VIDAROO Corp - FORM 10-Q - February 14, 2011

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - VIDAROO Corp	ex321.htm
EX-31.2 - EXHIBIT 31.2 - VIDAROO Corp	ex312.htm
EX-31.1 - EXHIBIT 31.1 - VIDAROO Corp	ex311.htm
EX-32.2 - EXHIBIT 32.2 - VIDAROO Corp	ex322.htm

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 DECEMBER 31, 2010

¨ 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.)

7658 Municipal Dr., Orlando, FL		32819
(Address of principal executive offices)		(Zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of February 14, 2011 there were 65,937,767 outstanding shares of the Registrant's Common Stock, $.001 par value.

VIDAROO CORPORATION

DECEMBER 31, 2010 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	Page

Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	15
Item 4T. Controls and Procedures	17

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	19
Item 1A. Risk Factors	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults Upon Senior Securities	19
Item 4T. Submission of Matters to a Vote of Security Holders	19
Item 5. Other Information	19
Item 6. Exhibits	19
SIGNATURES	20

VIDAROO CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2010 (Unaudited)			June 30, 2010
Assets

Current:
Cash and cash equivalents	$	2,563		$	8,509
Accounts receivable		107,063			79,271
Other current assets		11,991			13,315
Deferred financing costs – current portion		23,971			64,279
Total current assets		145,588			165,374
Furniture and equipment:
Computer equipment		112,297			109,295
Office furniture and fixtures		14,252			14,252
		126,549			123,547
Less Accumulated depreciation		(69,523	)		(58,565	)
Net furniture and equipment		57,026			64,982

Intangible asset, customer list, net of accumulated amortization		13,313			26,625

Other assets – deposits		14,651			14,651
Total assets	$	230,578		$	271,632

Liabilities and stockholders' deficit

Current liabilities:
Accounts payable	$	433,257		$	380,351
Accrued salaries		219,375			118,366
Deferred revenue		6,404			42,831
Convertible secured promissory notes		590,000			590,000
Promissory notes and notes payable-current portion		903,040			899,540
Total current liabilities and total liabilities		2,152,076			2,031,088



Stockholders' (deficit) equity:

Common stock, $.001 par value; 100,000,000 shares authorized;
65,935,767 and 65,136,032 issued and outstanding at December 31 and June 30, 2010, respectively		65,936			65,137
Additional paid in capital		6,350,248			5,992,638
Accumulated deficit		(8,602,555	)		(8,082,315	)

Total stockholders ' deficit of Vidaroo Corporation		(2,186,371	)		(2,024,540	)
Noncontrolling Interest		264,873			265,084
Total stockholders' deficit		(1,921,498	)		(1,759,456	)
Total liabilities and stockholders' deficit	$	230,578		$	271,632

See accompanying notes to consolidated financial statements.

VIDAROO CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

	Quarter Ended			Quarter Ended			6 Months Ended			6 Months Ended
	12/31/10			12/31/09			12/31/10			12/31/09

REVENUES	$	387,562		$	246,973		$	912,042		$	630,763

Cost of sales		(112,601	)		(43,237	)		(218,001	)		(184,247	)

Operating margin		274,961			203,736			694,041			446,516

Operating expenses
Selling, general and administrative		333,937			487,209			774,115			996,020
Depreciation and amortization		11,712			47,403			24,269			92,489
Stock based compensation		249,890			237,262			303,412			675,716
Total expenses		595,539			771,874			1,101,796			1,764,225

Loss from operations		(320,578	)		(568,138	)		(407,755	)		(1,317,709	)

Interest expense		(36,649	)		(224,694	)		(112,696	)		(445,852	)

NET LOSS		(357,227	)		(792,832	)		(520,451	)		(1,763,561	)

Net loss attributable to noncontrolling interest		-			1,856			211			20,959

NET LOSS TO COMMON SHAREHOLDERS OF VIDAROO CORPORATION	$	(357,227	)	$	(790,976	)	$	(520,240	)	$	(1,742,602	)

BASIC AND DILUTED NET LOSS PER COMMON SHARE	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.03	)

WEIGHTED AVERAGE SHARES OUTSTANDING		65,858,106			61,334,881			65,710,508			59,614,117

See accompanying notes to consolidated financial statements.

