-cash compensation
expense for non-employees that are granted stock options.
In March 2000, the Emerging Issues Task Force of the FASB, or EITF, issued EITF
00-2, "Accounting for the Costs of Developing a Website." This issue addresses
how an entity should account for costs incurred to develop a website. To date,
we have not capitalized any such costs and believe that our historical and
current practices are in conformity with EITF 00-2 and therefore, this release
will not have a material impact on our financial statements.
In March 2000, the EITF issued EITF 00-3, Application of AICPA SOP 97-2 to
"Arrangements that Include the Right to Use Software Stored on Another Entity's
Hardware." This issue addresses situations where entities license software
applications to a third party and also host those applications. To date we have
not recognized revenues from applications that are subject to EITF 00-3 and
therefore, this release will not have a material impact on our financial
statements.
7
TRIBEWORKS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 MATERIAL CUSTOMER RELATIONSHIPS
During the three and six months ended June 30, 2000, we reported revenue of
$110,541 from one customer. That customer represents 46% and 27% of revenues for
the three and six months ended June 30, 2000, respectively. The revenue
recognized from this customer is not recurring in nature and there are no
assurances that this customer, or others like it, will engage us to provide
custom development solutions in the future.
NOTE 4 RELATED PARTY TRANSACTIONS
During the period ended December 31, 1998, certain officers of the Company
loaned $18,732 to the Company to finance some of its start-up costs. The loan is
non-interest bearing and payable on demand.
During the three months ended June 30, 2000, $12,500 of the loan was repaid.
NOTE 5 SUBSEQUENT EVENTS
PRIVATE PLACEMENT During March and April 2000, the Company executed subscription
agreements for 1,000,000 units of securities consisting of one share of common
stock and one warrant to purchase one share of common stock at a price of $2.50
per share for an aggregate purchase price of $2,000,000 in a private placement
of securities. Each warrant is exercisable within the seven month period
following the subscription date of the unit. At June 30, 2000, $1,040,000 had
been collected by the Company under this offering. As of August 11, 2000,
$760,000 remains to be collected. These securities were offered and sold
pursuant to our exemption from registration under Rule 506, Regulation D of the
Securities Act.
CHANGE IN MEMBERSHIP PRICING During August 2000, the Company changed its pricing
model with respect to membership services. Prior to the change, the Company had
two membership classifications; Free Membership and Full Membership. Full
Membership generally cost $2,000 for the first year of membership and $1,000 for
subsequent annual renewals. Under the new plan, Full Membership is being
replaced by two membership groups; Silver Membership and Gold Membership. Silver
Membership is priced less than Full Membership and does not benefit from the
same high level of service previously provided for Full Members. Gold Membership
is priced above Full Membership but will benefit from a higher level of service.
After the change, renewing Full Members will have the opportunity to purchase
Gold Memberships for the Full Member renewal price.
The Company also clarified that, when released, iShell 2.0 software will be
downloadable free of charge but that, at a minimum, a Silver Membership must be
purchased if the iShell 2.0 software is to be used for commercial purposes.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following discussion contains forward-looking statements that are subject to
risks and uncertainties. There are several important factors that could cause
actual results to differ materially from historical results and percentages and
results anticipated by the forward-looking statements. We have sought to
identify the most risks to our business but cannot predict whether or to what
extent any of such risks may be realized. There can be no assurance that we have
identified all possible risks that might arise. Investors should carefully
consider all of such risks before making an investment decision with respect to
the Company's stock.
OVERVIEW
We develop and distribute software tools and services that we believe make it
easier and less expensive for companies to deploy multimedia content over the
Internet.
The creation and deployment of websites and Internet content is becoming more
complicated. Internet content is changing from the simple delivery of text and
graphics to personal computers, to the more complex delivery of audio, video,
graphics, and animation content to a broad range of devices, such as personal
computers, interactive retail displays, Internet enabled telephones, and hand
held computers.
Traditional graphics and multimedia companies distribute and sell their software
through multiple distribution tiers and packages. In addition, traditional
graphics and multimedia software tools companies generally do not provide their
customers with access to the underlying "source code", which is the computer
language used in writing a software program. The source code is used to
customize or modify software applications.
We have developed iShell, a software application (authoring environment), which
allows a developer to create and deploy electronic content that utilizes
interactive features combining audio, video, animation, and graphics content
(Rich-Media). The Rich-Media authoring environment is used for development of
electronic content for the development of Internet TV and Internet radio
stations, Internet connected kiosks, and long distance learning applications.
We market and sell our products and services through a subscription-based model
that allows us to distribute our software directly to our customers through our
website. We have a two-tier subscription or membership structure that includes a
Free Membership and a Full Membership.
