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EXCEL - IDEA: XBRL DOCUMENT - VIDAROO CorpFinancial_Report.xls
EX-31.2 - EXHIBIT 31.2 - VIDAROO Corpex312.htm
EX-32.1 - EXHIBIT 32.1 - VIDAROO Corpex321.htm
EX-31.1 - EXHIBIT 31.1 - VIDAROO Corpex311.htm
EX-32.2 - EXHIBIT 32.2 - VIDAROO Corpex322.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 QUARTERLYLY PERIOD ENDED DECEMBER 31, 2011
OR

¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE TRANSITION FROM _______ TO ________.

COMMISSION FILE NUMBER 333-147932
 

VIDAROO CORPORATION  
(Exact Name of Registrant as Specified in its Charter)

Nevada
 
26-1358844
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
8 N. Highland Ave, Winter Garden, FL
 
34787
(Address of principal executive offices)
 
(Zip code)

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

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

Indicate by check mark whether the registrant (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 o

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 6, 2011 there were 66,456,743 outstanding shares of the Registrant's Common Stock, $.001 par value.
 
 
1

 
 
VIDAROO CORPORATION
DECEMBER 31, 2011 QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
Page
   
Item 1. Financial Statements
3
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
14
Item 4T. Controls and Procedures
16
   
PART II - OTHER INFORMATION
 
   
Item 1. Legal Proceedings
18
Item 1A. Risk Factors
18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
18
Item 3. Defaults Upon Senior Securities
18
Item 4T. Submission of Matters to a Vote of Security Holders
18
Item 5. Other Information
18
Item 6. Exhibits
18
SIGNATURES
19

 
2

 
 
 VIDAROO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
   
December 31, 2011 
(Unaudited)
   
 
June 30, 2011
 
Assets
               
                 
Current:
               
Cash and cash equivalents
 
$
44,876
   
$
73,598
 
Accounts Receivable
   
89,832
     
89,908
 
Other Current Assets
   
5,995
     
9,565
 
            Total Current Assets
   
140,703
     
173,071
 
Furniture and Equipment:
               
Computer equipment
   
114,582
     
114,582
 
Office furniture and fixtures
   
14,252
     
14,252
 
     
128,834
     
128,834
 
    Less Accumulated depreciation
   
(97,067
   
(84,452
)
Net Furniture and Equipment
   
31,767
     
44,382
 
                 
 Other Assets – Deposits
   
3,977
     
665
 
 Total Assets
 
$
176,447
   
$
218,118
 
                 
Liabilities and Stockholders' Deficit
               
                 
Current Liabilities:
               
Accounts Payable
 
$
432,619
   
$
362,355
 
Accrued Salaries
   
262,687
     
246,213
 
Deferred revenue
   
35,459
     
86,461
 
Accrued interest
   
165,898
     
183,516
 
Convertible secured promissory notes
   
225,213
     
454,731
 
Promissory Notes and Notes payable
   
390,714
     
698,293
 
Total Current Liabilities and Total Liabilities
   
1,512,590
     
2,031,569
 
                 
                 
                 
Stockholders' (Deficit) Equity:
               
                 
     Common stock, $0.001 par value; 200,000,000 shares authorized;
               
          66,456,743 and 66,191,032  issued and outstanding at December 31 and June 30, 2011, respectively
   
66,457
     
66,191
 
 Preferred stock, $0.001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding at December 31, and June 30, 2011
   
-
     
-
 
Additional paid in capital
   
6,518,910
     
6,443,442
 
    Accumulated Deficit
   
(8,186,383
   
(8,587,957
)
                 
Total Stockholders’ Deficit of Vidaroo Corporation
   
(1,601,016
   
(2,078,324
)
    Noncontrolling Interest
   
264,873
     
264,873
 
Total Stockholders’ Deficit
   
(1,336,143
)
   
(1,813,451
)
Total Liabilities and Stockholders’ Deficit
 
$
176,447
   
$
218,118
 
 
See accompanying notes to consolidated financial statements.
 
