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EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - VGTel, Inc.f10q123113_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended December 31, 2013


VGTEL, INC.

(Exact name of Registrant as specified in its charter)


New York

000-52983

01-0671426

(State or other jurisdiction of incorporation or organization)

(Commission File Number)

(IRS Employer Identification No.)

 

 

 

400 Rella Blvd., Suite 174

Suffern, NY

10901

 (Address of principal executive offices)

(Zip Code)

(845) 368-0110

(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. Yes  X . No      .


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  X . No      .


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


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


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


As of February 14, 2014, there were 21,904,244 shares of Common Stock outstanding.



1



FORM 10-Q


QUARTERLY PERIOD ENDED DECEMBER 31, 2013


INDEX


PART I- FINANCIAL INFORMATION

  

  

  

  

Item 1

Financial Statements (unaudited)

4-8

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

9

Item 3

Quantitative and Qualitative Disclosures about Market Risk

11

Item 4

Controls and Procedures

11

  

  

PART II - OTHER INFORMATION 

  

  

  

  

Item 1

Legal Proceedings

12

Item 1A

Risk Factors

12

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

12

Item 3

Defaults Upon Senior Securities

12

Item 4

Mine Safety Disclosures

13

Item 5

Other Information

13

Item 6

Exhibits

13

  

  

  

Signatures

  

13 


  



2



PART I. FINANCIAL INFORMATION


Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue” and other similar expressions 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2013 and Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as in our condensed 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, except as required by the federal securities laws. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.


As used herein, “VGTel,” “VGTL,” “we,” “our,” the “Company” and similar terms mean VGTel, Inc., unless the context indicates otherwise.

 



3



ITEM 1.     FINANCIAL STATEMENTS.


VGTel, Inc.

(A Development Stage Company)

Balance Sheets

(unaudited)


Assets

 

December 31,

2013

 

March 31,

2013

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,463

 

$

30,011

Loans to Digital Gamer Corp. & Ultra HD 4K Project

 

 

225,209

 

 

-

Total Current Assets

 

 

247,672

 

 

30,011

Property and equipment, net

 

 

-

 

 

37,500

Total Assets

 

$

247,672

 

$

67,511

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts Payable

 

$

423,749

 

$

428,579

Accounts Payable to Related Parties

 

 

39,333

 

 

52,333

Short Term Debt

 

 

410,500

 

 

69,000

Total current liabilities

 

 

873,582

 

 

549,912

Commitments And Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

Preferred Stock, $.001 par value, Authorized 10,000,000 shares, none issued

 

 

-

 

 

-

Common Stock, $.0001 par value  per share, Authorized 200,000,000 shares issued and outstanding 21,904,244 and 21,282,947 as of December 31, 2013 and March 31, 2013, respectively

 

 

2,190

 

 

2,129

Additional paid-in Capital

 

 

6,679,641

 

 

5,602,153

Deficit accumulated since re-entering the development stage on April 1, 2011

 

 

(6,383,378)

 

 

(5,162,320)

Retained Deficit

 

 

(924,363)

 

 

(924,363)

Total Stockholders' Deficit

 

 

(625,910)

 

 

(482,401)

Total Liabilities and Stockholders' Deficit

 

$

247,672

 

$

67,511


The accompanying notes are an integral part of these unaudited financial statements.



4



VGTel, Inc.

(A Development Stage Company)

Statements of Operations

(unaudited)


 

 

Three Months Ended

December 31,

 

Nine Months Ended

December 31,

 

Accumulated from

Inception - Apr. 1, 2011 to Dec. 31, 2013

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

5,514

 

$

-

 

$

9,101

 

$

-

 

$

51,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

25,069

 

 

10,956

 

 

61,738

 

 

47,004

 

 

195,446

Officers' compensation & rent

 

 

32,420

 

 

18,750

 

 

77,480

 

 

194,000

 

 

1,232,623

Professional, legal and consulting services

 

 

18,896

 

 

3,265

 

 

68,515

 

 

13,684

 

 

848,305

Depreciation

 

 

 

 

 

 

 

 

37,500

 

 

 

 

 

37,500

Loss on settlement of debt

 

 

966,903

 

 