By providing our Full Members access to the source code of our software
products, these members can develop software tools that enhance the
functionality of our products. We benefit from these enhancements because our
software product continues to become a more robust authoring environment for
development of Rich-Media due to our Full Members' input as to the market needs
for such authoring tools. We benefit from the experience of our customers and
are able to share their developments with our other Full Members.
During August 2000, the Company changed its pricing model. See - "NOTES TO
UNAUDITED FINANCIAL STATEMENTS--NOTE 5 SUBSEQUENT EVENTS--CHANGE IN MEMBERSHIP
PRICING".
As well as generating revenues from membership sales, we provide custom
development solutions for large customers.
We have sustained losses on a quarterly and annual basis since inception and we
expect to sustain losses for the foreseeable future as we expand our operations.
As of June 30, 2000, we had an accumulated deficit of $1.9 million. Operating
losses resulted primarily from costs incurred in the development and sale of our
products and services. We expect our operating expenses to continue to increase
in all functional areas in order to execute our business plan. As a result, we
anticipate that these operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. We expect to
incur additional losses and continued negative cash flow from operations in the
future. We cannot assure you that we will achieve or sustain profitability.
Our limited operating history makes the prediction of future operating results
difficult. In view of our limited operating history and the early and rapidly
evolving nature of our business, we believe that period-to-period
9
comparisons of our operating results, particularly for the three-month periods
ended June 30, 2000 and 1999, are not meaningful and should not be relied upon
as an indication of future performance. Our business prospects must be
considered in light of the risks and uncertainties often encountered by
early-stage companies in the Internet-related products and services market. We
may not be successful in addressing these risks and uncertainties. We have
experienced significant percentage growth in revenues in recent periods;
however, there are no assurances that prior growth rates are sustainable or
indicative of future growth rates. It is likely that in some future quarter our
operating results may fall below the expectations of securities analysts and
investors. In this event, the trading price of our common stock may fall
significantly.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VERSUS THREE MONTHS ENDED JUNE 30, 1999
REVENUES
We recorded revenues of $239,177 and $35,205 for the three months ended June 30,
2000 and 1999, respectively. The 749% increase in revenues is primarily the
result of custom development services provided during the second quarter of 2000
that were not offered during the second quarter of 1999. Additionally, we
increased the number of paying Full Members.
Revenues for the three months ended June 30, 2000 include $110,541, or 46%, from
one customer. The revenue recognized from this customer is not recurring in
nature and there are no assurances that this customer, or others like it, will
engage us to provide custom development solutions in the future.
COST OF SALES
Cost of sales increased to $23,945 from $6,480 for the three months ended June
30, 2000 and 1999, respectively. This increase is primarily due to fixed
authoring fees and royalties paid to the author of an iShell instruction manual.
We sold the manual to Free Members and gave it to new Full Members.
OPERATING EXPENSES
Operating expenses increased 247% from $256,363 to $635,606 for the three months
ended June 30, 1999 and 2000, respectively. This increase is attributable to
product development, sales and marketing, and general and administrative
expenses.
PRODUCT DEVELOPMENT Product development expenses were $139,037 and $69,357 for
the three months ended June 30, 2000 and 1999, respectively. The increase is
primarily attributable to additional employees and consultants that were hired
after June 30, 1999 to work on product enhancements and custom development
projects. Product development expense also includes amortization expense
associated with the November 1999 purchase of the iShell license for $130,000.
The license is being amortized over a 36 month period, resulting in $10,833 in
amortization for the quarter ended June 30, 2000.
SALES AND MARKETING Sales and marketing expenses were $210,965 and $55,329 for
the three months ended June 30, 2000 and 1999, respectively. The increase was
due primarily to the hiring of additional sales and marketing personnel as well
as an increase in expenditures for advertising and attending trade shows.
GENERAL AND ADMINISTRATIVE General and administrative expenses were $267,442 and
$113,653 for the three months ended June 30, 2000 and 1999, respectively. The
increase was due primarily to increases in personnel and related hiring costs,
legal and accounting expenses associated with SEC filings, and costs associated
with relocating our office.
10
SIX MONTHS ENDED JUNE 30, 2000 VERSUS SIX MONTHS ENDED JUNE 30, 1999
REVENUES
We recorded revenues of $404,040 and $51,637 for the six months ended June 30,
2000 and 1999, respectively. The 782% increase in revenues is primarily the
result of custom development services provided during the first half of 2000
that were not offered during the comparable period in 1999. Additionally, we
increased the number of paying Full Members.
Revenues for the six months ended June 30, 2000 include $110,541, or 27%, from
one customer. The revenue recognized from this customer is not recurring in
nature and there are no assurances that this customer, or others like it, will
engage us to provide custom development solutions in the future.
