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VGTEL, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(Edgar Glimpses Via Acquire Media NewsEdge) Forward Looking Statements
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes appearing elsewhere in this Report and in our Annual Report on
Form 10-K for the year ended March 31, 2012 (the "Annual Report).
The information in this Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are statements other than statements of historical or
present facts, that address activities, events, outcomes, and other matters that
the Company plans, expects, intends, assumes, believes, budgets, predicts,
forecasts, projects, estimates, or anticipates (and other similar expressions)
will, should, or may occur in the future. Generally, the words "expects,"
"anticipates," "targets," "goals," "projects," "intends," "plans," "believes,"
"seeks," "estimates," "may," "will," "could," "should," "future," "potential,"
"continue," variations of such words, and similar expressions identify
forward-looking statements. These forward-looking statements are based on our
current expectations and assumptions about future events and are based on
currently available information as to the outcome and timing of future events.
A. Corporate History and Background
We were (formerly known as Tribeka Tek, Inc.)organized on February 5, 2002 under
the laws of the State of New York as Tribeka Tek, Inc., and engaged in the
business of providing Edgarizing services for publicly traded companies,
including assisting filings through the Edgar system.
On January 18, 2006 we acquired all of the software and intellectual property
assets pertaining to the "VGTel system", from NYN
International, LLC, a technology development company which developed the 'GMG
system'. These assets were designed to allow us to operate in the
'voice-over-internet-protocol' ("VOIP") sector of the telecommunications
industry. Effective February 2006, we ceased to provide Edgarizing services and
devoted our full attention to the VOIP services.
In January 2006, we changed our name to VGTel, Inc. On December 30, 2010, after
nearly five years of operating the business relating to the GMG assets with only
minimal operations and continued losses, we determined to cease business
operations related to the GMG assets and seek to find a suitable business to
enter into or to acquire a merger candidate.
On December 30, 2010, we entered into a 'Common Stock Purchase Agreement' (the
"Purchase Agreement ") by and among Joseph R. Indovina (the " Buyer " and/or
"Indovina"), Ron Kallus, Niva Kallus, Israel Hason and individual shareholders
(the "Sellers"), and the Company, which closed on January 10, 2011. Pursuant to
the terms of the Purchase Agreement, Indovina acquired 3,999,388.shares, or
approximately 27.14%, of the issued and outstanding shares of common stock of
Company from the Sellers with the Sellers receiving, in the aggregate two
hundred sixty five thousand six hundred thirteen dollars ($265,613.00) from
Indovina for the purchase. On January 10, 2011, in accordance with the Purchase
Agreement, our then current officers and directors resigned and Indovina was
named President, Secretary and Director. Further, pursuant to Purchase
Agreement, prior to the Closing, the GMG intellectual properties, products,
assets, the "VGTel" name, and business was spun out from Company to Ron Kallus
and Israel Hason in exchange for the cancellation of certain shares issued to
them and forgiveness for loans made to Company by Ron Kallus and forgiveness of
certain accrued payables for services provided to the Company by Ron Kallus and
affiliate parties.
7
On February 24, 2011, we executed an Agreement and Plan of Share Exchange ("the
Exchange Agreement") with Venture Industries, Inc. ("Venture"), a company
organized under the laws of the State of Nevada, pursuant to which we would
acquire 100% of the issued and outstanding shares of Venture, in exchange for
the issuance of 21,238,285 shares of our common stock, par value $0.0001. The
shares that we would issue to the shareholders of Venture would have constituted
65% of our issued and outstanding common stock on a fully-diluted basis as of
and immediately after the consummation of the transactions contemplated by the
Exchange Agreement and after giving effect to the Cancellation Agreement
canceling a specific number of shares from our Sole Officer who was resigning.
The closing of the transaction was scheduled to take place on March 30, 2011.
On June 30, 2011, the Company received a letter (the "Letter") dated July [sic]
29, 2011 from Lawrence Harris as President of Venture, terminating the Exchange
Agreement. The Letter alleged breaches of the Exchange Agreement by us,
including the removal of Lawrence Harris as our President on June 28, 2011.
