-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVKxv01S5nr0jDQYqpjVkHsnK2hEvdn8dzuohslnZC5U0Vi1RjPhc5QwV9DRTWVb fCf1BnrlAGp/XZXtoKQqkQ== 0001038838-04-000754.txt : 20040823 0001038838-04-000754.hdr.sgml : 20040823 20040823163606 ACCESSION NUMBER: 0001038838-04-000754 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040823 DATE AS OF CHANGE: 20040823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARADAY FINANCIAL INC CENTRAL INDEX KEY: 0000910639 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 330565710 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22236 FILM NUMBER: 04992232 BUSINESS ADDRESS: STREET 1: 175 SOUTH MAIN STREET STREET 2: SUITE 1240 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 BUSINESS PHONE: 801-502-6100 MAIL ADDRESS: STREET 1: 175 SOUTH MAIN STREET STREET 2: SUITE 1240 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 10QSB 1 q063004.txt 10-QSB ENDED JUNE 30, 2004 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2004 Commission File Number 000-22236 FARADAY FINANCIAL, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0565710 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 175 South Main, Suite 1240, SLC, UT 84111 ------------------------------------------ (Address of principal executive offices) (Zip Code) (801) 502-6100 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of August 19, 2004 ------------ --------------------------------- Common Stock 2,318,000 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements
FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Consolidated Balance Sheet (Unaudited) ASSETS June 30, 2004 ------------------ CURRENT ASSETS Cash in bank $ 368,777 Cash in escrow 35,000 Employee Advances 27,865 Accrued interest receivable 25,074 ------------------ Total Current Assets 456,716 ------------------ PROPERTY AND EQUIPMENT Furniture & equipment, net 14,240 Less - accumulated depreciation (877) ------------------ Total Property and Equipment 13,363 ------------------ OTHER ASSETS Note receivable (Note 2) 670,000 ------------------ Total Other Assets 670,000 ------------------ TOTAL ASSETS $ 1,140,079 ================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 16,152 Accrued liabilities (Note 2) 256,828 Convertible debt related parties (Note 2) 1,484,531 ------------------ Total Current Liabilities 1,757,511 ------------------ Total Liabilities 1,757,511 ------------------ STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.001 par value, 20,000,000 shares Authorized 3,113,400 issued, 2,318,000 outstanding 3,113 Capital in excess of par value 118,189 Treasury shares at cost (59,375) Other comprehensive loss - Deficit accumulated during the development stage (679,359) ------------------ Total Stockholders' Equity (Deficit) (617,432) ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,140,079 ================== The accompanying notes are an integral part of these consolidated financial statements. 2
FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Consolidated Statements of Operations and Other Comprehensive Income (Unaudited) From Inception on June 11, For the Three Months Ended, 1992 June 30, through --------------------------- June 30, 2004 2003 2004 ----------- ----------- ----------- REVENUES $ 86,742 $ - $ 86,742 EXPENSES Depreciation expense 712 - 877 General and administrative 286,088 7,349 417,123 ----------- ----------- ----------- Total Expenses 286,800 7,349 418,000 ----------- ----------- ----------- LOSS FROM OPERATIONS (200,058) (7,349) (331,258) ----------- ----------- ----------- OTHER INCOME (EXPENSE) Loss on sale of securities - (60,366) (311,004) Gain on legal settlement (Note 2) - - 184,767 Interest income 18,006 - 33,573 Interest expense (44,385) (18,969) (255,437) ----------- ----------- ----------- Total Other Income (Expenses) (26,379) (79,335) (348,101) ----------- ----------- ----------- NET LOSS (226,437) (86,684) (679,359) ----------- ----------- ----------- OTHER COMPREHENSIVE LOSS Change in marketable securities - (547,487) - ----------- ----------- ----------- Total Other Comprehensive Loss - (547,487) - ----------- ----------- ----------- COMPREHENSIVE LOSS $ (226,437) $ (634,171) $ (679,359) =========== =========== =========== BASIC LOSS PER SHARE $ (0.09) $ (0.03) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,318,000 3,000,000 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 3
FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Consolidated Statements of Cash Flows (Unaudited) From Inception on June 11, For the Three Months Ended, 1992 June 30, through ------------------------------ June 30, 2004 2003 2004 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (226,437) $ (86,684) $ (679,359) Adjustments to reconcile net loss to used by operating activities: Depreciation & amortization expense 712 - 1,148 Common stock issued for services 113,400 - 113,400 Expenses paid with note payable - - 1,656 Loss on sale of securities - 60,366 311,004 Gain on legal settlement - - (184,767) Changes in operating assets and liabilities: Increase in cash in escrow (30,000) - (35,000) (Increase) decrease in interest receivable (18,006) - (25,074) Increase in accounts receivable - related (27,865) - (27,865) Increase in accounts payable 802 - 16,152 Increase in current liabilities and accrued interest 44,385 18,969 256,828 Net Cash (Used) Provided by Operating Activities (143,009) (7,349) (251,877) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Organization costs - - (271) Purchase of fixed assets - - (14,240) Purchase of securities - - (500,000) Sale of securities - 7,594 259,585 Issuance of note receivable (170,000) - (670,000) ------------ ------------ ------------ Net Cash (Used) Provided by Investing Activities (170,000) 7,594 (924,926) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Common stock issued for cash - - 5,746 Purchase of treasury shares (25,000) - (59,375) Proceeds from contribution of capital - - 500 Proceeds from convertible notes 565,000 - 1,775,295 Principal payments on convertible notes - - (176,586) ------------ ------------ ------------ Net Cash Provided by Financing Activities 540,000 - 1,545,580 ------------ ------------ ------------ NET INCREASE IN CASH 226,991 245 368,777 CASH AT BEGINNING OF PERIOD 141,786 - - ------------ ------------ ------------ CASH AT END OF PERIOD $ 368,777 $ 245 $ 368,777 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 4
FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Consolidated Statements of Cash Flows (Continued) (Unaudited) From Inception on June 11, For the Three Months Ended, 1992 June 30, through ------------------------------ June 30, 2004 2003 2004 ------------ ------------ ------------ SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for debt paid on behalf of the Company $ - $ - $ 1,656 Distribution of assets in payment of convertible debt $ - $ - $ 114,178 Common stock issued for services $ 113,400 $ - $ 113,400 CASH PAID FOR: Interest $ - $ - $ - Taxes $ - $ - $ - The accompanying notes are an integral part of these consolidated financial statements. 5
FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Notes to the Consolidated Financial Statements For the Three Months Ended June 30, 2004 and 2003 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto included in its March 31, 2004 Annual Report on Form 10-KSB. Operating results for the three months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending March 31, 2005. NOTE 2 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES Notes Payable and Agreement with NutraCea In December 2000, the Company entered into a merger agreement with NutraCea (formerly NutraStar Incorporated). The merger was contingent on a $500,000 loan from Faraday to NutraCea. As of March 2001, the Company had secured investors and advanced $500,000 to NutraCea. By April 2001 the Company determined that the merger plans were terminated. The $500,000 that had been advanced to NutrCea was due within 90 days and bore interest 12%. The note carried an optional conversion feature in which the Company could convert the principal and accrued interest into common stock of NutraCea at a rate of $1.00 per share. The notes also carried a mandatory conversion feature as follows: in the event that NutraCea merged into a public company or issued shares pursuant to its initial public offering of common stock, the outstanding principal and accrued interest was to be converted into common stock of NutraCea at the lesser of a) $1.00 per share, b) the average share price over the initial 10 day trading period less 20%, or c) the price per share of common stock offered in a private placement at the time of mandatory conversion. Investors advanced the $500,000 with the understanding that following either a merger with NutraCea or NutraCea's merger with another public company, the amounts would be converted to equity in the newly merged corporation. However, no written agreements were signed formalizing the nature or the terms of the advances. Management of the Company believes that accounting for the investors' advance of $500,000 to NutraCea on behalf of Faraday as notes payable is the most accurate way to report the transaction. The Company recorded $71,791, $67,740 and $56,102 of interest expense related to these notes payable at 12% per annum for the years ended March 31, 2004, 2003 and 2002. 6 FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Notes to the Consolidated Financial Statements For the Three Months Ended June 30, 2004 and 2003 NOTE 2 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (Continued) Notes Payable and Agreement with NutraCea (Continued) On December 13, 2001, the Company reached a settlement agreement with NutraCea. The agreement states that NutraCea borrowed a total of $500,000 from the Company pursuant to a series of promissory notes bearing interest at 12% per annum and due and payable 90 days from the date of issuance. The outstanding principal and accrued but unpaid interest on the date of the settlement was $551,797. Per the terms of the agreement the Company and NutraCea released, settled and disposed of any and all claims, demands and disputes of any kind between them, including, but not limited to, any disputes connected with the proposed terminated merger. NutraCea settled their debt to Faraday of $500,000 principal and $51,797 accrued interest in exchange for 735,730 shares of NutraCea Preferred Stock per the terms of the agreement. The agreement also stipulates that failure on the part of NutraCea to file a Registration Statement on For SB-2 or a substantially equivalent registration that is declared effective by the Securities and Exchange Commission by June 30, 2002 will result in conversion of the 735,730 Preferred Shares to the same number of Common Shares of NutraCea. NutrCea failed to register the Preferred Shares with the Securities and Exchange Commission on or before June 30, 2002, and therefore, NutraCea was obligated to convert the 735,730 Preferred Shares to 735,730 Common Shares. On July 16, 2002, a Complaint was filed against NutraCea by the Company in the United States District Court, for the District of Utah (Case No 02-CV-00959). The