VIDAROO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT/EQUITY

(UNAUDITED)

	Class A				Additional
	Common Stock				Paid-In		Accumulated			Noncontrolling
	Shares		Amount		Capital		Deficit			Interest		Total

Balance at June 30, 2010		65,136,032	$	65,137	$	5,992,638	$	(8,082,315	)	$	265,084	$	(1,759,456	)

Stock based compensation cost for employees		224,735		224		303,185		-			-		303,409

Common stock issued for professional services		575,000		575		54,425		-			-		55,000

Net loss attributable to noncontrolling interest											(211)		(211)

Net loss		-		-		-		(520,240	)		-		(520,240	)

Balance at December 31, 2010		65,935,767	$	65,936	$	6,350,248	$	(8,602,555	)	$	264,873	$	(1,921,498	)

See accompanying notes to consolidated financial statements.

VIDAROO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	6 Months Ended			6 Months Ended
	12/31/10			12/31/09
Cash Flows from Operating Activities:
Net loss	$	(520,240	)	$	(1,742,602	)
Adjustments to reconcile net loss to net cash used
by operating activities
Depreciation		10,958			10,459
Amortization		13,312			82,030
Amortization of deferred financing costs		40,308			62,779
Accretion of interest expense		-			302,465
Accretion of accrued salaries			-		13,728
Common stock and warrants issued for services to
nonemployees		55,000			325,153
Stock-based compensation		303,409			675,716
Noncontrolling interest in loss of subsidiary		(211	)		(20,959	)
Net changes in:
Other current assets		1,324			692
Accrued Salaries		101,009			6,939
Accounts receivable		(27,792	)		(94,384	)
Accounts payable and accrued expenses		52,906			(67,285	)
Deferred revenue		(36,427	)		(26,880	)
Net Cash Used By Operating Activities		(6,444	)		(472,149	)

Cash Flows from Investing Activities:
Purchase of furniture and equipment		(3,002	)		(10,389	)

Net Cash Used By Investing Activities		(3,002	)		(10,389	)

Cash Flows from Financing Activities:
Proceeds from common stock issuance					92,949
Proceeds from issuance of promissory notes		5,000			470,000
Incurrence of deferred financing costs		-			(47,000	)
Repayments of notes payable		(1,500	)		(30,017	)
Net Cash Provided By Financing Activities		3,500			485,932

Net (Decrease) Increase in Cash and Cash Equivalents		(5,946	)		3,394

Cash and Cash Equivalents, Beginning		8,509			401

Cash and Cash Equivalents, Ending	$	2,563		$	3,795

Supplemental cash flow information:
Non-cash Operating activities
Issuance of common stock in exchange for forgiveness of accounts payable		-			15,000
Issuance of common stock in exchange for forgiveness of accrued payroll		-			140,345
Non-cash financing activities:
Deferred financing costs incurred		-			15,919

Other disclosures:
Interest Paid		19,696			58,721

See accompanying notes to consolidated financial statements.

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Vidaroo Corporation (“Vidaroo” or the “Entity”) and its consolidated subsidiaries, E360, LLC (E360) and Media Evolutions (MEV), is a video technology company. The Entity performs professional video production, licenses its Online Video Platform (OVP) and serves advertising across its network of websites. The Entity changed its name from Gen2Media Corporation to Vidaroo effective April 26, 2010.

Production services are performed both as Vidaroo and under the trade name of our subsidiary, MEV. Our capabilities include creation and support of video imagery for top line names in the entertainment business (Black Eyed Peas, Keith Urban, John Mayer…), support of video production for traditional media and corporate presentations, and in-house production of content. Vidaroo supports its ability to deliver its production engagements through its professional production studio and its custom turnkey digital playback system.

The Entity’s OVP is licensed under a Software-as-a-Service (“SaaS”) model. The SaaS model allows the Company to generate monthly recurring revenue. The OVP’s design and implementation became production ready in the year ended June 30, 2010. Also in 2010, the Entity redesigned and launched its marketing interface (http://Vidaroo.com) and initiated an affiliate program for sales distribution. The Entity is currently revising this marketing site to include an automated interface that will allow for new clients to sign up for its software without human contact. This anticipated growth pattern for this initiative is, at the current time, impossible to predict. While the Entity cannot presently predict its growth, the initiation of the automated interface is expected to produce a highly scalable product offering.