COST OF SALES
Cost of sales increased to $36,655 from $10,033 for the six months ended June
30, 2000 and 1999, respectively. This increase is primarily due to fixed
authoring fees and royalties paid to the author of an iShell instruction manual.
We sell the manual to Free Members and give it to new Full Members.
OPERATING EXPENSES
Operating expenses increased 295% from $366,954 to $1,085,417 for the six months
ended June 30, 1999 and 2000, respectively. This increase is primarily
attributable to product development, sales and marketing, and general and
administrative expenses.
PRODUCT DEVELOPMENT Product development expenses were $250,250 and $118,357 for
the six months ended June 30, 2000 and 1999, respectively. The increase is
primarily attributable to additional employees and consultants that were hired
after June 30, 1999 to work on product enhancements and custom development
projects. Product development expense also includes amortization expense
associated with the November 1999 purchase of the iShell license for $130,000.
The license is being amortized over a 36 month period, resulting in $21,667 in
amortization for the six months ended June 30, 2000.
SALES AND MARKETING Sales and marketing expenses were $369,726 and $74,401 for
the six months ended June 30, 2000 and 1999, respectively. The increase was due
primarily to the hiring of additional sales and marketing personnel as well as
an increase in expenditures for advertising, promotions, and attending trade
shows.
GENERAL AND ADMINISTRATIVE General and administrative expenses were $427,341 and
$145,508 for the six months ended June 30, 2000 and 1999, respectively. The
increase was due primarily to increases in personnel and related hiring costs,
legal and accounting expenses associated with SEC filings, insurance expense,
and costs associated with relocating our office.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of $190,133 compared
to $157,353 at December 31, 1999.
The Company's capital requirements have been, and will continue to be,
significant. Since inception, the Company has financed its operations primarily
through issuance of stock. Through June 30, 2000, the Company had raised
$2,108,000 from the sale of stock, not including subscriptions receivable. At
June 30, 2000, the principal source of liquidity for the Company was $190,133 of
cash and cash equivalents.
For the six months ended June 30, 2000 and 1999, cash used in operating
activities was $898,831 and $250,097 respectively. The increase was due
primarily to the increased cost of building the Company's business.
Cash used in investing activities for the six months ended June 30, 2000 and
1999 was $52,253 and $0, respectively. The amount spent during the first half of
2000 was for equipment purchases.
11
Cash provided by investing activities for the six months ended June 30, 2000 and
1999 was $983,864 and $269,782, respectively. Cash inflow during the first half
of 2000 is from sales of our stock and employees/consultants exercising stock
options. Cash inflow during the comparable period in 1999 was from a note
payable.
Our capital requirements depend on numerous factors, including market acceptance
of our products, resources we devote to developing, marketing, selling and
supporting our products, timing of our operations, extent and timing of
investments, potential acquisition of other concerns, and other factors. We
expect to devote substantial capital resources to hire and expand our sales,
support, marketing and product development organizations, to expand marketing
programs, and for other general corporate activities.
During the first half of 2000, the Company received subscriptions to sell
1,000,000 units of securities consisting of one share of common stock and one
warrant to purchase one share of common stock at a price of $2.50 per share for
an aggregate purchase price of $2,000,000 in a private placement of securities.
Each warrant is to be exercisable within the seven month period following the
date of subscription of the unit. At June 30, 2000 and August 11, 2000,
$1,040,000 and $1,240,000 had been raised for the Company under this offering,
respectively. The 620,000 warrants outstanding as of August 11, 2000 expire in
October and November of 2000 and, if all of the warrants are exercised, will
result in a cash infusion of $1,550,000.
We do not expect to generate net earnings from our operations within the next
twelve months. Therefore, if we are not able to obtain necessary financing, we
will not be able to maintain operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
AND MARKET PRICE OF STOCK
WE HAVE A LIMITED OPERATING HISTORY AND THERE IS A GREAT DEGREE OF UNCERTAINTY
AS TO OUR FUTURE RESULTS. WE HAVE NEVER BEEN PROFITABLE AND MAY NEVER ACHIEVE
PROFITABILITY.
We have a limited operating history upon which an evaluation of our business and
prospects can be based. We have never been profitable and may never achieve
profitability. Our prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development, particularly in light
of the uncertainties relating to the new and evolving markets in which we intend
to operate and in light of the uncertainty as to market acceptance of our
business model. We will be incurring costs in marketing our products and
services to clients and in building an administrative organization. To the
extent that revenues do not match these expenses, our business, results of
operations and financial conditions will be materially adversely affected. There
can be no assurance that we will be able to generate sufficient revenues from
the Full Memberships, custom development solutions, and third party products to
achieve or maintain profitability on a quarterly or annual basis in the future.
Even if we are able to achieve profitability in any period, we may not be able
to sustain or increase profitability on a quarterly or annual basis.