Company filed the lawsuit when NutraCea failed to meet the terms set forth in the settlement agreement. NutraCea did file a registration statement with the Securities and Exchange Commission on June 4, 2002, however, such registration statement had not been declared effective as of June 30, 2002 as required by the settlement agreement. As discussed previously, in the event that NutraCea failed to affect a registration statement by June 30, 2002, NutraCea's Chief Executive Officer, Ms. Patricia McPeak, was to transfer to the Company an additional 735,730 pre-reverse split shares of her common stock and become personally liable to the Company for the original $500,000 debt amount plus 12% interest per annum. The lawsuit also seeks to award the Company any attorney's fees and other costs related to this matter. On August 29, 2002, NutraCea filed a motion to dismiss the Complaint filed by the Company due to lack of personal jurisdiction for both NutraCea and Ms. McPeak. On November 27, 2002, NutraCea's motion to dismiss was denied as to both NutraCea and Ms. McPeak. An alternative settlement agreement was reached on December 10, 2003, whereby the suit was dismissed and the Company shall be guaranteed payment on any deficiency upon the sale of their common stock. On September 18, 2003 the Company converted its existing 735,730 preferred shares of NutraCea to 735,730 shares of NutraCea common stock. Also, in September of 2003 per the terms of the new settlement agreement NutraCea transferred an additional 735,730 shares of its common stock to the Company. NutraCea also paid deferred dividends to the Company as of September 18, 2003 in the form of 1,301,692 shares of its common stock. 7 FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Notes to the Consolidated Financial Statements For the Three Months Ended June 30, 2004 and 2003 NOTE 2 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (Continued) Notes Payable and Agreement with NutraCea (Continued) The new settlement agreement also states that the Company has until September 18, 2004 to sell the NutraCea common stock, and in the event the Company is unable to realize $551,797 plus any legal fees the Company incurred as of September 18, 2003 through the sale of its 2,774,772 shares of NutraCea common stock (735,730 preferred shares converted to common plus the additional 735,730 common shares and 1,301,692 shares granted in payment of dividends) that NutraCea shall have 90 days from the date that the Company demonstrates that through its best efforts it has not been able to realize $551,797 plus legal fees through the sale of its NutraCea common stock, to transfer to the Company additional NutraCea common shares to make up any deficiency between the actual sales price obtained by the Company after it has sold all of its NutraCea shares and the amount of $551,797 plus legal fees. In addition, should the Company choose not to sell any portion of its NutraCea common stock prior to September 18, 2004, the value of any portion of its NutraCea common stock still remaining shall be credited against the original $551,797. Furthermore, should the value of the common stock exceed the $551,797, the Company is entitled to keep the excess. It is the full intention of the Company to distribute the stock awards from the settlement on a pro rata basis to each investor. As of March 31, 2004 the Company has distributed a total of 73,735 shares of NutraCea common stock valued at $114,178 directly to the investors. The Company accounted for the transaction as a reduction to the principal amount of the notes. Also during the year ended March 31, 2004 the Company sold 347,743 shares of the NutraCea common stock and distributed the proceeds to the investors. The total amount distributed to the investors was $259,585 and was accounted for as a reduction to the principal amount of the notes. The Company plans to distribute the remaining shares of the NutraCea stock or the proceeds from the sales of the stock to investors until the remaining principal and accrued interest is paid in full. At June 30, 2004 the remaining principal balance of these notes was $209,531. The Company has recorded accrued interest of $217,940 as of June 30, 2004. Notes Payable, Notes Receivable and Agreement with VIB.TV The Company, Video Internet Broadcasting Corporation (VIB) and Homenet Utah, Inc. ("Homenet"), a wholly owned subsidiary of the Company, have entered into a Merger Agreement whereby Homenet may be merged into VIB ("Merger") with VIB to be the surviving corporation. The separate existence of Homenet would cease if the Merger becomes effective. Consummation of the Merger is subject to various conditions including satisfactory resolution of the potential VIB liabilities and no VIB shareholders exercising dissenters rights. Notwithstanding the foregoing, Homenet may waive such conditions to closing as it deems appropriate. In addition, as part of the Merger, VIB's name will be changed to HomeNet Communications, Inc. 8 FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Notes to the Consolidated Financial Statements For the Three Months Ended June 30, 2004 and 2003 NOTE 2 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (Continued) Notes Payable, Notes Receivable and Agreement with VIB.TV (Continued) Upon closing of the Merger Agreement, each share of VIB capital stock that is issued and outstanding immediately prior to the closing will be converted into 1.0903 shares of the Company's common stock and all previously outstanding shares of VIB capital stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist. All other securities convertible into or exercisable for shares of VIB capital stock, including but not limited to stock options, convertible debt and warrants and issued by the Company prior to the effective date of the Merger, shall become, without further action, convertible into or exercisable for the number of shares of Company common stock determined by using the 1.0903 conversion factor. VIB currently has 2,184,939 shares of common stock outstanding, 350,550 shares of preferred stock outstanding, options exercisable for an additional 424,000 shares of stock and other convertible securities that are convertible under terms that are in dispute. It is expected that (assuming conversion of all VIB convertible securities and settlement of the contingent obligations on anticipated terms of which there can be no assurance) the Company would be issuing approximately 3,312,826 shares its common stock on a fully diluted basis in connection with the Merger. In addition, there is a possibility that the Company may create a class of preferred stock that would be issued to some of the holders of VIB securities that are convertible into VIB preferred stock. However, the exact number of shares and the number and form of the convertible securities to be issued is still subject to agreement. In connection with the proposed merger between Faraday and VIB, the parties entered into a loan agreement, pursuant to which Faraday has lent VIB a principal amount of $670,000 as of June 30, 2004. To obtain the financing needed for the loan agreement between Faraday and VIB, Faraday entered into loan agreements with several investors. During March 2004, the Company issued convertible debentures to finance its loan to VIB. The debentures accrue interest at 12% per annum and are due six months from the original date of the notes. Principal and interest not paid when due shall bear interest at the rate of 18% per annum. The notes are convertible at any time at the option of the holder into shares of the Company's common stock at the rate of one share of common stock for every $1.00 in principal and accrued interest that is converted. In addition, the notes have attached common stock purchase warrants to acquire 100 shares of common stock at an exercise price of $1.50 per share for every one thousand dollars in principal lent by the lender. In determining whether an instrument includes a beneficial conversion option, the Emerging Issues Task Force reached a consensus that the effective conversion price based on the proceeds received for or allocated to the convertible instrument should be used to compute the intrinsic value, if any, of the embedded conversion option. As a result of this consensus, an issuer should first allocate the proceeds received in a financing transaction that includes a convertible instrument to the convertible instrument and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis. Then, the Issue 98-5 model should be applied to the amount allocated to the convertible instrument, and an effective conversion price should be calculated and used to measure the intrinsic value, if any, of the embedded conversion option. Faraday issued $1,275,000 of convertible debt with a par amount of $1,275,000 and 127,500 warrants. The convertible debt is convertible at a conversion price of $1 per share (holder would receive 1 share of stock for each dollar of debt or 1,275,000 shares of the Company's common stock). Using the black-scholes model, the 127,500 warrants have no value. The Company has recorded accrued interest of $38,887 associated with the convertible debentures. 9 FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Notes to the Consolidated Financial Statements For the Three Months Ended June 30, 2004 and 2003 NOTE 2 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (Continued) Notes Payable, Notes Receivable and Agreement with VIB.TV (Continued) The Company has determined that the embedded conversion option within the debt instrument is not beneficial (has no intrinsic value) to the holder. Notes payable, convertible debentures and notes payable - related parties consist of the following as of June 30, 2004: Unsecured notes payable to shareholders of the Company due on demand, payable through the issuance of or proceeds from the sale of shares of NutraCea common stock Interest is computed at a rate of 12% per annum. $ 209,531 Unsecured convertible notes payable to shareholders of the Company due September 2004, convertible at the holders option to common stock of the Company at a ratio of one share per each dollar of outstanding principal and interest. Interest is computed at at a rate of 12% per annum. 1,275,000 ---------- Total Notes payable, notes payable - related parties and Convertible Debentures Payable $1,484,531 ========== Interest expense on the above debt amounted to $44,385 for the three months ended June30, 2004. Accrued interest was $256,878 at June 30, 2004. NOTE 3 - OUTSTANDING STOCK PURCHASE WARRANTS Under FASB Statement 123, the Company estimates the fair value of each stock purchase warrant at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants, respectively; dividend yield of zero percent; expected volatility of 108%; risk-free interest rate of 4.5 percent and expected life of 6 months, for the three months ended June 30, 2004. As of June 30, 2003 there were no stock purchase warrants outstanding. Had compensation cost for the Company's stock options granted to directors and employees been based on the fair value as determined by the Black-Scholes option pricing model at the grant date under the accounting provisions of SFAS No. 123, the Company would have recorded an additional expense of $-0- for the three months ended June 30, 2004. As the value of the warrants is $-0- the Company's net loss would not have been changed. 