The Entity has a network of websites using its OVP under licensing agreements that allow for the delivery of advertising. The Entity either shares the inventory or revenue from the advertising units with its channel partners. The Entity’s channel partners consist of content destination sites that have adequate critical mass to draw audiences of sufficient size to warrant delivery of advertising. While the Entity continues to generate revenue from legacy contracts, the Entity does not intend to pursue advertising as a future sales or growth strategy. The Entity is in the process of converting this network of websites and the clients with such contracts to a paid SaaS licensing model.

Basis of Presentation

Unaudited Interim Financial Statements

The accompanying unaudited consolidated quarterly financial statements have been prepared on a basis consistent with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or any future period. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2010, as filed with the SEC on September 28, 2010 (the “2010 Annual Report”).

Use of Estimates

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

Basis of Consolidation

The accompanying consolidated financial statements include the accounts and transactions of Vidaroo and its subsidiary E360 as well as MEV. Vidaroo has a 95% interest in E360, which was acquired by Vidaroo in a stock exchange. MEV is controlled by Vidaroo pursuant to a management agreement between the two companies effective July 14, 2008. The consolidation of MEV was treated as a purchase in the year ended June 30, 2009. All significant intercompany 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 from production services is recognized upon completion of the client deliverable and there are no remaining significant obligations. Revenue is also generated from advertising on the Vidaroo network of websites, fees and revenue sharing associated with the use of our OVP by our channel partners, the development of micro sites for clients, and 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.

Website Platform

Website platform includes capitalized costs incurred during the application and infrastructure development stage. Development of the website was completed in July 2007 and has been placed in service. Website platform has an estimated useful life of 3 years and is being amortized over 36 months on a straight-time basis. The website was fully amortized as of June 30, 2010.

Long-Lived Assets

The Company 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 and six months ended December 31, 2010 and 2009.

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.

Minority 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 and six months ended December 31, 2010 and 2009 the Company had 16,823,409 and 6,936, 048, and14,321,903 and 8,300,001 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 December 31, 2010. 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.

NOTE 3. RECENT ACCOUNTING STANDARDS

On October 1, 2009, the Company adopted FASB ASC Topic 805 (ASC 805), “Business Combinations,” which generally requires an acquirer to recognize the identifiable assets acquired, liabilities assumed, contingent purchase consideration and any noncontrolling interest in the acquiree at fair value on the date of acquisition. It also requires an acquirer to recognize as expense most transaction and restructuring costs as incurred, rather than include such items in the cost of the acquired entity. For the Company, ASC 805 applies prospectively to business combinations for which the acquisition date is on or after October 1, 2009. The adoption of ASC 805 did not have a material impact on the Company’s consolidated financial statements.

On October 1, 2009, the Company adopted FASB ASC Topic 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures,” for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of ASC 820-10 did not have a material impact on the Company’s consolidated financial statements.

In August 2009, the FASB issued Accounting standards Update 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value,” to amend FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” to provide guidance on the measurement of liabilities at fair value. The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted the guidance in 2009, and there was no material impact on the Company’s consolidated financial statements or related footnotes.

In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”) and a new Hierarchy of Generally Accepted Accounting Principles which establishes only two levels of GAAP: authoritative and nonauthoritative. The Codification is now the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, except for rules and interpretive releases of the SEC, which are additional sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. The Codification is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company adopted the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of 2009. The application of the Codification did not have an impact on the Company’s consolidated financial statements; however, all references to authoritative accounting literature will now be references in accordance with the Codification.

In May 2009, the FASB issued authoritative guidance for subsequent events, now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The guidance sets forth the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. The guidance also requires the disclosure of the date through which an entity has evaluated subsequent events and whether this date represents the date the financial statements were issued or were available to be issued. The Company adopted this guidance in 2009 with no significant impact on the Company’s consolidated financial statements or related footnotes.