-

 

 

966,903

 

 

2,916,128

 

 

3,883,032

Total operating expenses

 

 

1,043,288

 

 

32,971

 

 

1,212,136

 

 

3,170,816

 

 

6,196,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on derivatives

 

 

-

 

 

38,979

 

 

-

 

 

-

 

 

-

Interest expense

 

 

7,307

 

 

201,185

 

 

18,023

 

 

201,185

 

 

237,908

Net loss

 

$

1,045,081

 

$

195,177

 

$

1,221,058

 

$

3,372,001

 

$

6,383,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.05)

 

$

(0.01)

 

$

(0.06)

 

$

(0.19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

21,867,069

 

 

24,627,061

 

 

21,478,362

 

 

17,396,705

 

 

 


The accompanying notes are an integral part of these unaudited financial statements.



5




VGTel, Inc.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)


 

 

Nine Months Ended December 31,

 

Accumulated from

Inception - April 1, 2011 to

Dec. 31, 2013

 

 

2013

 

2012

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net (Loss)

 

$

(1,221,058)

 

$

(3,372,001)

 

$

(6,383,378)

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

37,500

 

 

-

 

 

37,500

Shares issued for services

 

 

-

 

 

140,000

 

 

1,040,001

Loss on settlement of AP

 

 

966,903

 

 

2,916,128

 

 

3,883,032

Loss on derivative liability

 

 

-

 

 

-

 

 

-

Amortization of debt discount

 

 

3,000

 

 

193,195

 

 

214,895

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

            Accounts payable

 

 

2,816

 

 

14,567

 

 

746,559

            Accounts payable-related parties

 

 

(13,000)

 

 

7,820

 

 

124,904

Net cash (used) in operating activities

 

 

(223,839)

 

 

(100,291)

 

 

(336,487)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of property and equipment and capitalized software

 

 

-

 

 

-

 

 

-

Loan to Digital Gamer Corp. and Ultra HD 4k Project

 

 

(225,209)

 

 

-

 

 

(225,209))

Cash paid for purchase of fixed assets

 

 

-

 

 

(2,500)

 

 

(37,500)

Net cash (used) in investing activities

 

 

(225,209)

 

 

(2,500)

 

 

(262,709)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from note payable

 

 

441,500

 

 

102,800

 

 

618,800

Net cash provided by financing activities

 

 

441,500

 

 

102,800

 

 

618,800

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(7,548)

 

 

9

 

 

19,604

Cash and cash equivalents, beginning of period

 

 

30,011

 

 

714

 

 

2,859

Cash and cash equivalents, end of period

 

$

22,463

 

$

723

 

$

22,463

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

 

Reclassification of AP to Debt

 

 

-

 

 

-

 

 

34,595

Reclassification of subscription receivable to APIC

 

 

-

 

 

-

 

 

2,981

Common stock issued for accounts payable

 

 

-

 

 

394,072

 

 

394,071

Common stock for short term debt and accrued interest

 

 

107,646

 

 

150,884

 

 

258,530

Debt discount due to derivative liability

 

 

-

 

 

-

 

 

-

Debt discount due to beneficial conversion feature of short term debt

 

 

3,000

 

 

193,195

 

 

214,895


The accompanying notes are an integral part of these unaudited financial statements.



6



VGTel, Inc.

(A Development Stage Company)

Notes to Unaudited Financial Statements


NOTE 1 – BASIS OF PRESENTATION


Unaudited Interim Financial Information


VGTel, Inc. (the “Company”, “we”, or “our”) has prepared the accompanying unaudited interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. These condensed consolidated financial statements are unaudited and, in the Company's opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company's balance sheets, statements of operations, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending March 31, 2014. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted in accordance with the rules and regulations of the SEC. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as filed with the SEC on July 1, 2013.


Use of Estimates


The preparation of consolidated financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the condensed consolidated financial statements and accompanying notes. Estimates are utilized for, but not limited to, stock-based compensation, income taxes, valuation of intangible assets, investments, contingent liabilities and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.


NOTE 2 – GOING CONCERN


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company has no established source of revenue.  This raises substantial doubt about the Company’s ability to continue as a going concern.  Without realization of additional capital, it would be unlikely for the Company to continue as a going concern.  The financial statements do not include any adjustments that might result from this uncertainty.