10 FARADAY FINANCIAL, INC. AND SUBSIDIARIES (A Development Stage Company) Notes to the Consolidated Financial Statements For the Three Months Ended June 30, 2004 and 2003 NOTE 3 - OUTSTANDING STOCK PURCHASE WARRANTS (Continued) A summary of the status of the Company's stock warrants as of June 30, 2004 and changes during the period ended June 30, 2004 is presented below: Weighted Weighted Options Average Average and Exercise Grant Date Warrants Price Fair Value -------- --------- ---------- Outstanding, March 31, 2003 - $ - $ - Granted 71,000 1.50 - Expired/Canceled - - - Exercised - - - --------- --------- -------- Outstanding, March 31, 2004 71,000 $ 1.50 $ - Granted 481,500 1.50 - Expired - - - Exercised - - - --------- --------- -------- Outstanding, June 30, 2004 552,500 1.50 - Exercisable, June 30, 2004 552,500 $ 1.50 $ - ========= ========= ======== NOTE 4 - GOING CONCERN The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management's plans to continue as a going concern include raising additional capital through sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 11 Item 2. Management's Discussion and Analysis or Plan of Operation. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. Plan of Operation The Company has no business operations, and very limited assets or capital resources. The Company's business plan is to seek one or more potential business ventures that, in the opinion of management, may warrant involvement by the Company. The Company recognizes that because of its limited financial, managerial and other resources, the type of suitable potential business ventures which may be available to it will be extremely limited. The Company's principal business objective will be to seek long-term growth potential in the business venture in which it participates rather than to seek immediate, short-term earnings. In seeking to attain the Company's business objective, it will not restrict its search to any particular business or industry, but may participate in business ventures of essentially any kind or nature. It is emphasized that the business objectives discussed are extremely general and are not intended to be restrictive upon the discretion of management. The Company will not restrict its search for any specific kind of firms, but may participate in a venture in its preliminary or development stage, may participate in a business that is already in operation or in a business in various stages of its corporate existence. It is impossible to predict at this stage the status of any venture in which the Company may participate, in that the venture may need additional capital, may merely desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer. In some instances, the business endeavors may involve the acquisition of or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock. Proposed Transaction With Video Internet Broadcasting Corporation ("VIB") In furtherance of the Company's plan of operation, the Company, VIB and Homenet Utah, Inc. ("Homenet"), a wholly owned subsidiary of the Company, have entered into a Merger Agreement whereby Homenet may be merged into VIB ("Merger") with VIB to be the surviving corporation. The separate existence of Homenet would cease if the Merger becomes effective. Consummation of the Merger is subject to various conditions including satisfactory resolution of the potential VIB liabilities and no VIB shareholders exercising dissenters rights. Notwithstanding the foregoing, Homenet may waive such conditions to closing as it deems appropriate. In addition, as part of the Merger, VIB's name will be changed to HomeNet Communications, Inc. There can be no assurance that such contingencies will be satisfied, that the Merger Agreement will be closed, that the combined business operations will prove successful or that the transaction will prove to be favorable for the shareholders of the Company. Upon closing of the Merger Agreement, each share of VIB capital stock that is issued and outstanding immediately prior to the closing will be converted into 1.0903 shares of the Company's common stock and all previously outstanding shares of VIB capital stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist. All other securities convertible into or exercisable for shares of VIB capital stock, including but not limited to stock options, convertible debt and warrants and issued by the Company prior to the effective date of the Merger, shall become, without further action, convertible into or exercisable for the number of shares of Company common stock determined by using the 1.0903 conversion factor. VIB currently has 2,184,939 shares of common stock outstanding, 350,550 shares of preferred stock 12 outstanding, options exercisable for an additional 424,000 shares of stock and other convertible securities that are convertible under terms that are in dispute. It is expected that (assuming conversion of all VIB convertible securities and settlement of the contingent obligations on anticipated terms of which there can be no assurance) the Company would be issuing approximately 3,312,826 shares its common stock on a fully diluted basis in connection with the Merger. In addition, there is a possibility that the Company may create a class of preferred stock that would be issued to some of the holders of VIB securities that are convertible into VIB preferred stock. However, the exact number of shares and the number and form of the convertible securities to be issued is still subject to agreement. In connection with the proposed Merger, the Company and VIB entered into a loan agreement, pursuant to which the Company has lent VIB a principal amount of $670,000 as of June 30, 2004. VIB is in difficult financial circumstances and there can be no assurance that VIB will be able to repay the amounts lent. Liquidity and Capital Resources We used net cash for operating activities of $143,009 during the three months ended June 30, 2004. As of June 30, 2004, we have $456,716 in current assets, $1,757,511 in current liabilities and a working capital (deficit) of ($1,300,795). Our current liabilities include $256,828 in accrued liabilities, an obligation in the amount of $209,531 payable on demand, unsecured convertible promissory notes in the amount of $1,275,000 that are due and payable in full in September 2004 and $16,152 in accounts payable. Our working capital requirements for the foreseeable future will vary based upon a number of factors, including the costs associated with any potential acquisition, including the proposed transaction with VIB, and other factors that may not be foreseeable at this time. We believe that we will need at least $5,000,000 in funding for then next twelve months if the Merger is closed. We have no commitments to provide additional funding and there can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. If we do not receive the needed funding, we will not be able to execute our business plan. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Recent Accounting Pronouncements The Company has not adopted any new accounting policies that would have a material impact on the Company's financial condition, changes in financial conditions or results of operations. Critical Accounting Policies The carrying value of the Company's cash equivalents and accounts payable approximate fair values due to their short-term nature. The carrying value of the Company's investments equals their fair value, which is based upon quoted prices in active markets. The Company follows the provisions of SFAS 115 regarding marketable securities. The Company`s securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings. 13 Securities investments that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost in investments and other assets. Securities investments not classified as either held-to-maturity or trading securities are classifies as available-for-sale securities. Available-for-sale securities are recorded at fair value in investments and other assets on the balance sheet, with the change in fair value during the period excluded from earnings and recorded net of tax as a separate component of equity. All marketable securities held by the Company have been classified as available-for-sale securities. Under FASB Statement 123, the Company estimates the fair value of each stock purchase warrant at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants, respectively; dividend yield of zero percent; expected volatility of 108%; risk-free interest rate of 4.5 percent and expected life of 6 months, for the year ended March 31, 2004. As of March 31, 2003 and 2002 there were no stock purchase warrants outstanding. Forward-Looking Statements When used in this Form 10-QSB or other filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized officer of the Company's executive officers, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers that forward-looking statements involve various risks and uncertainties. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statement. Item 3. Controls and Procedures The Company has evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 30, 2004 pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation. 14 PART II -- OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. Between March and June, 2004, the Company entered into loan agreements with eight accredited and sophisticated investors whereby the Company borrowed $1,275,000 in funds from these investors. Maven Properties, Ltd., an entity controlled by Frank J. Gillen, lent $60,000 of these funds and Badger Investments, LLC, an entity controlled by Shauna Badger, lent $200,000 of these funds. The loans accrue interest at 12% per annum and are due six months from the effective date of the loan. Principal and interest not paid when due bear interest at the rate of 18% per annum. The notes are convertible at any time at the option of the holder into shares of the Company's common stock at the rate of one share of common stock for every $1.00 in principal and accrued interest that is converted. In addition, lenders received warrants to acquire 100 shares of common stock at an exercise price of $1.50 per share for every one thousand dollars in principal lent by the lender. The Company did not use an underwriter in connection with these transactions and the transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 as promulgated thereunder. In April 2004, the Company issued warrants exercisable for 100,000 shares of common stock to five HMG employees who are employed as telemarketers. Warrants exercisable for 75,000 of these shares expired before they were exercised. These warrants are exercisable at $1.50 per share. The Company did not use an underwriter in connection with these transactions and the transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 as promulgated thereunder. In April 2004, the Company issued warrants exercisable for a total of 100,000 shares of common stock to the Company's two directors as compensation for services rendered. The warrants are exercisable at $1.50 per share. The Company did not use an underwriter in connection with these transactions and the transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 as promulgated thereunder. In June 2004, the Company issued 48,000 shares of its common stock to Frank J. Gillen and Shauna Badger in consideration for the cancellation of $24,000 in accrued salary obligations owed to these officers and it issued 65,400 shares of its common stock to Frank J. Gillen in consideration for the cancellation of $65,400 in accrued expenses owed to him. In addition, in June 2004 the Company issued warrants to purchase 300,000 shares of the Company's common stock at $1.50 per share to several accredited and sophisticated individuals in consideration for their guarantee of a $1,500,000 line of credit with a bank for the benefit of the Company and VIB. The Company did not use an underwriter in connection with these transactions and the transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 as promulgated thereunder. 