In April 2009, the FASB provided additional guidance for estimating fair value in accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” when the volume and level of activity for the asset or liability have significantly decreased. This additional guidance re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept and clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability. This guidance also provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. The scope of this guidance does not include assets and liabilities measured under quoted prices in active markets. This guidance is applied prospectively to all fair value measurements where appropriate and will be effective for interim and annual periods ending after June 15, 2009. The adoption of the provisions of this guidance did not have any material impact on the Company’s consolidated financial statements.

In April 2009, FASB issued FSP FAS 107-1 and APB 28-1, now codified in FASB ASC Topic 825-10-65, “Interim Disclosures about Fair Value of Financial Instruments,” which amends U.S. GAAP to require entities to disclose the fair value of financial instruments in all interim financial statements. The additional requirements of this guidance also require disclosure of the method(s) and significant assumptions used to estimate the fair value of those financial instruments. Previously, these disclosures were required only in annual financial statements. The additional requirements of this guidance are effective for interim reporting periods ending after June 15, 2009. The adoption of the additional requirements did not have any financial impact on the Company’s consolidated financial statements.

In April, 2009, the FASB issued ASC Topic 320-10 (ASC 320-10), “Recognition and Presentation of Other-Than-Temporary Impairments,” which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. ASC Topic 320-10 provides greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains fair value. This statement also requires more timely disclosures and an increase in disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. We adopted these statements April 1, 2009 without material effect on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements” (ASU 2010-06), to require new disclosures related to transfers into and out of Levels 1 and 2 of the fair value hierarchy and additional disclosure requirements related to Level 3 measurements. The guidance also clarifies existing fair value measurement disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The additional disclosure requirements are effective for the first reporting period beginning after December 15, 2009, except for the additional disclosure requirements related to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010. The adoption of the additional requirements is not expected to have any financial impact on the Company’s financial statements.

In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, “Consolidations (FASB ASC Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). ASU 2009-17 represents a revision to former FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or the Company’s fiscal year beginning October 1, 2010. Early application is not permitted. We have not yet determined the impact, if any, which of the provisions of ASU 2009-15 may have 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, 2010.

NOTE 4. ACQUISITION

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

The acquisition has been accounted for as a purchase of MEV and accordingly, the consolidated statements of operations include the results of MEV since the date of acquisition, July 14, 2008. The excess of the purchase price over the fair value of acquired assets and liabilities assumed is allocated to an intangible asset related to MEV's customer lists.

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

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

NOTE 5. NOTES PAYABLE

In connection with the management agreement entered into with MEV, Vidaroo became obligated for the repayment of certain notes payable currently outstanding. These notes originally consisted of a term loan and a line of credit. The notes were secured by a personal guarantee from Richard Brock, Ian McDaniel and Mark Argenti. The term loan originated on September 20, 2005 with a face value of $100,000 and required monthly payments of principal and interest over a five year period maturing on September 20, 2010 and bears interest at 6.75%. On June 30, 2009, MEV agreed to convert the outstanding balance on the line of credit to a term loan and repay it over a 15 month period maturing on September 20, 2010 with an interest rate of 6.5%. During June, 2010, Richard Brock exercised his right as guarantor on these loans and satisfied the obligation to the bank. This loan is currently a demand obligation to Richard Brock. There was $40,040 outstanding at December 31, 2010 on this obligation. A third party added $5,000 to this demand balance during the six months ended December 31, 2010.

NOTE 6. CONVERTIBLE SECURED PROMISSORY NOTES

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

The holders of the Notes have the option, but not the obligation, to convert the outstanding principal into common stock at any time under any of the following terms: A conversion price of $.25 per share; a conversion price of 30% less than price per share obtained in the next round of financing contemplated for $5 million to be completed by the Company; a conversion price of 30% less than the price per share paid in the event of a sale of the company, or $0.13 per share in the event the Company does not raise a minimum of $1 million in additional financing.