 
3

 
 
VIDAROO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
 
 
   
Quarter Ended
   
Quarter Ended
   
6 Months Ended
   
6 Months Ended
 
   
12/31/11
   
12/31/10
   
12/31/11
   
12/31/10
 
                         
REVENUES
  $ 416,544     $ 387,562     $ 724,834     $ 912,042  
                                 
Cost of sales
    (81,246 )     (112,601 )     (123,203 )     (218,001 )
                                 
Operating margin
    335,298       274,961       601,631       694,041  
                                 
Operating expenses
                               
Selling, general and administrative
    395,721       583,827       740,235       1,077,527  
Depreciation and amortization
    6,216       11,712       12,612       24,269  
Total expenses
    401,937       595,539       752,847       1,101,796  
                                 
Loss from operations
    (66,639 )     (320,578 )     (151,216 )     (407,755 )
                                 
Interest expense
    (50,298 )     (36,649 )     (108,188 )     (112,696 )
                                 
Gain on adjustment to fair market value of outstanding indebtedness
    116,401       -       660,978       -  
                                 
NET INCOME (LOSS)
    (536 )     (357,227 )     401,574       (520,451 )
                                 
 Net loss attributable to noncontrolling interest
    -       -       -       211  
                                 
NET (INCOME) LOSS TO COMMON SHAREHOLDERS
 OF VIDAROO CORPORATION
  $ (536 )   $ (357,227 )   $ 401,574     $ (520,240 )
                                 
BASIC AND DILUTED
 NET INCOME (LOSS) PER COMMON SHARE
  $ 0.00     $ (0.01 )   $ 0.01     $ (0.01 )
                                 
WEIGHTED AVERAGE SHARES
 OUTSTANDING
    66,442,767       65,858,106       66,316,9766       65,710,508  
 
See accompanying notes to consolidated financial statements.
 
 
4

 
 
VIDAROO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT/EQUITY
(UNAUDITED)

 
   
Class A
   
Additional
                   
   
Common Stock
   
Paid-In
   
Accumulated
   
Noncontrolling
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Interest
   
Total
 
                                     
Balance at June 30, 2011
   
66,191,185
   
66,191
   
6,443,442
   
(8,587,957
)
 
$
264,873
   
(1,813,451
)
                                                 
Stock based compensation cost for Employees
   
265,558
     
266
     
75,468
     
-
     
-
     
75,734
 
                                                 
Net Income
   
-
     
-
     
-
     
401,574
     
-
     
401,574
 
                                                 
Balance at December 31, 2011
   
66,456,743
   
66,457
   
6,518,910
   
(8,186,383
)
 
$
264,873
   
(1,336,143
)

 
See accompanying notes to consolidated financial statements.
 
 
5

 
 
VIDAROO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
   
6 Months Ended
   
6 Months Ended
 
   
12/31/11
   
12/31/10
 
Cash Flows from Operating Activities:
           
Net Income (loss)
  $ 401,574     $ (520,240 )
Adjustments to reconcile net loss to net cash used
               
 by operating activities
               
   Depreciation
    12,615       10,958  
   Amortization
    -       13,312  
   Amortization of deferred financing costs
    -       40,308  
   Accretion of accrued salaries
    10,296       22,881  
Gain on adjustment to Fair market value of outstanding indebtedness
    (660,978 )     -  
   Common stock and warrants issued for services to
               
       Nonemployees
    -       55,000  
   Stock-based compensation
    75,734       303,409  
   Noncontrolling interest in loss of subsidiary
    -       (211 )
Net changes in:
               
   Other current assets
    3,570       1,324  
   Accrued Salaries
    6,178      
78,128
 
  Accrued Interest
    106,263       73,146  
   Accounts receivable
    76       (27,792 )
   Accounts payable and accrued expenses
    70,264       (20,240 )
   Deferred revenue
    (51,002 )     (36,427 )
Net Cash Used By Operating Activities
    (25,410 )     (6,444 )
                 
Cash Flows from Investing Activities:
               
Deposits
    (3,312 )     -  
Purchase of furniture and equipment
    -       (3,002 )
                 
Net Cash Used By Investing Activities
    (3,312     (3,002 )
                 
Cash Flows from Financing Activities:
               
Proceeds from issuance of promissory notes
    -       5,000  
Repayments of notes payable
    -       (1,500 )
Net Cash Provided By Financing Activities
    -       3,500  
                 
Net Decrease in Cash and Cash Equivalents
    (28,722     (5,946 )
                 
Cash and Cash Equivalents, Beginning
    73,598       8,509  
                 
Cash and Cash Equivalents, Ending
  $ 44,876     $ 2,563  
                 
Supplemental cash flow information:
               
Other disclosures:
               
   Interest Paid     
  $ 1,925     $ 19,696  
 
See accompanying notes to consolidated financial statements.
 