WE EXPECT TO INCUR OPERATING LOSSES FOR THE FORESEEABLE FUTURE AS WE CONTINUE TO
DEVELOP AND MARKET OUR BUSINESS.
We have incurred operating losses each year since our inception. We expect to
continue to incur losses for the foreseeable future as we increase our sales and
marketing, research and development and administrative expenses. As a result, we
cannot be certain when or if we will achieve sustained profitability. Failure to
become and remain profitable may adversely affect the market price of our common
stock and our ability to raise capital and continue operations.
We expect high variability and uncertainty as to our future operations and
financial results. As we continue to develop and market our business, our
quarterly operating results may fluctuate as a result of a variety of factors.
Many of these factors are outside our control, including demand for the
development of Internet-based Rich-Media applications, the introduction of new
sites and services by our competitors, price competition or pricing changes in
the industry, technical difficulties or system downtime, general economic
conditions, and economic conditions specific to the Internet and related media.
Due to these factors, among others, our operating results may fall below our
expectations and the expectations of investors.
12
WE ANTICIPATE THAT WE DO NOT HAVE SUFFICIENT FUNDS TO ENABLE US TO MAINTAIN OUR
OPERATIONS FOR THE NEXT TWELVE MONTHS. WE WILL NEED ADDITIONAL FUNDS TO MAINTAIN
OUR SHORT TERM OPERATIONS. WE CANNOT ASSURE YOU THAT FUNDS WILL BE AVAILABLE TO
US OR AVAILABLE ON COMMERCIALLY REASONABLE TERMS.
Based on current levels of operations, we anticipate that our existing capital
resources will not be sufficient to enable us to maintain our operations through
the next twelve months. In addition, we will require additional funds to sustain
and expand our sales and marketing and research and development activities.
Adequate funds for these and other purposes, whether through additional equity
financing, debt financing or other sources, may not be available when needed or
available on commercially reasonable terms acceptable to us, or may result in
dilution to existing stockholders. The inability to obtain sufficient funds from
operations and external sources would have a material adverse effect on our
business, results of operations and financial condition.
A SUBSTANTIAL PORTION OF OUR REVENUES DEPENDS ON OUR ABILITY TO ATTRACT FULL
MEMBERS WHO WILL PAY A MONTHLY OR ANNUAL FEE. ATTRACTING FEE-GENERATING FULL
MEMBERS OR CONVERTING OUR FREE MEMBERS TO FULL MEMBERS MAY BE A DIFFICULT AND
TIME-CONSUMING PROCESS, THE SUCCESS OF WHICH CANNOT BE GUARANTEED.
We have a two-tiered subscription structure. Only Full Members pay fees. The
Free Members are not paying for their usage of our service and are not obligated
to convert to Full Member status. We cannot assure that we will be able to
attract sufficient numbers of Full Members or convert Free Members to achieve
profitability. If we are unable to attract Full Members or convert Free Members,
our business and financial operations could be materially adversely affected.
OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED BY THE INDUSTRIES THAT USE
RICH-MEDIA APPLICATIONS.
Our future success depends on our ability to create, license, and deliver
sophisticated tools for the development of Rich-Media applications in the (i)
media and entertainment industries, (ii) advertising industry, (iii) corporate
communications industry, and (iv) educational industry. If our products and
related services are not widely accepted, our ability to sell custom solutions
and increase the Tribeworks memberships will be hampered. There can be no
assurance that our products and tools will be attractive to a sufficient number
of users to generate revenues. If we are unable to evolve our present products
and to develop new products that allow us to attract, retain, and expand a loyal
membership base, our business, results of operations and financial condition
will be materially adversely affected.
THE RICH-MEDIA MARKET IS INTENSELY COMPETITIVE. WE CANNOT ASSURE YOU THAT WE
WILL BE ABLE TO ACHIEVE MARKET ACCEPTANCE.
The Rich-Media market is intensely competitive. We expect the competition to
increase as new competitors enter the market. Our competitors may have greater
technical, marketing, and other resources. We believe that the primary
competitive factors in providing Rich-Media application services and tools to
Internet-based organizations are name recognition, value-added services, ease of
use, price, quality of service, availability of customer support, reliability,
technical expertise, and experience. To the extent that we are not able to
attract sources of revenues from Full Members, custom development services, and
sales of our products, our business, results of operations, and financial
condition will be materially adversely affected.
A number of companies currently offer services or products that compete directly
or indirectly with our current products and service offerings. These companies
include Macromedia, Adobe Systems, Meta Creations, Asymetrix, and Autodesk.