The notes contain warrants to purchase shares valued at 20% of the face value of the note assuming a stock value of $0.25 per share and an exercise price of $0.001 per share. If the value of common stock at the time of conversion is less than $0.25, the payee shall receive additional warrants to bring the total value of warrants issued under this program to be equal to 20% of the face value of the Note. The Notes also included a beneficial conversion feature as the obligations can convert into equity for an exercise price less than the share price at the time of issuance at the option of the holder. Based on these features, the proceeds from debt were split between the value of the warrants and the debt. Further, the debt obligation must have value assigned to the beneficial conversion feature. These valuations cause the proceeds from 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. As of June 30, 2010, the entire balance on these notes was accreted to interest expense.

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%. Of the $590,000 outstanding as of June 30, 2010, $290,000, $95,000 and $205,000 matures on August 1, 2010, March 31 and June 30, 2011, respectively.

On August 1, 2010, $290,000 of the Entity’s Convertible Secured Promissory Notes were due for repayment or convertible into common stock. These Notes have neither been repaid nor have they been converted into common stock. The Entity is currently working to refinance the obligation.

NOTE 7. PROMISSORY NOTES

During the years ended June 30, 2010 and 2009 and the quarters ended September 30, 2010 and 2009, the Company issued debt instruments in the form of promissory notes with a face value of $620,500 (the “ Promissory Notes”) and bear interest at 12%. These Promissory Notes were issued in two traunches. Traunch I has a face value of $231,500 and is due and payable one year from issuance. Traunch I was issued during the fourth quarter of the year ended June 30, 2009, and was originally due during the quarter ending June 30, 2010. Traunch II had an original face value of $638,000 and was originally due and payable on December 31, 2010. Interest is paid monthly.

During the year ended June 30, 2010, the Entity and the Note holders agreed to extend the maturity dates on $531,500 of the Notes. In consideration for the extension of terms the Entity agreed to increase the rate of interest on the Notes to 13%. Of the $859,500 still outstanding on the Notes, $328,000, $312,000, and 519,500 are due on December 31, 2010, March 31 and June 30, 2011, respectively.

Effective July 1, 2010, the Entity discontinued paying interest to the holders of its Convertible Secured Promissory Note and Promissory Note holders, due to a shortfall in liquidity. During the quarter ended December 31, 2010, the Entity made a partial payments on its interest obligation. While partial payments have been made during the past quarter, the Entity has not satisfied its obligation to repay principal at December 31, 2010 and is currently working to refinance that obligation.

NOTE 8. CAPITAL STOCK

The Company’s authorized capital stock consists of 100,000,000 shares of Class A common stock with a par value of $0.001. 65,935,767 shares were outstanding as of December 31, 2010.

The Company has previously filed a registration statement with the SEC that went effective July 11, 2008 and is therefore a reporting public company. The Company filed a form 15c2-11 with FINRA and requested permission to trade on the OTC Bulletin Board. The Company’s stock began trading on October 3, 2008.

NOTE 9. STOCK BASED COMPENSATION

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

During the quarter and six months ended December 31, 2010, the Company issued options and warrants for 6,960,005 and 7,186,672 shares, respectively of common stock, principally in connection with the recruitment and retention of directors, officers, and employees. Additionally, during the quarter and six months ended December 31, 2009, the Company issued options and warrants for 2,046,325 and 4,096,325 shares, respectively of common stock, principally in connection with the recruitment of directors and officers.

Based on these activities compensation cost of $227,130 and $271,339 was recognized in the three and six months ended December 31, 2010, respectively, and $237,262 and $675,716 was recognized in the three and six months ended December 31, 2009, respectively. Additionally, Common Stock and warrants issued to nonemployees for services generated cost of $45,400 and $55,000 in the three and six months ended December 31, 2010, respectively and $167,173 and $340,153 in the three and six months ended December 31, 2009, respectively. Unrecognized compensation cost related to unvested stock options and warrants at December 31, 2010 was $353,119 and are expected to be recognized over a weighted average period of 33 months.