 
6

 

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 licenses its Online Video Platform (OVP) and performs professional video production.  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 Entity to generate monthly recurring revenue.  The OVP’s design and implementation became production ready in the year ended June 30, 2010.  The OVP has been further developed in 2011 to include automation of the sign-up and account management functions as well as an automated affiliate portal.  This functionality allows both users and representatives of the Entity to use or promote the OVP independent of personal contact with Vidaroo.
 
Basis of Presentation
 
Unaudited Interim Financial Statements
The accompanying unaudited consolidated quarterly financial statements have been prepared on a basis consistent with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or any future period. These statements should be read in conjunction with the Entity’s Annual Report on Form 10-K for the year ended June 30, 2011, as filed with the SEC on September 28, 2011 (the “2011 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.  All significant intercompany accounts and transactions are eliminated in consolidation.

 
7

 
 
NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Revenue Recognition
Revenue is generated from monthly subscription fees from subscribers to the OVP.  Revenue is recognized ratably over the contract period for each subscriber.  Revenue is also generated in connection with the production of video content.  Revenue is recognized when services are rendered in accordance with the terms of the agreement provided that the collection of the associated receivable is reasonably assured and there are no remaining significant obligations.
  
Long-Lived Assets
The Entity evaluates the recoverability of its long−lived assets, including intangibles, for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.  If such review indicates that the carrying amount of long−lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. No impairment charges were incurred during the six months ended December 31, 2011 and 2010.

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 be 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.
 
 
8

 
 
Earnings per Common share
Basic earnings per common share excludes potentially dilutive securities and is computed by dividing net earnings(loss) by the weighted average number of common shares outstanding during the period.  Fully diluted earnings per share are not displayed as the impact of including those shares would be anti-dilutive. For the six months ended December 31, 2011 and 2010 the Entity had 22,494,115 and 16,823,409 potentially dilutive common shares, respectively, which were not included in the calculation of diluted income (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, 2011.

The Entity uses the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial statements which include cash, trade receivables, borrowings, related party notes payable, accounts payable and accrued liabilities are valued using Level 1 inputs and are immediately available without market risk to principal. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.

The Entity considers its Debt instruments to have Level 3 inputs.  Those inputs include the fair value of Vidaroo’s common stock and the number of shares the Entity is offering to convert its current outstanding debt and accrued interest to equity of the Entity.

NOTE 3. RECENT ACCOUNTING STANDARDS
   
On June 16, 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income (Topic 220),” which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. The components of comprehensive income will not be changed, nor does the ASU affect how earnings per share is calculated or reported. These amendments will be reported retrospectively upon adoption. The adoption of the ASU will be required for the Company’s March 31, 2012 Form 10-Q filing, and is not expected to have a material impact on the Company.
 
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, 2011.
 
 
9

 
 
NOTE 4.  DEBT
 
Convertible Secured Promissory Notes
 
During the year ended June 30, 2009, the Entity issued debt instruments in the form of promissory notes (the “Notes”). The Notes carry interest at 12% and were due and payable in full at the earlier of either minimum equity financing of $1 million or one year. Interest can be received monthly or accrued and paid at maturity at the option of the holder. The Notes are secured by all assets of the Entity.
 
The holders of the Notes have the option, but not the obligation, to convert the outstanding principal into common stock at any time under any of the following terms: A conversion price of $.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 Entity; 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 Entity 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 was accreted to interest expense over the 1-year initial term of the debt.  
 
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%.  
 
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.  The Entity is reviewing this issue on an ongoing basis in an effort to resume these payments.  During the three months ended December 31, 2010, the Entity made a partial payment on its interest obligation, but has not made payments since December 31, 2010.
 
As stated above the principal on these notes is past due.  The Notes have neither been repaid nor have they been converted into common stock.  The Entity is currently negotiating with the Holders to convert the obligations into equity of the Entity.     
 
 
10

 
 
Promissory Notes Payable
 
During the years ended June 30, 2011 and 2010, the Entity issued debt instruments in the form of promissory notes with an aggregate 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 six months 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 due 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 were due on December 31, 2010, March 31 and June 30, 2011, respectively.

As stated above, the principal on these notes is past due.  The Entity is currently negotiating with the Holders to come to resolution.     

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 and were secured by personal guarantees of certain officers of the Entity.  During June, 2010, one of the guarantors exercised his right on these loans and satisfied the obligation to the bank.  This loan is currently a demand obligation to that individual.  There was $40,040 outstanding at December 31, 2011 on this obligation.  A third party added $5,000 to this demand balance during the six months ended December 31, 2010.