These companies market a variety of products addressing our target markets,
including software tools for authoring and delivering interactive information
targeted to computer-based training specialists and educators, as well as
multimedia professionals. They also offer graphics and publishing products for
on-line and print-based publishing. In addition, competitors also provide
extensive product training to support their products. If we are unable to
introduce competitive products with competitive training and consulting
services, our business, results of operations, and financial condition will be
materially adversely affected.
13
Most of our current and potential competitors in the Internet services and
graphics and multimedia industries have longer operating histories, greater name
recognition and larger existing customer base than us. These competitors may be
able to respond faster to new or emerging technologies and changes in customer
requirements. Because of their greater resources, they will be able to make more
responsive changes to market conditions. Accordingly, there can be no assurance
that we will be able to compete successfully in the Internet business.
THE OPEN SOURCE AND FREE SOFTWARE BUSINESS MODELS ARE UNPROVEN IN THE GRAPHICS
AND MULTIMEDIA INDUSTRY, AND WE MAY FAIL TO ACHIEVE MARKET ACCEPTANCE.
We have not demonstrated the success of our business model, which gives our
customers the right to freely use and modify our software. No other company has
built a successful business following such a model, and few open source software
products have gained widespread commercial acceptance. This is partly due to the
lack of viable open source industry participants to offer adequate service and
support on a long-term basis. In addition, we are not able to provide industry
standard warranties and indemnities for our products. Independent parties over
whom we exercise no control or supervision develop components of these products.
If open source software should fail to gain widespread commercial acceptance, we
will not be able to sustain our revenue growth and our business could fail. We
cannot assure that we will be able to achieve market acceptance.
THE LINUX OPEN SOURCE COMMUNITY OR THE TRIBEWORKS DEVELOPER COMMUNITY MAY REACT
NEGATIVELY TO OUR SOFTWARE AND BUSINESS STRATEGY, WHICH COULD MATERIALLY HARM
OUR REPUTATION AND BUSINESS.
Although we allow customers access to the underlying source code of our software
products, we believe that many of our customers do not wish to license product
enhancements to us or to potential customers. One of the most important
characteristics of Linux is that it has developed an open source system. We do
not follow a strict open source model with respect to our software. In
particular, we allow proprietary product enhancement, we limit the
redistribution of our software, and we do not make our products available under
a General Public License, which is available on www.opensource.org. These
restrictions on our software run counter to current trends in the Linux open
source community, which advocates unlimited distribution of software and the use
of General Public Licenses. The Linux open source community is a diverse group
of software developers, and companies that have advocated the use of Linux, an
alternative operating system to Microsoft's Windows.
The approach we take towards our software, which allows proprietary product
enhancements, and our decision to forego use of General Public Licenses may
result in a negative reaction from the Linux-based open source community. This
type of negative reaction, if widely shared by our customers, developers or the
rest of the open source community, could harm our reputation, diminish the
Tribeworks brand and result in substantially decreased revenue.
In addition, the Tribeworks developer community, which contributes software,
testing, and technical support to other members, could react negatively to our
current or future business strategy. A negative reaction by our community could
have a negative effect on the willingness of our members and contributors to
share their improvements to our software. We would then have to develop our own
improvements without the benefit of the potentially valuable contributions of
third parties. As a result, we would incur higher development costs and our
business and revenues could be adversely affected.
OUR SOFTWARE DEPENDS ON APPLE'S QUICKTIME TECHNOLOGY TO FUNCTION PROPERLY. WE
CANNOT ASSURE YOU THAT APPLE WILL CONTINUE TO DEVELOP THE QUICKTIME TECHNOLOGY
OR DISTRIBUTE IT FREE OF CHARGE.
Our iShell product line currently requires installation of Apple Computer's
QuickTime software in order to function properly on both Windows and Macintosh
systems. Apple's QuickTime technology competes directly with Rich-Media
technologies from Microsoft and Real Networks, which our technology does not
support. We have no control over whether, and cannot assure that, Apple's
QuickTime will maintain or enlarge its current market share against these
competitive technologies. In addition, although Apple's QuickTime technology has
been under development for more than eight years, we cannot assure that Apple
will continue to develop the technology or distribute it free of
14
charge to consumers. Apple may also substantially alter its business or
licensing strategy with QuickTime in a way that could adversely impact our
business, resulting in increases in our development costs.
WE CANNOT ASSURE YOU THAT THE MARKET WILL ACCEPT THE INTERNET AS A VEHICLE FOR
RICH-MEDIA APPLICATIONS.
Use of the Internet-based Rich-Media by individuals and business users is at an
early stage of development. Market acceptance of the Internet as a medium for
Rich-Media applications, information, entertainment, commerce, advertising, and
education is subject to a high level of uncertainty. We depend on the Internet
to market our Rich-Medial products. Our ability to succeed will depend, in part,
in the development of Internet infrastructure to support delivery of Rich-Media
content. If Internet-based Rich-Media applications are not widely accepted by
consumers or businesses, or appropriate Internet infrastructure does not become
available, our business, financial condition, and operating results will be
materially adversely affected.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO ESTABLISH AND MAINTAIN THE
TRIBEWORKS BRAND, WHICH IS CRITICAL TO OUR EFFORTS TO ATTRACT AND EXPAND OUR
MARKET.
