UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 000-33151
VOYAGER ENTERTAINMENT INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 54-2110681
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4483 West Reno Avenue, Las Vegas, Nevada 89118
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (702) 221-8070
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 website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [ ] 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 [ ] 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 November 10, 2010, there were 160,627,287 outstanding shares of the
issuer's Common Stock, $0.001 par value.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. [REMOVED AND RESERVED] 19
Item 5. Other Information 19
Item 6. Exhibits 20
SIGNATURES 20
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2010
3
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
September, 30 December 31,
2010 2009
------------ ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 2,771 $ 7,488
Prepaids 18,334 1,874
Advances - related party, net allowance
of $500,000 and $250,000, respectively -- 250,000
------------ ------------
Total current assets 21,105 259,362
FIXED ASSETS, net of accumulated depreciation of
$3,261 and $42,214, respectively 3,160 4,976
OTHER ASSETS, website development costs, net of accumulated
amortization of $6,006 and $0, respectively 34,588 --
------------ ------------
Total assets $ 58,853 $ 264,338
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,839,563 $ 1,638,121
Accrued expenses - related party 2,009,000 1,778,000
Note payable 1,855,000 1,855,000
Due to related parties 799,000 576,000
Loans and settlement payable 878,239 878,239
------------ ------------
Total current liabilities 7,380,802 6,725,360
------------ ------------
Total liabilities 7,380,802 6,725,360
COMMITMENTS & CONTINGENCIES -- --
STOCKHOLDERS' DEFICIT
Preferred stock: $0.001 par value; authorized 50,000,000 shares
Series A - 1,500,000 designated, none outstanding -- --
Series B - 10,000,000 designated, none outstanding -- --
Common stock: $0.001 par value; authorized 200,000,000 shares;
issued and outstanding: 159,627,287 and 151,402,287 respectively 159,627 151,402
Additional paid-in capital 12,612,116 13,199,583
Deferred construction costs paid with common stock (25,312) (21,093)
Loan collateral paid with common stock (67,500) (750,000)
Common stock payable, net of receivable $0 and $75,000, respectively 24,500 50,000
Accumulated deficit during the development stage (20,025,380) (19,090,914)
------------ ------------
Total stockholders' deficit (7,321,949) (6,461,022)
------------ ------------
Total liabilities and stockholders' deficit $ 58,853 $ 264,338
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended From inception
September 30, September 30, September 30, September 30, March 1, 1997 to
2010 2009 2010 2009 September 30, 2010
------------ ------------ ------------ ------------ ------------------
Revenues $ -- $ -- $ -- $ -- $ --
Operating Expenses:
Professional and consulting fees 133,775 237,978 398,141 501,732 13,758,745
Project costs 1,833 1,968 6,352 134,535 337,149
Bad debt expense 250,000 -- 250,000 -- 500,000
Depreciation and amortization 3,792 629 7,271 2,574 53,932
Settlement and nullification fee expense -- -- -- -- 1,025,000
Other expense 23,214 32,091 72,275 107,267 1,359,914
------------ ------------ ------------ ------------ ------------
412,614 272,666 734,039 746,108 17,034,740
Operating loss (412,614) (272,666) (734,039) (746,108) (17,034,740)
Other income (expense):
Interest income -- -- -- -- 132,528
Interest expense (65,109) (67,553) (188,843) (197,598) (3,050,347)
Finance fees (3,907) (50,000) (11,033) (50,000) (70,041)
Loss on disposal of fixed assets (551) -- (551) -- (2,780)
------------ ------------ ------------ ------------ ------------
(69,567) (117,553) (200,427) (247,598) (2,990,640)
Net Loss (482,181) (390,219) (934,466) (993,706) (20,025,380)
Preferred stock dividends -- -- -- -- (130,000)
------------ ------------ ------------ ------------ ------------
Net loss allocable to common stockholders $ (482,181) $ (390,219) $ (934,466) $ (993,706) $(20,155,380)
============ ============ ============ ============ ============
Net loss per common share - basic and diluted $ (0.00) $ (0.00) $ (0.01) $ (0.01)
============ ============ ============ ============ ============
Weighted average number of common shares outstanding 154,513,947 144,913,157 101,388,238 141,093,679
============ ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
From inception
September 30, September 30, March 1, 1997 to
2010 2009 September 30, 2010
------------ ------------ ------------------
Cash Flows from Operating Activities:
Net Loss $ (934,466) $ (993,706) $(20,025,380)
Adjustments to reconcile net loss to
net cash used by operating activities:
Bad debt expense 250,000 -- 500,000
Depreciation and amortization 7,271 2,574 53,932
Loss on disposal of fixed assets 551 -- 2,780
Issuance of common stock for services 15,151 243,250 6,527,216
Issuance of common stock for nullification fee -- -- 375,000
Issuance of common stock for accrued bonus -- -- 750,000
Interest expense from the issuance of
common stock -- -- 709,088
Accretion of debt issuance costs -- 50,000 500,000
Changes in assets and liabilities:
Prepaid expenses 1,336 1,421 (538)
Accounts payable and accrued expenses 201,440 213,787 1,758,822
Accrued expenses - related party 231,000 234,000 2,009,000
Accrued settlement obligation -- -- 650,000
