The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Notes to Unaudited Consolidated Financial Statements
NOTE 1 GENERAL ORGANIZATION AND BUSINESS
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, 2015. 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, 2014, as filed with the SEC on July 7, 2014.
NOTE 2 GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will 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 Companys activities to date have been supported by equity financing, shareholder and third party loans. 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 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 8Kformats and redistribute the converted films back into the marketplace. The Company has funded the conversion costs for these series of films in exchange for a share of the distribution opportunities for each film converted. As of March 31, 2014 the films were completed. The Company has made a total of $346,109 of advances for the scanning and postproduction of four films. There are no additional investments to be made in these films. Distribution began in the quarter ended June 30, 2014 and revenue began to be generated in July 2014.
NOTE 4 RELATED PARTY TRANSACTIONS
As of June 30, 2014 there was a $25,503 related party payable owed to Officers and $21,333 as of March 31, 2014.
NOTE 5 NOTES PAYABLE
The Company borrowed $250,000 from third party lenders for the quarter ended June 30, 2014. These notes are due on May 14, 2015, incur interest at 8% per annum and are convertible at 60% of the average of the second lowest trading price for the twelve trading days prior to the conversion. These notes become convertible after 180 days after the issuance of the notes.
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The Company borrowed $579,500 from third party lenders for the year ended March 31, 2014. $218,500 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. $100,000 of these notes are convertible at $0.33 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. $261,000 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 instruments 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. 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 the beneficial conversion feature for all convertible notes to be $212,297 which was recognized as a debt discount and will be amortized over the term of the notes.
In addition to the above notes payable, the Companys subsidiary borrowed $170,803 - $60,000 of which was borrowed in the quarter ended June 30, 2014. These notes are for 24 months and carry a 20% interest rate per annum plus 50,000 shares of the Company per $100,000 loaned.
On June 23, 2014, a third party entered into a debt purchase agreement to purchase the Companys outstanding debt of $50,000 principal and $2,729 accrued interest. In accordance with ASC470-50, this transaction is accounted as debt extinguishment, and the Company recognized a derivative loss $86,844.
During the quarter ended June 30, 2014 short term debt holders converted $132,049 of short term debt and accrued interest into common shares. There were no conversions for the corresponding period of the prior year. In addition, the Company repaid $50,000 and accrued interest to a debt holder. No such repayments were made in the prior year.
For the three months ended June 30, 2014, total derivative loss on debt settlement is $650,205.
As of June 30, 2014 and December 2013, the Company had a short term debt balance of $608,393 and $531,084, respectively.
NOTE 6 FAIR VALUE MEASUREMENTS
As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
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Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in managements best estimate of fair value.
The following table sets forth by level within the fair value hierarchy the Companys financial assets and liabilities that were accounted for at fair value as June 30, 2014.
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|
|
|
|
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Recurring Fair Value Measures
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|
Level 1
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Level 2
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Level 3
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Total
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LIABILITIES:
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Derivative liability
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|
-
|
|
-
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|
$
|
562,397
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|
$
|
562,397
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NOTE 7 DERIVATIVE INSTRUMENTS
During the three months ended June 30, 2014 the Company issued debt instruments convertible into common stock at a 55% average of the 3 lowest trading price in the 10 trading days previous to conversion. The conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement and as a result are classified as liabilities under ASC 815. Additionally, the number of shares to be issued upon settlement is indeterminate, all other share settle-able instruments must also be classified as liabilities.
The following table summarizes the changes in the derivative liabilities during the period ended June 30, 2014:
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Ending balance as of March 31, 2014
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|
$
|
-
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Additions due to new convertible debt issued
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|
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38,237
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Additions due to reclassification of other convertible instruments
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|
|
524,16
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|
|
|
|
Ending balance as of June 30, 2014
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|
$
|
562,397
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The Company uses the Black Scholes Option Pricing Model to value its derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 148-321%, risk free rate of 0.02-0.10% and an expected term of one month to one year.
NOTE 8 SUBSEQUENT EVENTS
In July 2014 the Company borrowed $200,000 from third party lenders. The note is due September 1, 2014 together with interest of $20,000.
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