We believe that establishing and maintaining the Tribeworks brand is a critical
aspect of our efforts to attract and expand our Internet audience. The
importance of brand recognition will increase due to the growing number of
Internet sites and the relatively low barriers to entry in providing Internet
services, tools, products, and content. If we fail to promote and maintain our
brand, or if we incur excessive expenses in an attempt to promote and maintain
our brand, our business, financial condition and operating results will be
materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ADDRESS POTENTIAL MARKET OPPORTUNITIES
WHILE MANAGING OUR EXPENSES. IF WE ARE UNABLE TO MANAGE OUR EXPENSES, OUR
BUSINESS AND FINANCIAL CONDITIONS WILL BE MATERIALLY ADVERSELY AFFECTED.
Our future success depends upon our ability to address market opportunities
while managing our expenses to match our ability to finance our operations. Our
need to manage expenses will place a strain on our management and operational
resources. If we are unable to manage our expenses effectively, our business,
financial condition, and operating results will be materially adversely
affected.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL AND THE CONSULTING SERVICES PROVIDED BY
KEEPSAKE. WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES AND MAY NOT
BE ABLE TO RETAIN THE SERVICES OF KEEPSAKE AFTER THE EXPIRATION OF THE KEEPSAKE
SOFTWARE AGREEMENT.
Our performance and success substantially depends on the services of Duncan
Kennedy, our President and CEO, as well as on our ability to recruit, retain and
motivate our other officers and key employees.
We do not currently have employment contracts with key officers or employees,
and they could terminate their relationship with us. Our success also depends on
our ability to attract and retain additional qualified employees in the San
Francisco Bay Area. Competition for qualified personnel in the San Francisco Bay
Area is intense and there are a limited number of persons with knowledge of and
experience in our field of business. There can be no assurance that we will be
able to attract and retain key personnel. The loss of one or more key employees
or of our key service providers could have a material adverse effect on the
Company.
In addition, Mr. Soquet (one of our co-founders and a director) performs
software development services for us through Keepsake, the Belgian entity owned
by him. Pursuant to the Keepsake Software Agreement, Keepsake agreed to provide
necessary services to us through November 2000. In the event that we are unable
to retain Mr. Soquet's services after termination of the Keepsake Software
Agreement, our business and financial condition could be materially and
adversely affected.
15
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP SERVICES THAT MEET OUR CUSTOMERS'
REQUIREMENTS. WE MAY NOT BE ABLE TO MEET THOSE REQUIREMENTS IF WE ARE UNABLE TO
KEEP PACE WITH TECHNOLOGY TRENDS AND THE EVOLVING RICH-MEDIA INDUSTRY STANDARDS.
Our success depends on our ability to develop and provide new services that meet
our customers' changing requirements. The Internet is characterized by rapidly
changing technology, evolving industry standards, changes in customer needs and
frequent new service and product innovations. Our future success will depend, in
part, on our ability to assess and effectively use unproven technologies and
unproven standards. We must evaluate and utilize technical standards developed
by industry committees. We must also evaluate and use proprietary multimedia
development software provided by companies such as Apple, Microsoft, and Real
Networks to continue to develop our technological expertise, enhance our current
services, develop new services that meet changing customer needs, and influence
and respond to merging industry standards and other technological changes on a
timely and cost-effective basis. If we fail to adequately assess or utilize
these standards or proprietary technologies at the appropriate time in the
market place, the competitive advantages of our products and services and our
business, financial condition, and operating results could be materially
adversely affected.
WE ARE ENTIRELY DEPENDENT ON THE INTERNET WHICH REMAINS AN UNCERTAIN MEDIUM FOR
COMMERCE.
Use of the Internet by consumers is at an early stage of development, and market
acceptance of the Internet as a medium for commerce is subject to uncertainty.
Our future success will depend on our ability to increase revenues, which will
require the development and widespread acceptance of the Internet as a medium
for commerce. There can be no assurance that the Internet will be a successful
commercial channel. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network for delivery of content, or complementary services,
such as high-speed modems and security procedures for financial transactions.
The viability of the Internet may prove uncertain due to delays in the
development and adoption of new standards and protocols to handle increased
levels of Internet activity or due to increased government regulation. If use of
the Internet does not continue to grow, or if the necessary Internet
infrastructure or complementary services are not developed to effectively
support growth that may occur, our business, results of operations and financial
condition could be materially adversely affected.