15 Item 6. Exhibits and Reports on Form 8-K. (a) INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 3(i).1 Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company's Form 10-SB, File No. 0-22236) 3(ii).1 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 of the Company's Form 10-SB, File No. 0-22236) 10.1 Settlement Agreement by and between the Company and NutraCea, dated December 10, 2002 (Incorporated by reference to Exhibit 10.1 of the Company's Form 10-KSB, dated March 31, 2004). 10.2 Loan Agreement by and between the Company and Video Internet Broadcasting Corporation, dated February 18, 2004 (Incorporated by reference to Exhibit 10.2 of the Company's Form 10-KSB, dated March 31, 2004). 10.3 Security Agreement by and between the Company and Video Internet Broadcasting Corporation, dated March 12, 2004 (Incorporated by reference to Exhibit 10.3 of the Company's Form 10-KSB, dated March 31, 2004). 10.4 Intellectual Property Security Agreement by and between the Company and Video Internet Broadcasting Corporation, dated March 12, 2004 (Incorporated by reference to Exhibit 10.4 of the Company's Form 10-KSB, dated March 31, 2004). 10.5 Amendment Number One to the Agreements by and between the Company and Video Internet Broadcasting Corporation, dated April 21, 2004 (Incorporated by reference to Exhibit 10.5 of the Company's Form 10-KSB, dated March 31, 2004). 10.6 Amendment Number Two to the Agreements by and between the Company and Video Internet Broadcasting Corporation, dated May 1, 2004 (Incorporated by reference to Exhibit 10.6 of the Company's Form 10-KSB, dated March 31, 2004). 10.7 Form of Loan Agreement by and between the Company and Lenders whereby the Company borrowed the principal amount of $765,000 (Incorporated by reference to Exhibit 10.7 of the Company's Form 10-KSB, dated March 31, 2004). 10.8 Form of Loan Agreement by and between the Company and Lenders whereby the Company borrowed the principal amount of $445,000 (Incorporated by reference to Exhibit 10.8 of the Company's Form 10-KSB, dated March 31, 2004). 10.9 Employment Agreement with Frank J. Gillen (Incorporated by reference to Exhibit 10.9 of the Company's Form 10-KSB, dated March 31, 2004). 10.10 Employment Agreement with Shauna Badger (Incorporated by reference to Exhibit 10.10 of the Company's Form 10-KSB, dated March 31, 2004). 16 EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 10.11 Agreement and Plan of Merger, by and between the Company, Homenet Utah, Inc. and Video Internet Broadcasting, Inc., dated August 2, 2004. 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FARADAY FINANCIAL, INC. (Registrant) Date: August 19, 2004 By /s/ Frank J. Gillen ----------------------------- Frank J. Gillen Director, President, Chief Executive Officer and Chief Financial Officer 17 EX-10.11 2 ex1011q063004.txt AGREEMENT AND PLAN OF MERGER Exhibit 10.11 AGREEMENT AND PLAN OF MERGER BY AND BETWEEN FARADAY FINANCIAL, INC., HOMENET UTAH, INC. AND VIDEO INTERNET BROADCASTING CORPORATION AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into effective as of this 2nd day of August, 2004, by and among Faraday Financial, Inc., a Delaware corporation (hereinafter "Faraday"); Homenet Utah, Inc., a Utah corporation and wholly-owned subsidiary of Faraday (hereinafter "Homenet"); and Video Internet Broadcasting Corporation, a Washington corporation (hereinafter "VIB"). Homenet and VIB are sometimes hereinafter collectively referred to as the "Constituent Corporations." RECITALS WHEREAS, the boards of directors of Faraday, Homenet and VIB, respectively, deem it advisable and in the best interests of such corporations and their respective stockholders that Homenet merge with and into VIB pursuant to this Agreement and the Plan, Articles and Certificate of Merger in the form attached hereto as Exhibit "A" and pursuant to applicable provisions of law (such transaction hereafter referred to as the "Merger"). WHEREAS, Faraday has an authorized capitalization of 21,000,000 shares of stock of which 20,000,000 shares, par value $.001 per share, are common stock (the "Faraday Common Stock") and 1,000,000 shares, par value $.001 per share, are preferred stock. Faraday has 2,318,000 shares of common stock outstanding and no shares of preferred stock outstanding; Homenet has an authorized capitalization consisting of 25,000,000 shares of common stock, $.001 par value, of which 5,000,000 shares are issued and outstanding (the "Homenet Common Stock") and are owned by Faraday as of the date hereof; and VIB has an authorized capitalization consisting of 600,000 shares of Series A Preferred Stock, $0.001 par value, of which 350,555 shares are outstanding (the "VIB A Preferred"), 30,000,000 shares of common stock, $.001 par value, of which 2,184,939 shares are issued and outstanding (the "VIB Common Stock") and the possible future authorization and issuance of Series B Preferred Stock (the "VIB B Preferred"). The VIB A Preferred and VIB B Preferred are sometimes hereinafter referred to individually and collectively as the "VIB Preferred Stock" and the VIB Common Stock and the VIB Preferred Stock are sometimes hereinafter referred to individually and collectively as the "VIB Stock." All of said shares of VIB Common Stock, VIB Preferred Stock and other securities of VIB are owned by the holders of VIB as set forth on the attached Exhibit "B" (hereafter "VIB Stockholders"). NOW THEREFORE, for the mutual consideration set out herein, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows: AGREEMENT 1. Plan of Reorganization. The parties hereto hereby agree that Homenet shall be merged with and into VIB upon the terms and conditions set forth herein. It is the intention of the parties hereto that this transaction qualify as a tax-free reorganization under Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended, and related sections thereunder (the "Code"). 2. Terms of Merger. In accordance with the provisions of this Agreement and the requirements of applicable law, Homenet shall be merged with and into VIB as of the Effective Date (the terms "Closing" and "Effective Date" are defined in Section 6 hereof), VIB shall be the surviving corporation ("Surviving Corporation") and the separate existence of Homenet shall cease when the Merger shall become effective. Consummation of the Merger shall be upon the following terms and subject to the following conditions: (a) Co rporate Existence. (1) At the Effective Date, the Surviving Corporation shall continue its corporate existence as a Washington corporation and (i) it shall thereupon and thereafter possess all rights, privileges, powers, franchises and property (real, personal and mixed) of each of the Constituent Corporations; (ii) all debts due to either of the Constituent Corporations, on whatever account, all causes in action and all other things belonging to either of the Constituent Corporations shall be taken and deemed to be transferred to and shall be vested in the Surviving Corporation by virtue of the Merger without further act or deed; and (iii) all rights of creditors and all liens upon any property of either of the Constituent Corporations shall be preserved unimpaired, limited in lien to the property affected by such liens immediately prior to the Effective Date, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation. (2) At the Effective Date, (i) the Articles of Incorporation of VIB, as existing immediately prior to the Effective Date, shall be and become the Articles of Incorporation of the Surviving Corporation, except that, effective as of the Effective Date, the Articles of Incorporation of VIB shall be amended to change VIB's name to HomeNet Communications, Inc.; (ii) the Bylaws of VIB, as existing immediately prior to the Effective Date shall be and become the Bylaws of the Surviving Corporation; (iii) the members of the Board of Directors of VIB holding office immediately prior to the Effective Date shall remain as the members of the Board of Directors of the Surviving Corporation (if on or after the Effective Date a vacancy exists on the Board of Directors of the Surviving Corporation, such vacancy may thereafter be filled in a manner provided by law and the Bylaws of the Surviving Corporation); and (iv) until the Board of Directors of the Surviving Corporation shall otherwise determine, all persons who hold offices of VIB at the Effective Date shall hold the same offices of the Surviving Corporation. (b) Pre-Merger Events. (1) VIB shall have completed its shareholder meeting and received the consent of its shareholders for the consummation of the transactions contemplated hereby. (2) VIB shall have entered into settlement arrangements that are satisfactory to Faraday, in its sole and absolute discretion, with respect to the four holders of VIB convertible promissory notes who claim that they are owed twice the principal amount actually loaned to VIB in addition to a like amount of VIB capital stock. (3) VIB shall have entered into settlement arrangements that are satisfactory to Faraday, in its sole and absolute discretion, settling all claims with respect to placement agent or finders fee arrangements relating to this transaction and all prior transactions of VIB in which claims for placement agent and/or finders fees have been asserted. (c) Conversion of Securities. As of the Effective Date and without any action on the part of Faraday, Homenet, VIB or the holders of any of the securities of any of these corporations each of the following shall occur: (1) Each share of VIB Stock issued and outstanding immediately prior to the Effective Date shall be converted into 1.0903 shares of Faraday Common Stock. All such shares of VIB Stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each certificate previously evidencing any such shares shall thereafter represent the right to receive, upon the surrender of such certificate in accordance with the provisions of Section 3 hereof, certificates evidencing such number of shares of Faraday Common Stock into which such shares of VIB Stock were converted. The holders of such certificates previously evidencing