Upon further investigation by our Board of Directors, we determined that issues
and disputes existed as to whether the share exchange transaction had closed. We
then determined on July 19, 2011, to accept the termination of the Exchange
Agreement by Venture pursuant to the Letter.
As a result of the termination prior to closing of the Exchange Agreement, by
and among the Company and Venture, the disclosure in our filings with the
Securities and Exchange Commission relating to Venture Industries, Inc. or our
ongoing operations, share issuances, shell company status, share ownership or
control are not applicable and should no longer be relied upon when analyzing
our business, operations or financial condition. The affected information
appears in our Form 8-K filed on April 5, 2011 and our Preliminary Information
Statements filed on April 8, 2011, April 22, 2011 and May 13, 2011.
Consequently, as a result of the termination of the Exchange Agreement prior to
closing, we remained a Shell Company, as defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended, and had been seeking appropriate business
opportunities.
Peter Shafran was brought on as our new Chief Executive Officer, at the end of
August 2011. Mr. Shafran has been practicing law for over 28 years. Serving as
the Executive Producer of River Spirit Music, he produces and promotes concerts
in the Hudson Valley region. Mr. Shafran received a Bachelor of Arts degree in
Psychology from SUNY-Binghamton, and his Juris Doctor degree from Hofstra
University School of Law.
On August 30, 2011, the Board of Directors voted to change the name of the
Company to 360 Entertainment & Productions, Inc. The name change is subject to
shareholder approval and approval from FINRA. In the interim, we registered a
Certificate of Assumed Name with the State of New York. We have been conducting
business under the name of VGTel, Inc., dba 360 Entertainment & Productions,
Inc.
(b) Narrative Description of the Business
Over the first two quarters of the fiscal year, we investigated various
potential investments and ventures with the goal of generating revenue including
investing in the internet sweepstakes and raffle industry. In March 2012, we
purchased from Western Capital Ventures, Inc. its nationwide Distribution
Agreement with Visual Entertainment Systems, LLC (VES), a manufacturer, for the
distribution of its NetStar Internet Kiosks - arcade style sweepstake gaming
systems, software and hardware units. Later that month, we also started
purchasing, distributing and installing VES' Kiosks into designated locations.
The purchase and distribution of the Kiosks is expected to establish our entry
into one of the hottest growth industries in the country and enhance our
entertainment services line of business. As of the close of this quarter, the
Company had not yet received revenues from this segment of the Company's
business.
8
(c) Plan of Operation
(i) Charitable Video Gaming
During this past quarter, the Company had been in negotiations to acquire a
company in the charitable video gaming industry. The Ohio-based target company
has complete manufacturing capabilities, software licensing for raffle games,
distribution and maintenance components in place with staffing and warehousing
in Ohio. It also currently enjoys a five-year contract to place charitable video
raffle kiosks in participating veterans and fraternal organizations' locations
in Ohio, which will enable the expansion of raffle units and locations to meet
and exceed more than 5,000 units in 1500+ locations. Proceeds from these video
raffles will benefit the locations and the charities they support. Within the
next quarter, we anticipate executing a Letter of Intent with the target company
and closing the transaction shortly thereafter. Following this acquisition, we
intend to expand similar operations throughout Ohio and into other states where
the regulatory and political environments are accommodating. The Company has
already started exploring that process in earnest in several other states. (See
Part II, Item 5 below)
(ii) Internet Sweepstakes café locations
During the past two quarters, the Company had been in negotiations with several
large-scale internet sweepstakes operators in six states within the Northeast,
Mid-Atlantic and Southeast regions of the US to acquire existing Internet
Sweepstakes café locations. One of those groups operates approximately 250
internet sweepstakes outlets with the desire to triple their reach to more than
750 by the end of this year. Some of those locations would include racetracks
with 200-500 units per location. Another group operates 325 units in 21
locations with plans to expand to more than 1200 units in about 75 locations in
2012. Our goal is to acquire existing locations and collaborate with these
groups to develop rapid expansion and market penetration. Though we did not
enter into any contracts for any of these projects in the fiscal year, we are
actively pursuing several of these projects for possible investment in the
coming twelve (12) months. We are in the formative phase of development. Our
plan is to develop a multi-platform entertainment and media company that will
allow us to produce and invest in independent films and stage productions, live
concerts and events, online streaming video content and internet sweepstakes
gaming. We are developing a model to include several different companies to
complement each other and provide vertical as well as horizontal reach across
media platforms.