Fair Value
 
The Notes Payable, Convertible Secured Promissory Notes and Promissory Notes are stated at fair value.  Fair value is as follows:

   
Face value
   
Adjustment to face value
   
Fair value as of December 31, 2011
 
                   
Promissory Notes and Notes Payable
 
$
903,040
   
$
(529,600
)
 
$
373,440
 
Convertible Secured Promissory Notes Payable
   
590,000
     
(347,512
)
   
242,488
 
Accrued interest
   
344,370
     
(178,472
)
   
165,898
 
Total
 
$
1,837,410
   
$
(1,055,584
)
 
$
781,826
 
 
During the six months ended December 31, 2011, the Entity recorded a gain of $660,978.  This gain had the effect of increasing the unrealized gain at June 30, 2011 of $394,607 to the $1,055,584 reported as of December 31, 2011
 
NOTE 5.  CAPITAL STOCK

The Entity’s authorized capital stock consists of 200,000,000 shares of Class A common stock with a par value of $0.001. 66,456,743 shares were outstanding as of December 31, 2011.  The Entity also has authorized 100,000,000 shares of preferred stock with a par value of $0.001.  There were no shares of preferred stock outstanding as of December 31, 2011.
 
The Entity has previously filed a registration statement with the SEC that went effective July 11, 2008 and is therefore a reporting public company.  The Entity filed a form 15c2-11 with FINRA and requested permission to trade on the OTC Bulletin Board.  The Entity’s stock began trading on October 3, 2008.
 
 
11

 
 
NOTE 6. 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 three and six months ended December 31, 2011 and 2010, the Entity issued options and warrants as indicated in the table below for shares of common stock, principally in connection with the recruitment and retention of directors, officers, and employees.  Based on these activities compensation cost of $32,749 and $44,008 was recognized in the three and six months ended December 31, 2011, respectively, and $227,130 and $271,339 in the three and six months ended December 31, 2010, respectively.  Unrecognized compensation cost related to unvested stock options and warrants at December 31, 2011 was $433,176 and is expected to be recognized over a weighted average period of 25 months.
 
   
Number of Shares Outstanding Under Options and Warrants
   
Weighted Average Exercise Price
 
             
 Balance, June30, 2010
   
7,796,048
     
0.25
 
 Granted
   
7,211,672
     
0.05
 
 Forfeited or expired
   
(189,995
)
   
0.17
 
                 
 Balance, June 30, 2011
   
14,817,725
     
0.15
 
                 
 Granted
   
1,770,705
     
0.05
 
 Exercised
   
-
     
-
 
 Forfeited or expired
   
-
     
-
 
                 
 Balance, December 31, 2011
   
16,588,430
   
$
0.14
 
 Exercisable, December 31, 2011  
   
 9,633,447
     
 0.20
 
 
The following table is a summary of the Entity’s non-vested stock options
 
   
Number of shares
   
Weighted-Average Grant-Date Fair Value
 
Non-vested balance, June 30, 2011
   
6,452,692
   
$
0.07
 
                 
  Granted
   
1,770,705
     
0.05
 
  Vested
   
(1,268,414
)
   
0.07
 
  Forfeited/Expired
   
-
     
-
 
                 
Non-vested balance, December 31, 2011
   
6,945,983
   
0.06
 
 
The total intrinsic value of options exercised during the six months ended December 31, 2011 and 2010 and was $0. The aggregate intrinsic value of the outstanding options at December 31, 2011 and 2010 was $0.  The intrinsic value of options exercised during the six months ended December 31, 2011 and 2010 was $0.
 
Stock Based Compensation also includes restricted shares issued to certain Officers and Directors as a component of total compensation.  In the three and six months ended December 31, 2011, the Entity issued 94,429 and 265,558 shares, respectively, resulting in Compensation expense of $17,183 and $31,725 shares, respectively.   In the three and six months ended December 31, 2010, the Entity issued 94,429 and 224,734 shares, respectively, resulting in Compensation expense of $22,759and $32,073, respectively.   
 
 
12

 
 
NOTE 7.  INCOME TAXES
 
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The components of deferred tax assets are as follows:
 
   
9/30/11
   
6/30/11
 
             
Accumulated Net loss
 
$
8,186,383
   
$
8,587,957
 
                 
Valuation allowance
   
(8,186,383
)
   
(8,587,957
)
                 
Net deferred tax assets
 
$
-
   
$
-
 
 
NOTE 8.  GOING CONCERN

Through December 31, 2011, the Entity has accumulated losses of $8,186,383.  The Entity expects to generate revenues from its SaaS platform and Production service offerings.  The Entity will either generate revenue from receiving monthly subscription fees for its software platform or engagement fees for its production services to maintain its operations.
 