shares of VIB Stock outstanding immediately prior to the Effective Date shall cease to have any rights with respect to such shares of VIB Stock except as otherwise provided herein or by law; (2) Any shares of VIB Stock held in the treasury of VIB immediately prior to the Effective Date shall automatically be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto; (3) Each share of capital stock of Homenet issued and outstanding immediately prior to the Effective Date shall be converted into one share of common stock of the Surviving Corporation and thereafter each stock certificate of Homenet shall evidence ownership of shares of common stock of the Surviving Corporation; (4) The shares of Faraday Common Stock issued and outstanding prior to the Merger will remain outstanding; (5) All other securities convertible into or exercisable for shares of VIB Stock (other than notes convertible into or warrants exercisable for VIB Preferred), including but not limited to stock options and warrants issued by VIB prior to the Effective Date, as set forth on Exhibit "B" hereto (the "Assumed Securities"), shall become, without further action, convertible into or exercisable for shares of Faraday Common Stock at the rate of 1.0903 shares of Faraday Common Stock for each share of VIB Stock into which the Assumed Securities were convertible or exercisable immediately 2 prior to the Merger. The terms of the Assumed Securities shall otherwise be as described in Section 2(d) below. (6) All notes convertible into or warrants exercisable for VIB Preferred ("Convertible Preferred Securities") shall become, without further action, convertible into or exercisable for shares of Faraday Common Stock at the rate of 1.0903 shares of Faraday Common Stock for each share of VIB Preferred into which the Convertible Preferred Securities were convertible or exercisable immediately prior to the Merger. (d) Post-Merger Securities Issuance; Assumption of Obligations. Immediately after the Effective Date: (1) Faraday shall assume all of VIB's obligations relating to the Assumed Securities, so that such securities shall become convertible at the rate of 1.0903 shares of Faraday Common Stock for each share of VIB Stock into which the Assumed Securities were convertible or exercisable immediately prior to the merger. Each Assumed Security shall continue to have, and be subject to, the same terms and conditions (including, without limitation, the applicable vesting schedule in the case of stock options) as set forth in such security (as in effect immediately prior to the Effective Date) pursuant to which such security was issued, except that all references to VIB shall be deemed to be references to Faraday. The adjustment provided herein with respect to any existing stock options issued by VIB that are "incentive stock options" (as defined in Section 422 of the Code) shall be and is intended to be effected in a manner that is consistent with Section 424(a) of the Code. Faraday shall reserve for issuance the number of share of Faraday Common Stock that will become issuable upon the exercise of such Assumed Securities pursuant to this Section 2(d); (2) Faraday shall assume all of VIB's obligations to issue securities on the conversion or exercise, as the case may be, of the Convertible Preferred Securities so that such Convertible Preferred Securities shall become convertible or exercisable, as the case may be, at the rate of 1.0903 shares of Faraday Common Stock for each share of VIB Preferred into which the Convertible Preferred Securities were converted into or exercisable immediately prior to the Merger. (e) Other Matters. (1) There shall be no stock dividend, stock split, recapitalization, or exchange of shares with respect to or rights issued in respect of, Faraday' capital stock after the date hereof and there shall be no dividends paid on Faraday' capital stock after the date hereof, in each case through and including the Effective Date, except for certain options to purchase a maximum of 2,000,000 shares of Faraday Common Stock which Faraday expects to grant to certain senior management personnel of VIB. (2) There shall be no stock dividend, stock split, recapitalization, or exchange of shares with respect to or rights issued in respect of, VIB's capital stock after the date hereof and there shall be no dividends paid on VIB's capital stock after the date hereof, in each case through and including the Effective Date. (3) VIB shall have received all requisite director and stockholder approval of all matters set forth herein and no stockholder of VIB shall have exercised any dissenters rights under applicable corporate law. (4) Homenet and Faraday shall have received all requisite director and stockholder approval of the matters set forth herein. 3. Delivery of Shares; Exchange of Other Securities. On or as soon as practicable after the Effective Date: (a) VIB will cause the VIB Stockholders to surrender for cancellation certificates representing their shares of VIB Stock, against delivery of certificates representing the shares of Faraday Common Stock for which the shares of VIB Stock are to be converted in the Merger. Until surrendered and exchanged as herein provided, each outstanding certificate which, prior to the Effective Date, represented a VIB certificate shall be deemed for all corporate purposes to evidence ownership of the same number of shares of Faraday Common Stock into which the VIB certificate shall have been so converted. 3 (b) Without limiting the effect of Section 2(c)(5) hereof, any Assumed Security, may upon submission for cancellation at the election of the holder of such Assumed Security, be reissued by Faraday as an otherwise identical security convertible or exercisable for the same number of shares of Faraday Common Stock as provided for in Section 2(d)(1) hereof. 4. Representations of VIB. VIB hereby represents and warrants as follows, which warranties and representations shall also be true as of the Effective Date: (a) Except as noted on Exhibit "B", the VIB Stockholders listed on the attached Exhibit "B" are the sole owners of record and beneficially of the issued and outstanding securities of VIB. (b) VIB has the corporate power to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of VIB. The execution and performance of this Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which VIB is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to VIB or its properties. The execution and performance of this Agreement will not violate or conflict with any provision of the respective Articles of Incorporation or Bylaws of VIB. (c) The current unaudited financial statements as of June 30, 2004, and the audited consolidated financial statements as of December 31, 2004 and 2003, of VIB which have been or are hereafter delivered to Faraday (hereinafter collectively referred to as the "VIB Financial Statements") are or will be, as the case may be, complete, accurate and fairly present the financial condition of VIB as of the dates thereof and the results of its operations for the periods covered, subject, in the case of the unaudited interim statements, to normal year-end audit adjustments. There are no material liabilities or obligations, either fixed or contingent, not disclosed in the VIB Financial Statements or in any exhibit thereto or notes thereto other than contracts or obligations in the ordinary course of business; and no such contracts or obligations in the ordinary course of business constitute liens or other liabilities which materially alter the financial condition of VIB as reflected in the VIB Financial Statements. VIB has good title to all assets shown on the VIB Financial Statements subject only to dispositions and other transactions in the ordinary course of business, the disclosures set forth therein and liens and encumbrances of record. The year end audited financial statement of VIB have been prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated therein or in the notes thereto). (d) Since June 30, 2004, there have not been any material adverse changes in the financial position of VIB except changes arising in the ordinary course of business, which changes will in no event materially and adversely affect the financial position of VIB. (e) VIB is not a party to any material pending litigation or, to its best knowledge, any governmental investigation or proceeding, not reflected in the VIB Financial Statements, and to its best knowledge, no material litigation, claims, assessments or any governmental proceedings are threatened against VIB except as described in Section 2(b) hereof. (f) VIB is in good standing in its state of incorporation, and is in good standing and duly qualified to do business in each state where required to be so qualified except where the failure to so qualify would have no material negative impact on VIB. (g) VIB has (or, by the Effective Date, will have) filed all material tax, governmental and/or related forms and reports (or extensions thereof) due or required to be filed and has (or will have) paid or made adequate provisions for all taxes or assessments which have become due as of the Effective Date. (h) VIB's authorized capital stock consists of (i) 600,000 shares of VIB A Preferred Stock, $.001 par value, of which 350,555 shares are presently issued and outstanding and (ii) 30,000,000 shares of common stock, par value $0.001 per share, of which 2,184,939 shares are presently issued and outstanding. The Company also has outstanding securities that are convertible into up to 486,259 shares of a Series B Preferred Stock which the Board of Directors has not yet authorized, but the Company does not have any authorized VIB B Preferred and no VIB B Preferred shares currently outstanding. All outstanding shares of capital stock of VIB are validly issued, fully paid and nonassessable. There are no existing options, calls, warrants, preemptive rights 4 or commitments of any character relating to the issued or unissued capital stock or other securities of VIB that are not disclosed in Exhibit "B." (i) VIB has not materially breached any material agreement to which it is a party. VIB has previously given Faraday copies or access thereto of all material contracts, commitments and/or agreements to which VIB is a party including all relationships or dealings with related parties or affiliates. (j) VIB has no subsidiary corporations except as described in writing and delivered to Faraday. (k) VIB has made its corporate financial records, minute books, and other corporate documents and records available for review to present management of Faraday prior to the Effective Date, during reasonable business hours and on reasonable notice. (l) All information regarding VIB which has been delivered to Faraday in connection with the Merger is true, complete and accurate in all material respects. 