ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Forward Looking Statements
This Report on Form 10-Q contains forward-looking statements, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “intend,” “potential,” “continue”, or the negative of these terms, and other similar expressions or comparable terminology are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Item 1A: Risk Factors” of this Report on Form 10-Q, as well as in our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements in this Annual Report are made as of the date hereof, based on information available to us as of the date hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not guarantee future results, levels of activity, performance or achievements, and we caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Annual Report. Among the key factors that may have a direct bearing on the company’s operating results are risks and uncertainties described under “risk factors,” including those attributable to our lack of operations and concerns about our ability to raise capital.
As used herein, “VGTel,” “VGTL,” “we,” “our,” the “Company” and similar terms include VGTel, Inc. and its subsidiaries, if any, unless the context indicates otherwise.
Overview
Our Company’s mission is to become the leader in the internet sweepstakes gaming industry. VGTel seeks to develop gaming platforms, both as a distributor of software and as a supplier of hardware and equipment, by providing local operators with a suite of products and services, including point-of-sale solutions to help them attract more customers and run their operations more effectively, efficiently and more profitably.
By leveraging the Company’s global relationships, we intend to distribute our products to operators based on their location and demographics throughout North America and in certain International markets. We may also distribute our products through a mobile platform, on iPhones, iPads, Blackberry, Android and Windows devices, as well as through our websites, as the markets permit.
We are a New York corporation, incorporated on February 5, 2002 under the name
Tribeka Tek, Inc.
In January 2006, we officially changed our name to VGTel, Inc. by filing an amended certificate of incorporation.
Our principal executive offices are located at 400 Rella Boulevard, Suite 174, Montebello (Suffern), New York 10901, and our telephone number at this address is 360-836-0368. Our current website
www.360entertainmentandproductions.com
. Information contained on our website is not a part of this annual report. Our common stock is quoted on OTC Markets under the symbol “VGTL.”
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Our Strategy
Our primary objective is to become the industry leader in computer gaming technology. Key elements of our strategy include the following:
Acquire successful technology providers and distributors and cutting-edge software developers.
To build this business, a key part of this strategy is to develop relationships with established local and regional leaders rather than build the business organically. To drive growth, we will need to expand the number of locations within which our equipment can be installed and provide continuously updated software to our operators and end-users. Our efforts will be focused on providing operators and their end-users with a positive experience by offering engaging and stimulating games within a user-friendly platform, targeted placement of our products, high quality customer service and tools to manage operations more effectively. We also provide operators with an array of tools that they can use to run their businesses more efficiently and compete more effectively. We intend to continue to invest heavily in these efforts.
Globalize our platforms and processes.
Because our growth and expansion will be accomplished largely through acquisitions, we will probably inherit a host of different technology platforms and business processes. As we reach those milestones, we will develop a program aimed at globalizing our technology platforms and processes, and internal tools aimed at increasing our efficiency.
Grow our active customer base.
As we develop our business, we will need to add new customers at a rate which will offset the loss or inactivation of existing customers, either through regulatory changes or through changes in demographics. As we mature into a more complete business, we will have to focus more of our efforts toward retaining existing customers and expanding our geographic reach. We will do so by delivering high quality customer service and expanding the number and categories of products we offer.
Position ourselves to benefit from, and drive, technological changes that may affect consumer behavior.
As the business continues to grow, we will need to invest significantly in mobile technology in order to capitalize on the growing trend of consumers playing games on their smartphones and tablets. As our customer base matures, we believe our end-users will use mobile platforms not only as a communication and search tool, but also as a connection point for gaming.
Expand with acquisitions and business development partnerships.
We seek to build our core assets from acquisitions of local and regional businesses, to which we can then apply our expertise, resources and brand to scale the business. During 2013 and 2014, our focus will be expanded to acquire businesses with technology and technology talent that can help us expand our business. We intend to continue to expand our business with acquisitions and business development partnerships.
Distribution
Our primary distribution channels will be through the businesses we acquire, either utilizing the existing sales force or by utilizing our own sales force. We also offer commissions to operators when they refer another operator to VGTel. We expect to continue to leverage affiliate relationships to extend the distribution of our platforms.