 

The Company’s activities to date have been supported by equity financing.  It has sustained a loss from inception of $924,363 from discontinued operations, and a net loss since re-entering the development stage on April 1, 2011 through the period ended December 31, 2013 of $6,383,378.  Management plans to seek funding from its shareholders and other qualified investors to pursue its business plan.  In the alternative, the Company may be amenable to a sale, merger or other acquisition in the event such transaction is deemed by management to be in the best interests of the shareholders. 


NOTE 3 – INVESTMENTS


In July 2013, the Company entered into an Investment and Security Agreement with an operator of internet sweepstakes cafes. The Company made a total of $146,100 of advances to the operator during the nine months ended December 31, 2013. The advances shall be paid back by the operator on demand, and incurs a late fee of 5% ten days after any payment is due. The advances are subject to all assets of the operator as collateral. The Company will receive an investment royalty equal to 75% of total gross revenues derived from the operator’s operations financed by the advances.


In November 2013, the Company entered into the first of a series of agreements with both a production and distribution organization specializing in emerging non-traditional media programming, including, among other things, Giant Screen Films for both large format and digital theaters, and a company engaged in the business of production and post-production of video content for a variety of delivery formats and platforms. The purpose of the agreements are to convert existing films into Ultra High Definition, “4K” or “8K”formats and redistribute the converted films back into the marketplace. The Company has funded and will continue to fund the conversion costs for these series of films in exchange for a share of the distribution opportunities for each film converted. The Company has made a total of $79,109 of advances during the nine months ended December 31, 2013.


NOTE 4 - NOTES PAYABLE


As of December 31, 2013 and March 31, 2013, there were related party accounts payable balances of $39,333 and $52,333, respectively.



7



The Company borrowed $441,500 from third party lenders for the nine months ended December 31, 2013. $215,000  of these notes are convertible at $0.10 per share, 180 days after the issuance of the note, and contains a reset provision which may decrease the convertible price if the Company issues any dilutive instruments. $223,500 of these notes payable are convertible at 58% of the average of the lowest 3 trading day prices in the 10 days prior to conversion of the note. These notes become convertible after 180 days of cash receipt. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.


$3,000 of these notes payable are convertible at $0.10 per share. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument does not qualify for derivative accounting. Additionally, the instruments were evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features. The Company determined there was a beneficial conversion feature of $3,000 and has been recorded as a debt discount and amortized into interest expense in its entirety as of December 31, 2013.


As of December 31, 2013, there was a total of $410,500 of notes payable outstanding.


The Company issued 621,298 common shares to convert $100,000 of notes payable and accrued interest $7,646. The total fair value of these shares issued was $1,074,549 as of the issuance date, and the Company recognized $966,903 for the loss on settlement of debt.


NOTE 5 – SUBSEQUENT EVENTS


In January 2014, the Company issued 32,850 common shares to convert $17,500 of notes payable.




8



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.


The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under "Risk Factors" and elsewhere in this Quarterly Report.


Overview


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 current website address is www.360entertainmentandproductions.com.  Information contained on our website is not a part of this report. Our common stock is quoted on OTCQB, a public marketplace operated by OTC Markets, under the symbol “VGTL.”


Our Company’s mission has recently changed towards becoming an investor in or financier to companies operating within both the internet sweepstakes industry and the film industry.


Internet Sweepstakes Industry. VGTel seeks to work with local operators to help them attract more customers, run their operations more effectively, efficiently and profitably and expand their reach into untapped markets.


In July 2013, the Company entered into an investment and security agreement with an operator to finance its business operations that include retail locations that offer for sale internet access time, a real-time promotional sweepstakes product, and a complete copy, fax and print service. That agreement provides for the payment of a percentage royalty of income/revenue derived from the operator’s operations/business. The Company received $5,514 in royalty payments in this quarter.


Our primary objective in this field is to assist local operators succeed and grow their businesses within the internet sweepstakes industry. Key elements of our strategy include the following:


Invest in or acquire successful technology providers, distributors and operators.  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 focus on companies seeking to expand the number of locations within which their equipment can be installed and operated. We intend to continue to invest heavily in these efforts.