5. Representations of Faraday and Homenet. Faraday and Homenet hereby jointly and severally represent and warrant as follows, each of which representations and warranties shall continue to be true as of the Effective Date: (a) As of the Effective Date, the shares of Faraday Common Stock, to be issued and delivered to the VIB Stockholders hereunder will, when so issued and delivered, constitute, duly authorized, validly and legally issued shares of Faraday capital stock, fully-paid and nonassessable. (b) Faraday and Homenet have the corporate power to enter into this Agreement and to perform their respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the respective Boards of Directors of Faraday and Homenet. The execution and performance of this Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which Faraday or Homenet is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to Faraday, Homenet or their properties. The execution and performance of this Agreement will not violate or conflict with any provision of the respective Articles of Incorporation or Bylaws of Faraday or Homenet. (c) Faraday has delivered to VIB a true and complete copy of its Annual Report on Form 10-KSB for the year ended March 31, 2004, as filed with the Commission. As of its date, such report did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstance under which they were made, not misleading. The audited financial statements included in such report have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present the financial position of Faraday as of the date thereof and the results of its operations and changes in financial position for the period then ended subject, in the case of the unaudited interim financial statements, to normal year-end audit adjustments. Homenet has no financial statements because it is newly formed for the purpose of effectuating this Merger and it has no material assets, liabilities, contracts or obligations of any kind. Faraday has no subsidiaries except for Homenet and Homenet Marketing Group, Inc. (d) Since March 31, 2004, there have not been any material adverse changes in the financial condition of Faraday. (e) Neither Faraday nor Homenet is a party to or the subject of any pending litigation, claims, or governmental investigation or proceeding not reflected in the Faraday financial statements or otherwise disclosed herein, and there are no lawsuits, claims, assessments, investigations, or similar matters, to the best of their knowledge, threatened or contemplated against or affecting Faraday, its management or its properties. (f) Faraday and Homenet are each duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; each has the corporate power to own its property and to carry on its business as now being conducted and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material negative impact. 5 (g) Faraday and Homenet have each filed all federal, state, county and local income, excise, property and other tax, governmental and/or related returns, forms, or reports, which are due or required to be filed by it prior to the date hereof and has paid or made adequate provision in the Faraday financial statements for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns or pursuant to any assessments received. Neither Faraday nor Homenet is delinquent or obligated for any tax, penalty, interest, delinquency or charge. (h) Faraday' authorized capital stock consists of 21,000,000 shares of stock of which 20,000,000 shares, par value $.001 per share, are common stock and 1,000,000 shares, par value $.001 per share, are preferred stock. Faraday has 2,318,000 shares of common stock outstanding and no shares of preferred stock outstanding. All outstanding shares of capital stock of Faraday are validly issued, fully paid and nonassessable. Faraday also has outstanding warrants that are exercisable for 576,500 shares of Faraday common stock. These warrants exercisable at $1.50 per share through February 2006. The Company also has outstanding convertible notes in the principal amount of $765,000 that become due and payable beginning in August 2004. The loans accrue interest at 12% per annum and were issued earlier in 2004. Principal and interest not paid when due bear interest at the rate of 18% per annum. The notes are convertible at any time at the option of the holder into shares of the Company's common stock at the rate of one share of common stock for every $1.00 in principal and accrued interest that is converted. (i) The corporate financial records, minute books, and other documents and records of Faraday and Homenet have been made available to VIB prior to the Closing. (j) Faraday has not breached, nor is there any pending, or to the knowledge of management, any threatened claim that Faraday has breached, any of the terms or conditions of any agreements, contracts or commitments to which it is a party or by which it or its properties is bound. The execution and performance hereof will not violate any provisions of applicable law or any agreement to which Faraday is subject. Faraday hereby represents that it is not a party to any material contract or commitment other than appointment documents with its transfer agent and the retention of its professional advisors and that it has disclosed to VIB all relationships or dealings with related parties or affiliates. (k) All information regarding Faraday which is set forth herein or otherwise delivered to VIB in connection with the Merger is true, complete and accurate in all material respects. 6. Closing. The Closing of the transactions contemplated herein shall take place on such date (the "Closing") as mutually determined by the parties hereto when all conditions precedent have been met and all required documents have been delivered, which Closing shall be no later than August 31, 2004, unless extended by mutual consent of all parties hereto. The "Effective Date" of the Merger shall be that date on which executed copies of the attached Plan, Articles and Certificate of Merger are filed in the states of Washington and Delaware. 7. Conditions Precedent to the Obligations of VIB. All obligations of VIB under this Agreement are subject to the fulfillment, prior to or as of the Closing and/or the Effective Date, as indicated below, of each of the following conditions: (a) The representations and warranties by or on behalf of Faraday and Homenet contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing and Effective Date as though such representations and warranties were made at and as of such time. (b) Faraday and Homenet shall have performed and complied with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied with or executed and delivered by them prior to or at the Closing. (c) On or before the Closing, the directors of Faraday and Homenet, and Faraday as sole stockholder of Homenet, shall have approved in accordance with applicable state corporation law the execution and delivery of this Agreement and the consummation of the transactions contemplated herein. 6 (d) On or before the Closing Date, Faraday and Homenet shall have delivered certified copies of resolutions of the sole stockholder and directors of Homenet and of the directors of Faraday approving and authorizing the execution, delivery and performance of this Agreement and authorizing all of the necessary and proper action to enable Faraday and Homenet to comply with the terms of this Agreement including the election of VIB's nominees to the Board of Directors of Faraday and all matters outlined herein. (e) The Merger shall be permitted by applicable state law and Faraday shall have sufficient shares of its capital stock authorized to complete the Merger. (f) At Closing, the officers and directors of Faraday shall have resigned in writing from their positions as directors and officers of Faraday upon the election and appointment of the VIB nominees. (g) At the Closing, all instruments and documents delivered to VIB Stockholders pursuant to the provisions hereof shall be reasonably satisfactory to legal counsel for VIB. (h) At the Closing, upon consummation of the Merger, Faraday shall have the same authorized capital as at present. (i) The shares of restricted Faraday capital stock to be issued to VIB Stockholders at Closing will be validly issued, nonassessable and fully-paid under Delaware law and will be issued in a nonpublic offering and isolated transaction in compliance with all federal, state and applicable securities laws. (j) VIB shall have received the advice of its tax advisor that this transaction is a tax free reorganization as to the exchanging VIB Stockholders. (k) VIB shall have received all necessary and required approvals and consents from required parties and its stockholders. 8. Conditions Precedent to the Obligations of Faraday and Homenet. All obligations of Faraday and Homenet under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: (a) The representations and warranties by VIB contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing as though such representations and warranties were made at and as of such time. (b) VIB shall have performed and complied with, in all material respects, all covenants, agreements, and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing; (c) VIB shall deliver on behalf of its stockholders (including holders of options, warrants and other convertible securities), a letter commonly known as an "Investment Letter," in substantially the form attached hereto as Exhibit "C", acknowledging that the shares of Faraday Common Stock are being acquired for investment purposes. (d) On or before the Closing Date, VIB shall have delivered certified copies of resolutions of its stockholders and directors approving and authorizing the execution, delivery and performance of this Agreement and authorizing all of the necessary and proper action to enable VIB to comply with the terms of this Agreement. (e) At the Closing, all instruments and documents delivered to Faraday and Homenet pursuant to the provisions hereof shall be reasonably satisfactory to legal counsel for Faraday. (f) Immediately prior to the consummation of the Merger, Faraday shall have the same authorized capital as at present. 7 (g) Faraday and Homenet shall have received all necessary and required approvals and consents from required parties. 9. Indemnification. For a period of two years from the Closing, Faraday and Homenet agree to jointly and severally indemnify and hold harmless VIB, and VIB agrees to indemnify and hold harmless Faraday and Homenet, at all times after the date of this Agreement against and in respect of any liability, damage or deficiency, all actions, suits, proceedings, demands, assessments, judgments, costs and expenses including attorneys' fees incident to any of the foregoing, resulting from any material misrepresentations made by an indemnifying party to an indemnified party, an indemnifying party's breach of covenant or warranty or an indemnifying party's nonfulfillment of any agreement hereunder, or from any material misrepresentation in or omission from any certificate furnished or to be furnished hereunder. 10. Nature and Survival of Representations. All representations, warranties and covenants made by any party in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby for two years from the Closing. All of the parties hereto are executing and carrying out the provisions of this Agreement in reliance solely on the representations, warranties and covenants and agreements contained in this Agreement and not upon any investigation upon which it might have made or any representation, warranty, agreement, promise or information, written or oral, made by the other party or any other person other than as specifically set forth herein. 