INCREASING GOVERNMENTAL REGULATION ON ELECTRONIC COMMERCE AND LEGAL
UNCERTAINTIES COULD LIMIT OUR GROWTH.
The adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase our cost of doing business or otherwise harm
our business. Federal, state, local and foreign governments are considering a
number of legislative and regulatory proposals relating to Internet commerce. As
a result, a number of laws or regulations may be adopted regarding Internet user
privacy, security, taxation, pricing, quality of products and services, and
intellectual property ownership, which may also be applicable to us. How
existing laws will be applied to the Internet, in areas such as property
ownership, copyrights, trademarks, trade secrets, and obscene or indecent
communications, is uncertain.
CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS COULD SUBSTANTIALLY REDUCE THE
PRODUCTS WE SELL AND UNDERMINE OUR REPUTATION FOR RELIABILITY AMONG OUR
CUSTOMERS AND POTENTIAL CUSTOMERS.
The satisfactory performance, reliability and availability of our Internet sites
and our network infrastructure are critical to attracting Internet users and
maintaining relationships with subscribing customers. System interruptions that
result in the unavailability of our Internet sites and slower response times for
users could reduce the number of products and multi-media services we deliver
and reduce the attractiveness of our services to members and subscribers. Any
disruption of our services would materially adversely affect our business,
financial condition and results of operations.
16
OUR INTERNET OPERATIONS ARE LOCATED IN A SINGLE FACILITY, WHICH IS LOCATED IN
THE SAN FRANCISCO BAY AREA IN CALIFORNIA. A NATURAL DISASTER IS POSSIBLE AND
COULD RESULT IN PROLONGED INTERRUPTION OF OUR BUSINESS.
Our Internet operations are located in the San Francisco Bay Area. This area is
seismically active. With our operations centralized in a single facility, a
natural disaster, such as an earthquake, fire, or flood, could substantially
disrupt our manufacturing operations or destroy our facilities. This could cause
delays and cause us to incur additional expenses and adversely affect our
reputation with our customers. In addition, since the real estate market in the
San Francisco Bay Area is extremely competitive and is likely to remain
competitive, an alternative facility may not be available on commercially
reasonable terms if we suffer a catastrophic loss from a natural disaster.
WE ARE SUSCEPTIBLE TO PARTIES WHO MAY COMPROMISE OUR SECURITY MEASURES, WHICH
COULD CAUSE US TO EXPEND CAPITAL AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Hackers may be able to circumvent our security measures and could misappropriate
proprietary information or cause interruptions in our Internet operations. In
the past, computer viruses or software programs that disable or impair computers
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our users, which could
disrupt our network or make our systems inaccessible to users. Any of these
events could damage our reputation among our customers and potential customers
and substantially harm our business. We may be required to expend capital and
resources to protect against the threat of security breaches or to alleviate
problems caused by these breaches. Consumer concern over Internet security has
been, and could continue to be, a barrier to commercial activities requiring
consumers to send their credit card information over the Internet. Computer
viruses, break-ins, or other security problems could lead to misappropriation of
proprietary information and interruptions, delays or cessation in service to our
customers. Moreover, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet as a merchandising medium.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OR WE MAY INFRINGE
THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY RESULT IN LAWSUITS AND
PREVENT US FROM SELLING OUR PRODUCTS.
We rely on copyright and trade secret laws to protect our trademarks, content,
and proprietary technologies and information. However, there can be no assurance
that such laws will provide sufficient protection to us, other parties will not
develop technologies that are similar or superior to ours, or, given the
availability of our products' source-code, other parties will not copy or
otherwise obtain and use our content or technologies without authorization.
There are no pending lawsuits against us regarding infringement of any existing
patents or other intellectual property rights or any material notices that we
are infringing the intellectual property rights of others. However, there can be
no assurance that third parties will not assert infringement claims in the
future. If any claims are asserted and determined to be valid, there can be no
assurance that we will be able to obtain licenses of the intellectual property
rights in question or obtain licenses on commercially reasonable terms. Our
involvement in any patent dispute or other intellectual property dispute or
action to protect proprietary rights may have a material adverse effect on our
business, operating results, and financial condition. Adverse determinations in
any litigation may subject us to liabilities, require us to seek licenses from
third parties, and prevent us from marketing and selling our products. Any of
these situations can have a material adverse effect on our business, operating
results, and financial condition.
Effective trademark, copyright, and other intellectual property protection may
not be available in every country in which our technology is distributed or made
available through the Internet. There can be no assurance that our means of
protecting our proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar technology.
17
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT CUSTOMERS FROM OUTSIDE THE
UNITED STATES. JURISDICTIONS OUTSIDE THE UNITED STATES MAY IMPOSE TAX AND
REGULATORY BURDENS ON OUR BUSINESS, WHICH COULD HAVE A MATERIAL ADVERSE AFFECT
ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.