(d) Financing
We had been seeking to raise a minimum of $500,000.00 to pay for our ongoing
expenses while investigating opportunities. These expenses include legal,
accounting and audit fees as well as general and administrative expenses. These
cash requirements are in excess of our current cash and working capital
resources. Accordingly, we will require additional financing in order to enable
us to startup and maintain a business, continue operations and to repay our
liabilities. There is no assurance that any party will advance additional funds
to us in order to enable us to sustain our plan of operations or to repay our
liabilities.
On March 23, 2012, we entered into a funding agreement with TW Ruban Group,
Inc., which provides an advance of $500,000.00 in working capital to be paid in
over in installments. The funding agreement is strictly a short-term arrangement
to provide working capital while the Company continues to negotiate the funding
of $5.0 million of additional capital. On May 22, 2012, we entered into an
additional funding agreement with Wise & Wise Inc., which provides an advance of
$500,000.00 in working capital to be paid in over in installments. These funding
agreements are strictly short-term arrangements to provide working capital while
the Company continues to negotiate the funding of $5.0 million of additional
capital.
(e) Objectives
We would like to position ourselves as a major player in the charitable video
raffle and internet sweepstakes kiosk industries. Capitalizing on our
connections to some of the most seasoned, talented and creative people
throughout these industries, we are planning acquisitions of companies and
products to achieve our goals through the end of 2012 and into 2013.
In addition, we remain committed to position the Company as an active producer
and partner in various entertainment vehicles and platforms, including the
production of film, stage, music, and online content and the streaming of events
live and online. Capitalizing on our connections to some of the most seasoned,
talented and creative people throughout the entertainment and finance
industries, we are fielding an array of potential offerings with plans to
announce a full slate of production projects beginning in 2013.
9
Our principal business objective for the next 12 months and beyond will be to
achieve long-term growth potential through starting up a new business or a
combination with a business in addition to immediate, short-term earnings. We
will not restrict our potential candidate target companies to any specific
business, industry or geographical location and, thus, may acquire any type of
business.
The analysis of new business opportunities has and will be undertaken by or
under the supervision of our officers and directors. We have unrestricted
flexibility in seeking, analyzing and participating in potential business
opportunities. In our efforts to analyze potential acquisition targets, we will
consider the following kinds of factors:
· Potential for growth, indicated by new technology, anticipated market expansion
or new products;
· Competitive position as compared to other firms of similar size and experience
within the industry segment as well as within the industry as a whole;
· Strength and diversity of management, either in place or scheduled for
recruitment;
· Capital requirements and anticipated availability of required funds, to be
provided by us or from operations, through the sale of additional securities,
through joint ventures or similar arrangements or from other sources;
· The cost of participation by us as compared to the perceived tangible and
intangible values and potentials;
· The extent to which the business opportunity can be advanced;
· The accessibility of required management expertise, personnel, raw materials,
services, professional assistance and other required items; and
· Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, we will
attempt to analyze all factors and circumstances and make a determination based
upon reasonable investigative measures and available data. Potentially available
business opportunities may occur in many different industries, and at various
stages of development, all of which will make the task of comparative
investigation and analysis of such business opportunities extremely difficult
and complex. Due to our limited capital available for investigation, we may not
discover or adequately evaluate adverse facts about the opportunity to be
acquired.