11. Documents at Closing. At the Closing, the following documents shall be delivered: (a) VIB will deliver, or will cause to be delivered, to Faraday the following: (i) a certificate executed by the President and Secretary of VIB to the effect that all representations and warranties made by VIB under this Agreement are true and correct as of the Closing, the same as though originally given to Faraday or Homenet on said date; (ii) a certificate from the state of VIB's incorporation dated at or about the Closing to the effect that VIB is in good standing under the laws of said state; (iii) certified copies of resolutions adopted by VIB's Board of Directors and stockholders authorizing the Merger and all related matters; (iv) Investment Letters in the form attached hereto as Exhibit "C" executed by each VIB Stockholder (including holders of outstanding options, warrants and other convertible securities); (v) such other instruments, documents and certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement; (vi) executed copies of the Plan, Articles and Certificate of Merger for filing; and (vii) all other items, the delivery of which is a condition precedent to the obligations of Faraday and Homenet, as set forth herein. (b) Faraday and Homenet will deliver or cause to be delivered to VIB: (i) stock certificates representing those securities of Faraday to be issued as a part of the exchange as described in Section 2 hereof; (ii) a certificate of the President/Secretary of Faraday and Homenet, respectively, to the effect that all representations and warranties of Faraday and Homenet made under this Agreement are true and correct as of the Closing, the same as though originally given to VIB on said date; 8 (iii) certified copies of resolutions adopted by Faraday' and Homenet's Board of Directors and Homenet's stockholders authorizing the Merger and all related matters; (iv) certificates from the jurisdiction of incorporation of Faraday and Homenet dated at or about the Closing Date that each of said companies is in good standing under the laws of said state; (v) such other instruments and documents as are required to be delivered pursuant to the provisions of this Agreement; (vi) resignation of the sole officer and director of Faraday and Homenet; and (vii) all other items, the delivery of which is a condition precedent to the obligations of VIB, as set forth in herein. 12. Finder's Fees. Faraday and Homenet, jointly and severally, represent and warrant to VIB, and VIB represents and warrants to each of Faraday and Homenet, that, except as described in the Memorandum from VIB to Faraday dated August 2, 2004 none of them, or any party acting on their behalf, has incurred any liabilities, either express or implied, to any "broker" of "finder" or similar person in connection with this Agreement or any of the transactions contemplated hereby. In this regard, Faraday and Homenet, jointly and severally, on the one hand, and VIB on the other hand, will indemnify and hold the other harmless from any claim, loss, cost or expense whatsoever (including reasonable fees and disbursements of counsel) from or relating to any such express or implied liability. 13. Miscellaneous. (a) Further Assurances. At any time, and from time to time, after the Effective Date, each party will execute such additional instruments and take such action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement. (b) Waiver. Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder may be waived in writing by the party to whom such compliance is owed. (c) Termination. All obligations hereunder may be terminated at the discretion of either party's Board of Directors if (i) the closing conditions specified in Sections 7 and 8 are not met by August 31, 2004, unless unanimously extended, or (ii) any of the representations and warranties made herein have been materially breached. (d) Amendment. This Agreement may be amended only in writing as agreed to by all parties hereto. (e) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered in person or sent by prepaid first class registered or certified mail, return receipt requested. (f) Headings. The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (h) Binding Effect. This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns. (i) Entire Agreement. This Agreement and the attached Exhibits is the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof. 9 (j) Time. Time is of the essence. (k) Severability. If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. (l) Responsibility and Costs. If the Merger is consummated, all fees, expenses and out-of-pocket costs and expenses shall be borne by VIB. If the Merger is terminated prior to the Effective Date all fees, expenses and out-of-pocket costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred by the parties hereto shall be borne solely and entirely by the party that has incurred such costs and expenses unless such party has agreed otherwise with any such person. Remainder of Page Intentionally Left Blank 10 IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. VIDEO INTERNET BROADCASTING CORPORATION FARADAY FINANCIAL, INC. By /s/ Michael Devine By /s/ Frank J. Gillen - --------------------------- ---------------------------- Its: President Frank J. Gillen, President HOMENET UTAH, INC. By /s/ Frank J. Gillen ---------------------------- Frank J. Gillen, President 11 EXHIBIT A PLAN, ARTICLES AND CERTIFICATE OF MERGER OF HOMENET UTAH, INC. A UTAH CORPORATION INTO VIDEO INTERNET BROADCASTING CORPORATION A WASHINGTON CORPORATION THE UNDERSIGNED CORPORATIONS DO HEREBY CERTIFY: FIRST: That the name and state of incorporation of each of the constituent corporations (the "Constituent Corporations") of the merger ("Merger") are as follows: Name State of Incorporation ---- ---------------------- Homenet Utah, Inc. Utah Video Internet Broadcasting Corporation Washington SECOND: That an agreement and plan of merger between the parties to the Merger has been approved and adopted, by each of the Constituent Corporations in accordance with the requirements of Utah and Washington law and that upon filing this document with the Utah Department of Commerce and the Washington Secretary of State, the Merger shall be effective (the "Effective Date"). THIRD: The name of the surviving corporation of the Merger is Video Internet Broadcasting Corporation ("VIB" or the "Surviving Corporation"), a Washington corporation. FOURTH: Homenet Utah, Inc. ("Homenet") is a wholly-owned subsidiary of Faraday Financial, Inc. ("Faraday"), a Delaware corporation. In the Merger of Homenet into VIB, the outstanding securities of Homenet will be converted into outstanding securities of Faraday as set forth below. Homenet and VIB are sometimes referred to herein as the "Constituent Corporations." FIFTH: The terms and conditions of the merger and the manner and basis of converting the shares of the Constituent Corporations are as follows: (a) Corporate Existence (1) At the Effective Date, the Surviving Corporation shall continue its corporate existence as a Washington corporation and (i) it shall thereupon and thereafter possess all rights, privileges, powers, franchises and property (real, personal and mixed) of each of the Constituent Corporations; (ii) all debts due to either of the Constituent Corporations, on whatever account, all causes in action and all other things belonging to either of the Constituent Corporations shall be taken and deemed to be transferred to and shall be vested in the Surviving Corporation by virtue of the Merger without further act or deed; and (iii) all rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired, limited in lien to the property affected by such liens immediately prior to the Effective Date, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation. (2) At the Effective Date, (i) the Bylaws of VIB, as existing immediately prior to the Effective Date, shall be and become the Bylaws of the Surviving Corporation; (ii) the members of the Board of Directors of VIB holding office immediately prior to the Effective Date shall remain as the members of the Board of Directors of the surviving Corporation (if on or after the Effective Date a vacancy exists on the Board of Directors of the surviving corporation, such vacancy may thereafter be filled in a manner provided by law and the by-laws of the Surviving Corporation); and (iii) until the Board of 1 Directors of the Surviving Corporation shall otherwise determine, all persons who hold offices of VIB at the Effective Date shall hold the same offices of the surviving Corporation. (3) At the Effective Date, the Articles of Incorporation of VIB as existing immediately prior to the Effective Date shall be and become the Articles of Incorporation of the Surviving Corporation except that such Articles of Incorporation shall be amended to change the name of the Surviving Corporation to HomeNet Communications, Inc. (b) Conversion of Securities. As of the Effective Date and without any action on the part of Faraday, Homenet, VIB or the holders of any of the securities of any of these corporations each of the following shall occur: (1) Each share of VIB capital stock (the "VIB Stock") issued and outstanding immediately prior to the Effective Date shall be converted into 1.0903 shares of Faraday common stock. All such shares of VIB Stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each certificate previously evidencing any such shares shall thereafter represent the right to receive, upon the surrender of such certificate, certificates evidencing such number of shares of Faraday common stock into which such shares of VIB Stock were converted. The holders of such certificates previously evidencing shares of VIB Stock outstanding immediately prior to the Effective Date shall cease to have any rights with respect to such shares of VIB Stock except as otherwise provided herein or by law; (2) Any shares of VIB Stock held in the treasury of VIB immediately prior to the Effective Date shall automatically be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto; (3) Each share of capital stock of Homenet issued and outstanding immediately prior to the Effective Date shall be converted into one share of common stock of the Surviving Corporation and thereafter each stock certificate of Homenet shall evidence ownership of shares of common stock of the Surviving Corporation; and (4) All other securities convertible into or exercisable for shares of VIB Stock (other than notes convertible into or warrants to purchase VIB Preferred), including but not limited to stock options and warrants and issued by VIB prior to the Effective Date, as set forth on Exhibit "B" hereto (the "Assumed Securities"), shall become, without further action, convertible into or exercisable for shares of Faraday Common Stock at the rate of 1.0903 shares of Faraday Common Stock for each share of VIB Stock into which the Assumed Securities were convertible or exercisable