Our future success will be affected by our ability to attract customers and
subscribe members from countries outside the United States. We believe that the
growth of the Internet in foreign countries will outpace growth of the Internet
in the United States in the next decade. Because our products advance
development of Rich-Media content, we expect to derive revenues from Canada,
Japan and Western Europe. Foreign countries could impose withholding taxes or
otherwise tax our foreign income, impose tariffs, embargoes or exchange
controls, or adopt other restrictions on foreign trade or restrictions relating
to use or access of or distribution of software through electronic means. The
laws of certain countries also do not protect our intellectual property rights
to the same extent as the laws of the United States. In addition, we are subject
to the United States export control regulations that may restrict our ability to
market and sell our products to certain countries outside of the United States.
Failure in successfully marketing our products in international markets could
have a material adverse effect on our business, operating results and financial
conditions.
WE EXPECT QUARTERLY REVENUE AND OPERATING RESULTS TO VARY IN FUTURE PERIODS,
WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.
Our limited operating results have varied widely in the past, and we expect they
will continue to vary from quarter to quarter as we attempt to commercialize our
product. Our quarterly results may fluctuate for many reasons, including:
- limited operating history;
- dependence on Full Membership fees to provide future revenue;
and
- lack of experience in commercializing products for e-commerce.
As a result of these fluctuations and uncertainties in our operating results, we
believe quarter-to-quarter or annual comparisons of our operating results are
not a good indication of our future performance. In addition, at some point in
the future, these fluctuations may likely cause us to perform below the
expectations of public market analysts or investors. If our results fall below
market expectations, the price of our common stock will be adversely affected.
OUR STOCK PRICE IS VOLATILE AND, AS A RESULT, YOU COULD LOSE SOME OR ALL OF YOUR
MONEY.
We believe that various factors may cause the market price of our common stock
to fluctuate, including announcements of:
- new products by us or our competitors;
- developments or disputes concerning intellectual property
proprietary rights;
- our failing to achieve our operational milestones; and
- changes in our financial conditions or securities analysts'
recommendations.
The stock markets, in general, and the shares of Internet companies, in
particular, have experienced extreme price fluctuations. These broad market and
industry fluctuations may cause the market price of our common stock to decline.
In addition, the low trading volume of our stock will accentuate price swings of
our stock.
18
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide internet software and services. Our financial results could be
affected by factors such as changes in interest rates. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
services less competitive in foreign markets. We do not use derivative
instruments to hedge our risks. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since our investments are
in short-term instruments. Due to the nature of our short-term investments, we
anticipate no material market risk exposure. Therefore, no quantitative tabular
disclosures are presented.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
During March and April 2000, the Company executed subscription agreements to
seven accredited investors for 1,000,000 units of securities consisting of one
share of common stock and one warrant to purchase one share of common stock at a
price of $2.50 per share for an aggregate purchase price of $2,000,000 in a
private placement of securities. Each warrant is exercisable within the seven
month period following the subscription date of the unit. At June 30, 2000,
$1,040,000 had been collected by the Company under this offering. As of August
11, 2000, $760,000 subscribed remains to be collected. These securities were
offered and sold pursuant to our exemption from registration under Rule 506,
Regulation D of the Securities Act. The proceeds from the private placement are
being used for working capital.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K
None
Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
2.1 Form of Agreement of Merger between Tribeworks, Inc., a
California corporation, and Tribeworks Acquistion corporation,
dated November 2, 1999 (Incorporated by reference to Exhibit
2.1 to the Registrant's Form 10-SB/A filed July 10, 2000).
3.1 Articles of Incorporation of Tribeworks, Inc., a Delaware
Corporation (Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-SB/A filed July 10, 2000).
3.2 Bylaws of Tribeworks, Inc., a Delaware Corporation
(Incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-SB/A filed July 10, 2000).
10.1 Software Agreement by and between Tribeworks, Inc., a
California corporation, Keepsake SPRL, and Gilbert Amar dated
November 1999 (Incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-SB/A filed July 10, 2000).
10.2 Indemnification Agreement between Tribeworks, Inc., a Delaware
corporation, and Robert Levine, dated May 26, 2000
15.1 Letter on Unaudited Interim Financial Information.
18.1 Letter on Change in Accounting Principle.
27.1 Financial Data Schedule.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Tribeworks, Inc.,
a Delaware corporation
Date: August 11, 2000 /s/DUNCAN J. KENNEDY
-------------------------------------
Duncan J. Kennedy,
President and Chief Executive Officer
/s/MICHAEL P. ARTH
-------------------------------------
Michael P. Arth
VP of Finance and Operations
Principal Accounting Officer
20