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.


Film Industry. In November 2013, the Company entered into the first of a series of agreements with both a production and distribution organization specializing in emerging non-traditional media programming, including, among other things, Giant Screen Films for both large format and digital theaters, and a company engaged in the business of production and post-production of video content for a variety of delivery formats and platforms. The purposes of the agreements are to convert existing films into Ultra High Definition, “4K” or “8K”formats and redistribute the “upconverted” films back into the marketplace. The Company has funded and will continue to fund the conversion costs for these series of films in exchange for a share of the distribution opportunities for each film upconverted. The Company has made a total of $79,109 of advances under the aforementioned agreements during the nine months ended December 31, 2013.


Our primary objective in this arena is to build a catalogue of upconverted (in UHD , 4K or 8K formats) films to distribute to theaters, museums, aquariums and other large screen format venues, as well as to license these films to other distribution networks including home theaters and other consumer electronic applications and outlets.


Results of Operations 


Three months ended December 31, 2013 compared to three months ended December 31, 2012


Total operating expenses for the three months ended December 31, 2013 were $1,043,288, as compared to $32,971, for the three-month period that ended December 31, 2012.  During the three months ended December 31, 2013, we had $25,069 in administrative expenses, as compared to $10,956 for the three-month period that ended December 31, 2012.  During the three-months ended December 31, 2013, we had $18,896 in professional services expenses as compared to $3,265 for the three months ended December 31, 2012. During the three months ended December 31, 2013, we had $32,420 in officer compensation and rent expense, as compared to $18,750 for the three-month period that ended December 31, 2012.




9



The Company reported a net loss for the three-month period ended December 31, 2013 of $1,045,081, as compared to $195,177 for the three month period ended December 31, 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 $6,380,378 and a net loss for the three-month period ended December 31, 2013 of $1,045,081, 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.


Nine months ended December 31, 2013 compared to nine months ended December 31, 2012


Total operating expenses for the nine months ended December 31, 2013 were $1,212,136, as compared to $3,170,816 for the nine-month period that ended December 31, 2012.  During the nine months ended December 31, 2013, we had $61,738 in administrative expenses, as compared to $47,004 for the nine-month period that ended December 31, 2012.  During the nine-months ended December 31, 2013, we had $68,515 in professional services expenses as compared to $13,684 for the nine months ended December 31, 2012. During the nine months ended December 31, 2013, we had $77,480 in officer compensation and rent expense, as compared to $194,000 for the nine-month period that ended December 31, 2012.


The Company reported a net loss for the nine-month period ended December 31, 2013 of $1,221,058, as compared to $3,372,001 for the nine-month period ended December 31, 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 $6,380,378 and a net loss for the nine-month period ended December 31, 2013 of $1,221,058, 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 December 31, 2013, the Company had $22,463 in cash, compared to $30,011 as of March 31, 2013.

 

Net cash used in operating activities was $223,839 for the nine month period ended December 31, 2013, compared to $100,291 for the nine month period ended December 31, 2012.


The Company received loans amounting to $441,500 during the nine-month period ended December 31, 2013 as compared to $102,800 during the nine-month period ended December 31, 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 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.


Contractual Obligations and Commitments


With the exception of an investment agreement with an operator to finance its business operations and our financing agreement for film conversions, our contractual obligations and commitments as of December 31, 2013 did not materially change from the amounts set forth in our 2013 Annual Report on Form 10-K.




10



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.


Impact of Inflation


Inflation and changing prices did not have a material effect on our business, financial condition or results of operations for the three and nine months ended December 31, 2013 and 2012.


Application of Critical Accounting Policies and Estimates


Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Our significant accounting policies are discussed in Note 2 "Summary of Significant Accounting Policies" in the notes to the consolidated financial statements included in our  Annual Report on Form 10-K for the fiscal year ended March 31, 2013.


The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expense, and related disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.


An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes its critical accounting policies that reflect its more significant estimates and assumptions are policies related to revenue recognition, refunds, goodwill and long-lived assets, income taxes and other-than-temporary impairment.