immediately prior to the Merger. Each Assumed Security shall continue to have, and be subject to, the same terms and conditions (including, without limitation, the applicable vesting schedule in the case of stock options) as set forth in such security (as in effect immediately prior to the Effective Date) pursuant to which such security was issued, except that all references to VIB shall be deemed to be references to Faraday. The adjustment provided herein with respect to any existing stock options issued by VIB that are "incentive stock options" (as defined in Section 422 of the Code) shall be and is intended to be effected in a manner that is consistent with Section 424(a) of the Code. Faraday shall reserve for issuance the number of share of Faraday Common Stock that will become issuable upon the exercise of such Assumed Securities pursuant hereto. (5) All notes convertible into or warrants exercisable for VIB Preferred ("Convertible Preferred Securities") shall become, without further action, convertible into or exercisable for shares of Faraday Common Stock at the rate of 1.0903 shares of Faraday Common Stock for each share of VIB Preferred into which the Convertible Preferred Securities were convertible or exercisable immediately prior to the Merger. SIXTH: VIB has 2,184,939 shares of common stock outstanding, of which ____________ shares voted in favor of the Merger and _________ shares voted against the Merger. Homenet has 5,000,000 shares of common stock outstanding all of which were voted in favor of the Merger. The number of votes cast for the Plan of Merger by each group was sufficient under applicable law for approval by that voting group. SEVENTH: A copy of the agreement and plan of merger is on file at the principal business offices of VIB, located at 135 Basin Street SW, Ephrata, WA 98823. A copy of the Agreement and Plan of Merger will be furnished by VIB, on request and without cost, to any stockholder of the Constituent Corporations. 2 IN WITNESS WHEREOF, the parties have executed this Plan, Articles and Certificate of Merger the day and year first above written. VIDEO INTERNET BROADCASTING CORPORATION HOMENET UTAH, INC. By _____________________________ By ____________________________ Its: Frank J. Gillen, President 3 EXHIBIT B (VIB STOCKHOLDERS/ASSUMED SECURITIES) EXHIBIT C INVESTMENT LETTER In connection with the Agreement and Plan of Merger dated August ___, 2004 (the "Agreement"), between Faraday Financial, Inc. ("Faraday"), Homenet Utah, Inc. ("Homenet") and Video Internet Broadcasting Corporation ("VIB"), the undersigned hereby represents and warrants as follows: (a) The undersigned's representations in this letter are complete and accurate to the best of the undersigned's knowledge, and Faraday, Homenet and VIB may rely upon them. (b) The undersigned is able to bear the economic risk of an investment in the Faraday common stock (the "Securities") for an indefinite period of time, can afford the loss of the entire investment in the Securities, and will, after making an investment in the Securities, have sufficient means of providing for the undersigned's current needs and possible future contingencies. Additionally, the undersigned's overall commitment to investments that are not readily marketable is not disproportionate to the undersigned's net worth and the merger described in the Agreement will not cause such overall commitment to become excessive. (c) The Securities will not be sold by the undersigned without registration under applicable securities acts or a proper exemption from such registration. (d) The Securities are being acquired for the undersigned's own account and risk, for investment purposes, and not on behalf of any other person or with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933. The undersigned is aware that there are substantial restrictions on the transferability of the Securities. (e) The undersigned has had access to any and all information concerning Faraday that the undersigned and the undersigned's financial, tax and legal advisors required or considered necessary to make a proper evaluation of this investment. Specifically, the undersigned has had access to the Faraday Financial Statements and to the Securities and Exchange Commission filings referenced in Section 5(c) of the Agreement. In making the decisions relating hereto, the undersigned and his or her advisers have relied solely upon their own independent investigations, and fully understand that there are no guarantees, assurances or promises in connection with any investment hereunder and understand that the particular tax consequences arising from an investment in Faraday will depend upon the individual circumstances of the undersigned. The undersigned further understands that no opinion is being given as to any securities or tax matters involving the transactions contemplated by the Agreement. (f) All of the representations and warranties of the undersigned contained herein and all information furnished by the undersigned to Faraday are true, correct and complete in all respects, and the undersigned agrees to notify Faraday immediately of any change in any representation, warranty or other information set forth herein. (g) The undersigned also understands and agrees that stop transfer instructions relating to the Securities will be placed in Faraday' stock transfer ledger, and that the Securities sold will bear legends in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE ISSUER. (h) The undersigned knows that the Securities are offered and sold pursuant to exemptions from registration under the Securities Act of 1933, and state securities law based, in part, on these warranties and representations, which are the very essence of this Agreement, and constitute a material part of the bargained-for consideration without which this Agreement would not have been executed. (i) The undersigned has the capacity to protect the undersigned's own interest in connection with this transaction or has a pre-existing personal or business relationship with Faraday or one or more of its officers, directors or controlling persons consisting of personal or business contacts of a nature and duration such as would enable a reasonably prudent purchaser to be aware of the character, business acumen and general business and financial circumstances of such person with whom such relationship exists. (j) The Securities offered hereby were not offered to the undersigned by way of general solicitation or general advertising and at no time was the undersigned presented with or solicited by means of any leaflet, public promotional meeting, circular, newspaper or magazine article, radio or television advertisement. (k) If initialed below, the undersigned represents that the undersigned is an "accredited investor" as defined under Rule 501 of Regulation D by reason of: FOR INDIVIDUALS ONLY (INITIAL IF APPLICABLE): _______ 1. I had individual income (exclusive of any income attributable Initial to my spouse) in excess of $200,000 in each of the most recent Here two years and I reasonably expect to have an individual income in excess of $200,000 for the current year, or I had joint income with my spouse in excess of $300,000 in each of those years and I reasonably expect to have a joint income with my spouse in excess of $300,000 for the current year. _______ 2. I have an individual net worth, or my spouse and I have a Initial combined individual net worth, in excess of $1,000,000. For Here purposes of this Agreement, "individual net worth" means the excess of total assets at fair market value, including home and personal property, over total liabilities. _______ 3. I am qualified as an "accredited investor" pursuant to Rule Initial 501(a) of Regulation D of the 1933 Act for the following Here reason: ______________________________________________________________ ______________________________________________________________ FOR CORPORATIONS AND PARTNERSHIPS ONLY (INITIAL IF APPLICABLE): _______ 1. The undersigned hereby certifies that the Partnership or Initial Corporation that he/she represents possesses total assets in Here excess of $5,000,000 and was not formed for the specific purpose of acquiring the securities offered by Faraday. _______ 2. The undersigned hereby certifies personally, and on behalf of Initial the Partnership or Corporation that he/she represents, that Here all of the beneficial owners of equity qualify individually as accredited investors under the individual accredited investor test set forth above. FOR TRUSTS ONLY (INITIAL IF APPLICABLE): _______ 1. The undersigned hereby certifies that the trust which he/she Initial represents possesses total assets in excess of $5,000,000 and Here was not formed for the specific purpose of acquiring the securities offered by Faraday, and that the purchase of the securities is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Act. _______ 2. The undersigned hereby certifies personally, and on behalf of Initial the trust that he/she represents, that such trust is a Here revocable trust that may be amended or revoked at any time by the grantors, and all the grantors are accredited individual investors under the individual accredited investor test set forth above. 2 FOR TRUSTEES AND AGENTS (READ AND INITIAL BOTH STATEMENTS): _______ 1. The undersigned hereby acknowledges that he/she is acting as Initial an agent or trustee for the following person or entity: Here _______ 2. The undersigned hereby agrees to provide to Faraday, upon Initial Faraday's request, the following documents: Here (a) a copy of the trust agreement, power of attorney or other instrument granting the power and authority to execute and deliver the Agreement, or (b) an opinion of counsel verifying the undersigned's power and authority to execute and deliver the Agreement and this letter. The representations and warranties contained herein shall survive the closing of the transaction described in the Agreement. The undersigned may also be asked to complete an Investor Questionnaire in connection with the undersigned's status as an accredited investor. Date: ________________ _____________________________ _____________________________ (print name) 3 EX-31.1 3 ex311q063004.txt CERTIFICATIONS Exhibit 31.1 I, Frank J. Gillen, as Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Faraday Financial, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 19, 2004 /s/ Frank J. Gillen --------------------------- Frank J. Gillen Chief Executive Officer EX-31.2 4 ex312q063004.txt CERTIFICATIONS Exhibit 31.2 I, Frank J. Gillen, as Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Faraday Financial, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 19, 2004 /s/ Frank J. Gillen --------------------------- Frank J. Gillen Chief Financial Officer EX-32.1 5 ex321q063004.txt CERTIFICATIONS Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Faraday Financial, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank J. Gillen, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Frank J. Gillen - ----------------------------- Frank J. Gillen Chief Executive Officer and Chief Financial Officer August 19, 2004 -----END PRIVACY-ENHANCED MESSAGE-----