We will also use various incentive programs to build brand loyalty, generate traffic to our website and provide operators with incentives to join convert to our platform. We will also publicize our platforms through various social networks, and our notifications will be adapted to the particular format of each of these social networking platforms. Our website and future mobile applications will enable our customers to disseminate the attractiveness of our platform.
Marketing
Marketing will be an important element of our business operations. Online marketing will consist of search engine marketing, display advertisements, referral programs and affiliate marketing. Our offline marketing programs will include traditional television, billboard and radio advertisements, public relations as well as sponsored events to increase our visibility and build our brand.
Our Customers/Operators
To drive growth over the long term, we will expand the number and variety of gaming products available through our sales force. We will solicit feedback from our customers/operators to ensure their objectives are met and they are satisfied with our services.
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Operations
Our business operations will be divided into the following core functions to address the needs of our customers.
Sales Force.
The sales force will be responsible for sales inventory management, packaging, approval and delivery scheduling. As the business develops, they will use performance historical data to analyze and identify trends and opportunities for revenue improvement.
Operations.
Once a contract is signed, one of our operations representatives will initiate the first of several communications with the customer/operator to schedule delivery and introduce the customer/operator to the equipment, its operation and management system that we provide. Before the delivery is made, the representative will work with the customer/operator to ascertain that the location is suitable and ready for delivery and will train the staff in anticipation of the equipment being activated. The representative communicates with the customer/operator on the day the delivery is scheduled and again after delivery to support the customer/operator and to address any issues or questions that may arise. We will also offer several tools to help customer/operators manage their operations. These tools include status updates on performance, analytics that measure purchase traffic and demographic information of purchasers, and a return on investment calculator that estimates the return on investment that the customer/operator may receive from the equipment. Each of these tools will be accessible through an online account that is personal to the customer/operator and accessed through our website.
Customer Service.
Our customer service department will be responsible for answering questions from customers. They will process requests via phone and email. The customer service team will also work with our information technology team to improve the customer experience on the website and mobile applications based on customer feedback.
Technology.
We will employ technology to improve the experience we offer to end-users and customer/operators and enhance the efficiency of our business operations. A component of our strategy is to continue developing and refining our technology.
We will devote a substantial portion of our resources to developing new technologies and features and improving our core technologies. Our technology team will be focused on the design and development of new features and products, maintenance of our websites and development and maintenance of our internal operations systems.
Competition
A small number of competing companies are in the (estimated) over $16 billion internet sweepstakes industry in the US. As we build our business through acquisition, we will continue to compete with other outfits offering similar products and services. We believe the principal competitive factors in our market include the following:
·
breadth of active customer base and customer/operator relationships;
·
local focus and understanding of local business trends;
·
ability to structure deals to generate positive return on investment for customer/operator; and
·
strength and recognition of brand.
Although we believe we will be able to compete favorably on the factors described above, we anticipate that larger, more established companies may directly compete with us. Our potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger customer bases than we will have initially. These factors may allow our competitors to benefit from their existing customer base with lower acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more effectively than we do. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services.
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Regulation
The internet sweepstakes business is subject to a number of domestic (and, as we expand internationally, foreign) laws and regulations. As a company in a relatively new and rapidly innovating industry, we are exposed to the risk that many of these laws may evolve, or be interpreted by regulators or in the courts in ways that could materially affect our business. These laws and regulations may involve gaming, taxation, intellectual property, product liability, distribution, electronic contracts and other communications, competition, consumer protection, the provision of various online payment and point of sale services, employee, merchant and customer privacy and data security.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”), as well as the laws of most states, contain provisions governing gift cards, gift certificates, stored value or pre-paid cards or coupons (“gift cards”). Vouchers or other forms of gaming credits may be included within the definition of “gift cards” under many laws. In addition, certain foreign jurisdictions have laws that govern disclosure and certain product terms and conditions, including restrictions on expiration dates and fees that may apply to vouchers or other forms of gaming credits as well as warranty requirements. There are also a number of legislative proposals pending before various state legislative bodies and foreign governments that could affect us, and our global operations may be constrained by regulatory regimes and laws in Europe and other jurisdictions outside the United States that may be more restrictive and adversely impact the development and growth of our business.