Recently Issued Accounting Standards


There are no accounting standards that have been issued but not yet adopted that we believe will have a material impact on our financial position or results of operations.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required. 


ITEM 4.  CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures


Our management, with the participation of our Chief Executive Officer and 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 this evaluation, our management concluded that, as of December 31, 2013, 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.




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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 December 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.


PART II    OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.


None


ITEM 1A. RISK FACTORS.


In addition to the risk factors previously disclosed in Item 1A to Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, the following should be noted:

 

History of Low Revenue and Net Losses.  For the three and nine month periods ended December 31, 2013, the Company had unaudited revenue of $5,514 and $9,101, respectively, compared to unaudited revenue of $0 for both of the comparable periods in 2012.  The Company had net losses of $(1,045,081) and $(1,221,058) for the three and nine months ended December 31, 2013, respectively, compared to net losses of $(195,177) and $(3,372,001) for the comparable periods in 2012.  The Company’s total stockholders’ deficit increased to $(625,910) as of December 31, 2013, from $(482,401) as of March 31, 2013.  No assurance can be given that the Company will ever have significant levels of revenue or net income.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.


Future Need for Available Financing.  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 securities will result in dilution to current stockholders.  Further, such securities might have rights, preferences or privileges senior to the Company’s common stock.  See, e.g., Note 4 to the Notes to Unaudited Financial Statements with regard the Company’s current notes payable.  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, the Company may not be able to execute fully its plan of operations to expand its business, which could significantly and materially restrict the Company’s business operations.  If additional capital is raised through the sale of additional equity or convertible securities, substantial dilution to stockholders is likely to occur which may result in a partial or substantial loss to your investment in the Company’s common stock.  The Company presently does 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 the Company’s 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.


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


The Company borrowed $441,500 from third party lenders for the nine months ended December 31, 2013. $215,000 of these notes are convertible at $0.10 per share, 180 days after the issuance of the note, and contains a reset provision which may decrease the convertible price if the Company issues any dilutive instruments. $235,000 of these notes payable are convertible at 58% of the average of the lowest 3 trading day prices in the 10 days prior to conversion of the note. These notes become convertible after 180 days of cash receipt. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.


None




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ITEM 4.  MINE SAFETY DISCLOSURES.


None


ITEM 5.  OTHER INFORMATION.


None

 

ITEM 6.  EXHIBITS.


See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.






SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of February 2014.


 

 

VGTel, Inc.

 

 

 

 

By:

/s/ Neil S. Fogel

 

 

Neil S. Fogel

 

 

Chief Financial Officer

 

 

(duly authorized officer and principal financial officer)




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EXHIBIT INDEX

TO

QUARTERLY REPORT ON FORM 10-Q


Exhibit

Number

 

Description

 

Incorporated by Reference to:

 

Filed

Herewith

3.1

  

Articles of Incorporation

 

  

Exhibit 3.1 to the Company’s Registration Statement on Form SB-2, filed May 23, 2006

 

 

3.2

  

By Laws

  

Exhibit 3.3 to the Company’s Registration Statement on Form SB-2, filed May 23, 2006

 

 

3.3

  

Amended Articles of Incorporation  

  

Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on January 3, 2011

 

 

3.4

  

Amended Articles of Incorporation

 

  

Exhibit 3.4 to the Company’s Form 10-K for the period ending March 31, 2011, filed August 17, 2011

 

X

3.5

 

 Certificate of Assumed Name dba

 

Exhibit 3.5 to the Form 8K filed September 1, 2011

 

 

10.1

  

Stock Purchase Agreement

  

Exhibit 10.1 to the Company’s Current Report on Form  8K/A, filed on February 11, 2011

 

 

10.2

  

2011 Equity Incentive Plan

  

Exhibit 10.2 to the Company’s Form 10-K for the period ending March 31, 2011, filed August 17, 2011

 

 

10.5

 

 Employment Agreement Peter Shafran

 

Exhibit 10.4 to the Form 8K filed September 1, 2011

 

 

31.1

  

Certification of Chief Executive Officer, pursuant Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  

  

 

X

31.2

  

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  

  

 

X

32.1

  

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

  

 

X

 

 

 

 

 

 

 




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