	Number of Shares Outstanding Under Options and Warrants			Weighted Average Exercise Price

Balance, June30, 2009		6,279,039			0.14
Granted		4,956,325			0.30
Exercised		(3,029,038	)		0.05
Forfeited or expired		(410,278	)		0.58

Balance, June 30, 2010		7,796,048			0.25

Granted		7,186,672			0.05
Exercised		-			-
Forfeited or expired		(189,995)			0.17

Balance, December 31, 2010		14,792,725		$	0.15
Exercisable, December 31, 2010		7,228,118		$	0.23

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

	Number of shares			Weighted-Average Grant-Date Fair Value
Non-vested balance, June 30, 2010		2,410,815		$	0.30

Granted		7,186,672			0.05
Vested		(1,932,899	)		0.26
Forfeited/Expired		(100,000	)		0.14

Non-vested balance, December 31, 2010		7,564,607		$	0.07

The total intrinsic value of options exercised during the six months ended December 31, 2010 and 2009 and was $0 and $315,020, respectively. The aggregate intrinsic value of the outstanding options at December 31, 2010 and 2009 was $0.

NOTE 10. GOING CONCERN

Through December 31, 2010, the Company has accumulated losses of $8,602,555. The Company expects to generate revenues from its SaaS platform and Production service offerings. The Company will either receive a monthly fee for its software platform and engagement fees for its production services.

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

NOTE 11. 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:

	12/31/10			6/30/10

Accumulated Net loss	$	8,602,555		$	8,082,315

Valuation allowance		(8,602,555	)		(8,082,315	)

Net deferred tax assets	$	–		$	-

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

Vidaroo is a video technology company. The Entity performs professional video production, licenses its Online Video Platform (OVP) and serves advertising across its network of websites.

The Entity’s OVP is licensed under a Software-as-a-Service (“SaaS”) model. The SaaS model allows the Company to generate monthly recurring revenue. The OVP’s design and implementation became production ready in the year ended June 30, 2010. Also in 2010, the Entity redesigned and launched its marketing interface (http://Vidaroo.com) and initiated an affiliate program for sales distribution. The Entity is currently revising this marketing site to include an automated interface that will allow for new clients to sign up for its software without human contact. This anticipated growth pattern for this initiative is at the current time impossible to predict. While the Entity cannot presently predict its growth, the initiation of the automated interface is expected to produce a highly scalable product offering.

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,” "Company," "we," "us," and "our" refer to Vidaroo Corporation and our direct and indirect subsidiaries on a consolidated basis unless the context indicates otherwise.

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

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

Overview

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

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED DECEMBER 31, 2010 COMPARED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2009. Our fiscal year runs from July 1 to June 30.

Revenue

Revenue increased $140,589 to $387,562 and $281,279 to $912,042 in the three and six months ended December 31, 2010 as compared to 2009. The year over year revenue increase relates to the fact that in the prior year the Entity generated minimal revenue from SaaS and had increased demand for its production services.

The Entity’s SaaS offerings for its Online Video Player (OVP) was launched in the quarter ended December 31, 2009 and grew from $10,000 in the six months ended December 31, 2009 to over $140,000 in the six months ended December 31, 2010. The Entity expects to launch its automated interface for the OVP in the quarter ending March 31, 2011. This initiative is expected to generate additional revenue growth in the upcoming quarters.

The Entity’s Production services have seen increased demand as services provided have been expanded to include video production for family entertainment in addition to large scale musical performances.

Cost of Sales

During the quarter the Company incurred cost of sales in conjunction with the direct provision of services to our clients. These expenses consist of bandwidth to deliver licensing of the online video platform, serve advertising on the Vidaroo Network of websites, and professional support and production personnel as well as equipment to facilitate the provision of our production services. Cost of sales increased by $69,364 to $112,601 and $33,754 to 218,001 in the three and six months ended December 31 2010, as compared to 2009. The increase was due to greater revenue volume in the current year.

Operating Margin

The operating margin generated by the services and technologies provided increased by $71,225 to $274,961 and $274,555 to $694,071 during the three and six months ended December 31, 2010 in comparison to 2009. The operating margin on the services and technologies produced an Operating Margin of 70.1% and 76.1% in the three and six months ended December 31, 2010. These margins are slightly lower than the prior year as the variable cost of maintaining the Entity’s legacy advertising network while converting those clients to a SaaS model has dragged the overall margin down. While the legacy costs have created a slightly lower margin, the established infrastructure and technology in place at the Entity continues to allow the provision of our products and services to the marketplace at a low cost ratio for each new client.