Various US laws and regulations, such as the Bank Secrecy Act, the Dodd-Frank Act, the USA PATRIOT Act and the CARD Act impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and services. These laws and regulations broadly define financial institutions to include money services businesses such as money transmitters, check cashers, and sellers or issuers of stored value. Requirements imposed on financial institutions under these laws include customer identification and verification programs, record retention policies, and procedures and transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations.
Intellectual Property
We will protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We will control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties.
In addition to these contractual arrangements, we will also rely on a combination of trade secrets, copyrights, trademarks, service marks, trade dress, domain names and patents to protect our intellectual property.
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries in which we operate. In addition, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operating results.
Companies in the Internet, social media technology and other industries may own large numbers of patents, copyrights and trademarks or other intellectual property rights and may request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We are currently subject to, and expect to face in the future, lawsuits and allegations that we have infringed the intellectual property rights of third parties, including our competitors and non-practicing entities. As we face increasing competition and as our business grows, we will likely face more claims of infringement, and may experience an adverse result, which could impact our business, and/or our operating results.
Employees
As of August 8, 2013, we only have one employee, our Chief Executive Officer.
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Available Information
The Company electronically files reports with the SEC. The public may read and copy any materials the Company has filed with the SEC at the SEC’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 SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge through the Company’s website (www.360entertainmentandproductions.com), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any stockholder who requests it.
Results of Operations
:
Total operating expenses for the three months ended June 30, 2013 was $92,673, as compared to $182,536, for the three-month period that ended June 30, 2012. During the three months ended June 30, 2013, we had $29,425 in administrative expenses, as compared to $28,813 for the three-month period that ended June 30, 2012. During the three-month period ended June 30, 2013 we had $41,108 in professional services expenses as compared to $1,323 for the three months ended June 30, 2012. During the three months ended June 30, 2013, we had $22,140 in officer compensation and rent expense, as compared to $152,400 for the three-month period that ended June 30, 2012.
The Company reported a net loss for the three-month period ended June 30, 2013 of $89,084, as compared to $182,536 for the three month period ended June 30, 2012.
As reflected in the accompanying financial statements, we had an accumulated deficit of $924,363 from discontinued operations, a deficit accumulated since reentering the development stage on April 1, 2011 of $5,251,404 and a net loss for the three-month period ended June 30, 2013 of $89,084, 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 June 30, 2013, the Company had $6,599 in cash, compared to $30,011 as of March 31, 2013.
Net cash used in operating activities was $91,412 for the three month period ended June 30, 2013, compared to $46,810 for the period ended June 30, 2012.
Net cash used in investing activities was nil for the three month period ended June 30, 2013, compared to $2,500 for the period ended June 30, 2012.
The company received loans amounting to $68,000 during the three-month period ended June 30, 2013 as compared to $50,300 during the three-month period ended June 30, 2012.
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.
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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.
ITEM 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (who is also our Chief Financial Officer), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Report on Form 10-Q.
Based on that evaluation, our principal executive officer concluded that our disclosure controls and procedures were not effective because of certain deficiencies involving internal controls which constituted a material weakness as discussed below. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosures, nor does management believe that it had any effect on the accuracy of our financial statements for the current reporting period. We have identified the following material weakness of our internal controls:
·
There is a lack of sufficient staff due to the size of the Company which results in a lack of segregation of duties necessary for a good system of internal control.
·
There is a lack of control processes which provide for multiple levels of supervision and review.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Based on its evaluation, our Chief Executive Officer (who is also our Chief Financial Officer), concluded that our controls are not effective and there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness relates to the monitoring and review of work performed by our limited accounting staff in the preparation of financial statements, footnotes and financial data provided to our independent registered public accounting firm in connection with the annual audit. More specifically, the material weakness in our internal control over financial reporting is due to the fact that:
·
The Company lacks proper segregation of duties. We believe that the lack of proper segregation of duties is due to our limited resources.
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The Company does not have a system of processes to allow for multiple levels of supervision and review.
Management has concluded that until we have sufficient financial resources to supplement our accounting personnel, this material weakness will continue.
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this report.
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This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.