The Entity faces all the risks common to companies in their early stages of operations including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth.  In view of these conditions, the ability of the Entity to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Entity to obtain necessary financing to fund ongoing operations.  The Entity’s financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.  The future of the Entity hereafter will depend in large part on the Entity’s ability to monetize its investment in its technology and services, and successfully raise capital from external sources to pay for planned expenditures. The Entity continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business.  However, there are no assurances that any such financing can be obtained on acceptable terms, if at all.
 
NOTE 9. CONTRACTUAL OBLIGATIONS

Given the cash flow difficulties of the Entity, there are various contractual obligations under which the Entity has not met its economic requirements.  The economic impact of these instances of noncompliance have been accounted for in the Entity’s Consolidated Financial Statements.  Management does not believe that any of the individual instances of noncompliance other than those disclosed herein would have a material adverse effect on the Entity and therefore require further disclosure.
 
 
13

 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
Vidaroo is a video technology company.  The Entity licenses its Online Video Platform, and performs professional video production.  Vidaroo’s Online Video Platform (“OVP”) is licensed under a Software-as-a-Service (“SaaS”) model.  The SaaS model allows the Company to generate monthly recurring revenue that is scalable and stable.  The OVP’s functionality allows both users and representatives or affiliates of the Entity to use or promote the OVP based on automated interfaces independent of personal contact with the Entity.  Our Production capabilities include creation and support of video imagery for top line names in the entertainment business.  We also provide support of video production for traditional media and corporate presentations, as well as in-house production of content.  

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

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
 
Overview
 
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing in this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
 
RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED DECEMBER 31, 2011 COMPARED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2010.  Our fiscal year runs from July 1 to June 30.
 
Revenue
 
Revenue increased $28,982 to $416,544 and decreased $187,208 to $724,834 in the three and six months ended December 31, 2011 as compared to 2010, respectively. The quarterly increase in revenue was driven by an increase in SaaS revenue, which grew from $65,000 to $122,000, an increase of 88%. SaaS revenue for the six months ended December 31, 2011was 241,000, an increase of $133,000 as compared to 2010. This growth was largely due to low cost web-based promotional activities, direct sales from the Entity’s affiliates and business development activities of Executive Management without the use of external capital to leverage marketing initiatives. Production revenue was consistent in the three months ended December 31, 2011 as compared to 2010 with revenue of 298,000 and 296,000, respectively.  The overall decrease in revenue in the six months ended December 31, 2011 as compared to 2010 was due to lower production in the three months ended September 30, 2011 as compared to 2010.
 
 
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Cost of Sales

During the three and six months, the Entity incurred cost of sales in conjunction with the direct provision of services to our clients.   These expenses consist of bandwidth to deliver licensing of the online video platform, sales commissions, and production personnel as well as equipment to facilitate the provision of our production services.  Cost of sales decreased by $31,355 to $81,246 and 94,798 to $218,001 in the three and six months, respectively, ended December 31, 2011 as compared to 2010.  The decrease was due to a lower cost structure required for the current year production services and more cost efficient infrastructure for the bandwidth requirements associated with delivery of our SaaS OVP.

Operating Margin

The operating margin generated by the services and technologies provided increased by $40,337 to $335,298 and decreased by $92,410 to $601,631 during the three and six months ended December 31, 2011, respectively, in comparison 2010.  The operating margin on the services and technologies produced an Operating Margins of 80% and 83% in the three and six months ended December 31, 2011, respectively.  This compares favorably to Operating Margins from the prior year of 71% and 76% in the three and six months ended December 31, 2010, respectively. The established infrastructure and technology in place at the Entity allows the provision of our products and services to the marketplace at a low cost ratio for each new client engagement and licensing of the Entity’s software allowing for a strong margin.  The Margins earned in the Production business account for the increase in year over year Margins as the prior year engagements had a higher variable cost structure for the Entity.
 
Selling General and Administrative

Selling General and Administrative costs generally consist of salaries, including stock-based compensation, professional fees, office expenses and other administrative costs.  These costs decreased by $188,106 to $395,721 and $327,561 to $740,325 for the three and six months ended December 31, 2011, respectively, in comparison to 2010.  For the three months ended December 31, 2011this decrease relates primarily to reduced costs for stock based compensation of $209,000 as well as reductions in rent and other recurring costs of $31,000 offset by increases in salaries of $31,000 and legal fees of $21,000.  For the six months ended December 31, 2011, the decrease is also driven by reduced costs for stock based compensation of $283,000 as well decreases in items such as salary and rent of $81,000 offset by increased legal fees of $37,000.