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 $153,272 to $333,937 and $221,905 to $774,115 for the three and six months ended December 31, 2010. This decrease relates primarily to reduced professional fees from the prior year specifically related to investor relations costs as those costs were down $158,574 and $657,387 in the three and six months respectively.

Stock based Compensation

Stock based compensation increased by $12,608 in the three months ended December 31, 2010 and decreased by $372,304 to $303,412 in the six months ended December 31, 2010 as compared to 2009. The expenses associated with stock based compensation in both the current and prior year periods was related to recruitment and retention of corporate officers. The current year periods are lower due predominantly to the lower share price in the current period resulting in a lower Black-Scholes valuation for the stock options awarded and vested.

Interest expense

Interest expense decreased by $188,045 to $36,649 and $333,156 to $112,696. The decrease is due to the noncash expense in the prior year relative to the Secured Convertible Promissory Notes which amounted to $151,205 and $302,465 during the three and six months ended December 31, 2009.

Net Loss

The net loss decreased by $433,669 to $357,227 and $1,222,362 to $520,240 for the three and six months ended December 31, 2010 as compared to 2009. The decrease in comparison to the prior year is due to increased revenue and operating margins while decreasing operating and interest expenses.

Liquidity and Capital Resources

The Company had net working capital of $(2,006,488) at December 31, 2010, a degradation of $140,774 compared to June 30, 2010.

The Company has incurred losses since its inception. The Company’s auditor has emphasized uncertainty regarding our ability to continue as a going concern in his audit report for the year ended June 30, 2010. As shown in the accompanying financial statements, the Company realized net losses from operations of $520,239 for the six months ended December 31, 2010 resulting in an accumulated deficit of $8,602,555 as of December 31, 2010.

As of December 31, 2010, the Entity had $616,500 of Convertible Secured Promissory Notes and Promissory Notes due and payable that has not been repaid and is currently in default. The Entity is working to refinance these obligations.

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

Cash and Cash Equivalents. For the three month period ended December 31, 2010, cash and cash equivalents decreased to $2,563 from $8,509 at June 30, 2010.

Cash Flows from Operating Activities. Net cash used by operating activities was $6,444 for the six months ended December 31, 2010, an improvement of $465,705 over the first six months of the prior year. The change in cash flows from operating activities is primarily attributable to the improvement in operating results as well as an emphasis on managing the working capital activities of the Entity.

Cash Flows from Financing Activities. Net cash provided by financing activities was $3,500 for the three months ended September 30, 2010. This cash was generated from the issuance of additional indebtedness in the form of notes payable, net of repayments.

Noncash transactions. During the quarter, the Company issued Common Stock and options valued at $358,409 in exchange for professional services and for executive and staff compensation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

N/A.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of June 30, 2010. 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 December 31, 2010, our disclosure controls and procedures were ineffective due to the lack of segregation of duties and the lack of audit committee oversight. Upon the acquisition of adequate capital the Company intends to remediate the deficiencies through the deployment of additional personnel and implementation of an audit committee.

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 December 31, 2010 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that our internal control over financial reporting was ineffective as of December 31, 2010.

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

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

Changes in Internal Control Over Financial Reporting

None.

PART II

OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

In August 2010, the Entity, along with its subsidiary, E360, LLC, were served with a complaint (the "Complaint") by plaintiff Sand Lake Imagining, LLP and Stephen M. Bravo. The Complaint alleges the non-exempt sale of certain securities of E360, and seeks the rescission of the sale of such securities. The Entity has responded to the Complaint , and intends to vigorously defend the claim.

ITEM 1A. RISK FACTORS

None.

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

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

As of December 31, 2010, the Entity has $590,000 of Convertible secured promissory notes and $859,500 of Promissory notes outstanding. $385,000 of the Convertible secured promissory notes and $328,000 of the Promissory Notes was due and unpaid as of December 31, 2010. Additionally during the six months ended December 31, 2010, the Entity did not pay interest at the stated face amount of the obligation which has resulted in unpaid accrued interest of $68,134.

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

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

ITEM 6 - EXHIBITS

Exhibit Number		Description

31.1		Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

31.2		Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

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

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

SIGNATURES

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

	VIDAROO CORPORATION

DATE: February 14, 2011	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)

Attached files

VIDAROO Corp Reports

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