(f) Form of Acquisition
The manner in which we participate in an opportunity will depend upon the nature
of the opportunity, the respective needs and desires of us and the promoters of
the opportunity, and our relative negotiating strength with such promoters. It
is likely that we will require its participation in a business opportunity
through the issuance of our common stock or other securities. Although the terms
of any such transaction cannot be predicted, it should be noted that in certain
circumstances the criteria for determining whether or not an Acquisition is a
so-called "tax free" reorganization under Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"), depends upon whether the owners
of the acquired business own 80% or more of the voting stock of the surviving
entity. If a transaction were structured to take advantage of these provisions
rather than other "tax free" provisions provided under the Code, all prior
stockholders would, in such circumstances, retain 20% or less of the total
issued and outstanding shares. Under other circumstances, depending upon the
relative negotiating strength of the parties, prior stockholders may retain
substantially less than 20% of the total issued and outstanding shares of the
surviving entity. This could result in substantial additional dilution to the
equity of those who were our stockholders prior to such reorganization.
Our present stockholders may not be left with control of a majority of our
voting shares following the formation of a new business or a reorganization
transaction. As part of such a transaction, all or a majority of our directors
and officers may resign and new directors may be appointed without any vote by
stockholders.
In the case of an acquisition, the transaction may be accomplished upon our sole
determination without any vote or approval by stockholders. In the case of a
statutory merger or consolidation directly involving us, it will likely be
necessary to call a stockholders' meeting and obtain the approval of the holders
of a majority of the outstanding shares. The necessity to obtain such
stockholder approval may result in delay and additional expense in the
consummation of any proposed transaction and will also give rise to certain
appraisal rights to dissenting stockholders. Most likely, we will seek to
structure any such transaction so as not to require stockholder approval.
10
It is anticipated that the investigation of specific business opportunities and
the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial time and attention and
substantial cost for accountants, attorneys and others. If a decision were made
not to participate in a specific business opportunity, the costs theretofore
incurred in the related investigation would not be recoverable. Furthermore,
even if an agreement is reached for the participation in a specific business
opportunity, the failure to consummate that transaction may result in the loss
to us of the related costs incurred.
We presently have no employees apart from our management. We have several
consultants who currently provide services to us. Some of them are compensated
for their services through the issuance of our shares to them, which may result
in further dilution to our stockholders. We may hire additional employees,
consultants, and recruit senior executive members as officers and directors,
which employees may be instrumental in forming a new business or we may acquire
another business with a full management team already on board.
(g) Reports to Security Holders:
We are required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission and our
filings are available to the public over the internet at the Securities and
Exchange Commission's website at http://www.sec.gov. The public may read and
copy any materials filed by us with the Securities and Exchange Commission at
the Securities and Exchange Commission's Public Reference Room at 100 F Street
N.E. Washington D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-732-0330. The SEC also maintains an Internet site that contains
reports, proxy and formation statements, and other information regarding issuers
that file electronically with the SEC, at http://www.sec.gov.
Other than as discussed above, none of our Officers or our Directors has had any
preliminary contact or discussions with any representative of any other entity
regarding a business combination with us. Any target business that is selected
may be a financially unstable company or an entity in its early stages of
development or growth, including entities without established records of sales
or earnings. In that event, we will be subject to numerous risks inherent in the
business and operations of financially unstable and early stage or potential
emerging growth companies. In addition, we may effect a business combination
with an entity in an industry characterized by a high level of risk, and,
although our management will endeavor to evaluate the risks inherent in a
particular target business, there can be no assurance that we will properly
ascertain or assess all significant risks.
We anticipate that the selection of a business combination will be complex and
extremely risky. Because of general economic conditions, rapid technological
advances being made in some industries and shortages of available capital, our
management believes that there are numerous firms seeking even the limited
additional capital that we will have and/or the perceived benefits of becoming a
publicly traded corporation. Such perceived benefits of becoming a publicly
traded corporation include, among other things, facilitating or improving the
terms on which additional equity financing may be obtained, providing liquidity
for the principals of and investors in a business, creating a means for
providing incentive stock options or similar benefits to key employees, and
offering greater flexibility in structuring acquisitions, joint ventures and the
like through the issuance of stock. Potentially available business combinations
may occur in many different industries and at various stages of development, all
of which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex.
(h) Available Information
The Company's web site address is http://360entertainmentandproductions.com. The
information contained on the Company's web site is not included as a part of, or
incorporated by reference into, this Annual Report on Form 10-K. The Company
makes available, free of charge, on its web site its annual reports on Form
10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (the Exchange Act) as soon as reasonably
practicable after the Company has electronically filed such material with, or
furnished it to, the United States Securities and Exchange Commission (the
"SEC").