Loss from operations

The improvement in Loss from Operations for the three and six months ended December 31, 2011 was a significant in comparison to the performance in the three and six months ended December 31, 2010.  The focus of the Entity on its remaining two business units, after having eliminated the pursuit of an advertising model and revenues, has produced tangible results.  The focus on these two business units has allowed the Entity to spend its resources in ongoing development of its OVP, aligning those efforts directly to subscription revenue, while the production team has continued to deliver a superior service product to its clients. This focus has allowed the Entity to keep discretionary spending to a minimum, delivering optimized results ion Operations.
 
Gain on Adjustment to fair market value of outstanding indebtedness

Gain on Adjustment to fair market value of outstanding indebtedness relates to the marking of the Entity’s outstanding indebtedness to fair market value.  The valuation of the Entity’s debt and related accrued interest were marked to fair market value based on the use of Level 3 inputs.  These inputs are the Entity’s share value and the potential number of shares being offered to the counterparty to the debt instruments.  The gain in the three and six months ended December 31, 2011 has been driven off these assumptions and the changes to the potential number of shares and related fair market value during the three and six months ended December 31, 2011.
 
 
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Liquidity and Capital Resources

The Entity had net working capital of $(1,371,887) at December 31, 2011, an improvement of $486,611 compared to June 30, 2011.  The improvement is due to the gain on adjustment to the fair market value of outstanding indebtedness offset by the Entity’s Operating losses which have been absorbed into working capital through increased short term liabilities or decrease short term assets.

The Entity has incurred operating losses since its inception.  The Entity’s auditor has emphasized uncertainty regarding our ability to continue as a going concern in his audit report for the year ended June 30, 2011. As shown in the accompanying financial statements, while the Entity realized net income of $401,574 for the six months ended December 31, 2011 it was driven by the fair market value adjustment to the Entity’s debt while there remains an accumulated deficit of $8,186,383 as of December 31, 2011.

The entity is in the process of negotiating with the holders of its Convertible Promissory Notes, Promissory Notes and Notes Payable to modify the terms of the obligations.  The Entity has proposed converting the debt obligations to equity in Vidaroo.  Negotiations are ongoing. Upon successful completion of this proposed transaction, the Entity intends to raise capital for growth purposes.

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

Cash and Cash Equivalents. For the six month period ended December 31, 2011, cash and cash equivalents decreased to $44,876 from $73,598 at June 30, 2011.

Cash Flows from Operating Activities. Net cash used by operating activities was $25,410 for the six months ended December 31, 2011, a decrease of $18,966 over the first six months of the prior year.  The change in cash flows from operating activities is primarily attributable the repayment of certain short term liabilities in the current period with the cash the Entity had on hand as of June 30, 2011.

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, 2011. 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, 2011, our disclosure controls and procedures were ineffective due to the lack of segregation of duties and the lack of audit committee oversight. Upon the acquisition of adequate capital the Entity intends to remediate the deficiencies through the deployment of additional personnel and implementation of an audit committee.
 
 
16

 
 
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, 2011 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, 2011.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17

 

PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS

In August 2010, the Entity, along with its subsidiary, E360, LLC, was 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, 2011, the Entity has $590,000 of Convertible secured promissory notes and $903,040 of Promissory notes and notes payable outstanding.  The $590,000 of Convertible secured promissory notes and $858,000 of the Promissory Notes was due and unpaid as of December 31, 2011.  Additionally since July 1, 2010, the Entity has not paid interest at the stated face amount of the obligation which has resulted in unpaid accrued interest, as of December 31, 2011 of $344,370.

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.
     
EX-101.INS**   XBRL INSTANCE DOCUMENT
     
EX-101.SCH**   XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
     
EX-101.DEF**   XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
     
EX-101.LAB**   XBRL TAXONOMY EXTENSION LABELS LINKBASE
     
EX-101.PRE**   XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
 
 
 
 
 
     
 
18

 
 
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, 2012
By:
/s/ Mark Argenti
 
   
Mark Argenti
 
   
Chief Executive Officer (principal executive officer)
 
       
       
 
By:
/s/ Thomas Moreland
 
   
Thomas Moreland
 
   
Chief Financial Officer and Treasurer (Principal financial and accounting officer)
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
19