11
Results of Operations:
Total operating expenses for the three months ended September 30, 2012 was
$2,955,309, as compared to $1,337,911 for the three month period that
ended September 30, 2011. During the three months ended September 30, 2012, we
had $7,235 in administrative expenses, as compared to $259,550 for the three
month period ended September 30, 2011. During the three month period ended
September 30, 2012 we had $9,096 in professional services expenses as compared
to $172,528 for the three months ended September 30, 2011. Professional
services in 2011 consisted of legal and advisory services generated in
connection with the discontinuation of the GMG assets, the failed transaction
with Venture, and the restructuring of the Company. During the three months
ended September 30, 2012, we had $22,850 in officers' compensation & rent as
compared to $905,833 for the three month period ended September 30, 2011.
The Company reported a net loss for the three month period ended September 30,
2012 of $2,994,288, as compared to $1,337,911 for the three month period ended
September 30, 2011.
The Company incurred $2,916,128 in settlement of accounts payable during the
three-month period ended September 30, 2012, as compared to $0 in settlement of
accounts payable during the three-month period ending September 30, 2011. The
Company incurred a $38,979 loss on derivative liabilities during the three-month
period ended September 30, 2012, as compared to a $0 loss on derivative
liabilities during the three-month period ending September 30, 2011.
Total operating expenses for the six month period ended September 30, 2012 was
$3,137,845, as compared to $1,698,698 for the six month period ended September
30, 2011. During the six month period ended September 30, 2012 we had $36,048
in administrative expenses, as compared to $274,485 for the six month period
ended September 30, 2011. During the six month period ended September 30, 2012
we had $10,419 in professional services expenses, as compared to $518,380 for
the six month period ended September 30, 2011. During the six months ended
September 30, 2012, we had $175,250 in officers' compensation & rent as compared
to $905,833 for the three month period ended September 30, 2011.
We reported a net loss for the six month period ended September 30, 2012 of
$3,176,824, as compared to $1,698,698 for the six month period ended September
30, 2011.
The Company incurred $2,916,128 in settlement of accounts payable during the
six-month period ended September 30, 2012, as compared to $0 in settlement of
accounts payable during the six-month period ending September 30, 2011. The
Company incurred a $38,979 loss on derivative liabilities during the six-month
period ended September 30, 2012, as compared to a $0 loss on derivative
liabilities during the six-month period ending September 30, 2011.
As reflected in the accompanying financial statements, we had an accumulated
deficit of $924,363 from discontinued operations, a deficit accumulated since
re-entering the development stage on April 1, 2011 of $4,949,512 and a net loss
for the six month period ended September 30, 2012 of $3,176,824, raising
substantial doubt about our ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
Liquidity and Capital Resources:
As of September 30, 2012, the Company had $9,988 in cash, compared to $753 as
of September 30, 2011.
Net cash used in operating activities was $58,526 for the three month period
ended September 30, 2012, compared to $69,505 for the period ended September 30,
2011.
The company received shareholder loans amounting to $70,300 during the six month
periods ended September 30, 2012 as compared to $67,399 during the six month
periods ended September 30, 2011.
12
The Company intends to meet its long-term liquidity needs through available cash
and cash flow as well as through additional financing from outside
sources. Additional issuances of equity or convertible debt securities will
result in dilution to the current shareholders. Further, such securities might
have rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to execute fully our Plan of Operations to expand our business, which could
significantly and materially restrict our business operations. If additional
capital is raised through the sale of additional equity or convertible
securities, substantial dilution to our stockholders is likely to occur which
may result in a partial or substantial loss to your investment in our common
stock.
We presently do not have any arrangements for additional financing, and no
potential lines of credit or sources of financing are currently available for
the purpose of proceeding with our plan of operations.
If the Company fails to raise additional funds to execute its expansion plan, it
is likely that the Company will not be able to operate as a viable entity and
may be forced to go out of business.
Off-Balance Sheet Arrangements
We have no significant 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 our
stockholders.
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