------------ ------------ ------------
Net cash used in operating activities (227,717) (248,674) (6,190,080)
Cash flows from Investing Activities:
Payments to acquire fixed assets -- -- (54,388)
Proceeds from Advances - Related Party -- -- (500,000)
------------ ------------ ------------
Net cash used in investing activities -- -- (554,388)
Cash flows from Financing Activities:
Proceeds from notes payable, short term debt -- -- 2,103,239
Proceeds from notes payable, due to related parties 223,000 177,500 811,500
Payment on notes payable, short term debt -- -- (20,000)
Payment on notes payable, due to related parties -- (2,000) (12,500)
Proceeds from the sale of preferred stock -- -- 150,000
Proceeds from the sale of common stock -- 60,500 3,725,000
Proceeds from common stock payable -- -- 90,000
Payments for loan fees -- -- (50,000)
Payments for deferred financing costs -- -- (50,000)
------------ ------------ ------------
Net cash provided by financing activities 223,000 236,000 6,747,239
Net (decrease) increase in cash (4,717) (12,674) 2,771
Cash, beginning of year 7,488 15,234 --
------------ ------------ ------------
Cash, end of year $ 2,771 $ 2,560 $ 2,771
============ ============ ============
Cash paid for:
Interest $ -- $ 132 $ 93,212
Income Taxes $ -- $ -- $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
From inception
September 30, September 30, March 1, 1997 to
2010 2009 September 30, 2010
------------ ------------ ------------------
Supplemental schedule of non-cash Investing and
Financing Activities:
Disposal of fixed assets $ 40,219 $ -- $ 44,666
Common stock issued for financing costs $ -- $ -- $ 988,300
Common stock issued for loan collateral, adjusted
to fair value $ (682,500) $ -- $ 67,500
Deferred construction costs, adjusted
to fair value $ 4,219 $ 50,625 $ 25,312
Conversion of preferred shares $ -- $ 2,000 $ 14,600
Common stock issued as acquisition deposit $ -- $ -- $ 750,000
Common stock cancelled due to business combination
Cancellation $ -- $ -- $ 375,000
Common stock receivable(issued) $ 75,000 $ (40,000) $ --
Common stock issued to satisfy common stock payable $ 30,000 $ -- $ 95,000
Common stock payable, adjusted to fair value $ (70,500) $ -- $ (70,500)
Common stock issued for website development $ 40,594 $ -- $ 40,594
Common stock issued for prepaid services $ 17,795 $ -- $ 17,795
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation and Organization and Significant Accounting
Policies
Basis of Presentation and Organization
--------------------------------------
The accompanying Condensed Consolidated Financial Statements of Voyager
Entertainment International, Inc. (the "Company") should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
2009. Significant accounting policies disclosed therein have not changed except
as noted below.
Voyager Entertainment International, Inc., a North Dakota corporation, formerly
known as Dakota Imaging, Inc. and incorporated on January 31, 1991, is in the
entertainment development business with plans to develop the world's tallest
Observation Wheel on the Las Vegas strip area. During April 2002, the Company
changed its name from Dakota Imaging, Inc. to Voyager Entertainment
International, Inc. and adopted a new fiscal year. On June 11, 2003, the Company
became a Nevada Corporation.
As used in these Notes to the consolidated financial statements, the terms the
"Company", "we", "us", "our" and similar terms refer to Voyager Entertainment
International, Inc. and, unless the context indicates otherwise, its
consolidated subsidiaries. As of September 30, 2010, the Company's wholly-owned
subsidiaries include Voyager Entertainment Holdings, Inc. ("VEHI"), a Nevada
corporation and Voyager Viridian LLC ("Viridian"), a Nevada limited liability
corporation. Voyager Entertainment Holdings, Inc. has been a dormant company and
was discontinued as of June 30, 2010.
These condensed consolidated financial statements include all accounts of the
Company and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Basis of Financial Statement Presentation
-----------------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance with such
rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments, which, in the opinion of management, are necessary for
a fair presentation of such financial statements. Although management believes
the disclosures and information presented are adequate to make the information
not misleading, these interim condensed consolidated financial statements should
be read in conjunction with the Company's most recent audited financial
statements and notes thereto included in its December 31, 2009 Annual Report on
Form 10-K. Operating results for the period ended September 30, 2010 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2010.
Going Concern
-------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has not begun generating revenue, is
considered a development stage company, has experienced recurring net operating
losses, had a net loss of $482,181 and $390,219 and $934,466 and $993,706 for
the three and nine months ended September 30, 2010 and 2009, respectively,
accumulated deficit of $20,025,380 and a working capital deficiency of
$7,359,697 at September 30, 2010. These factors raise substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of liabilities that
might result from this uncertainty.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Website Development Costs
-------------------------
Costs incurred in developing and maintaining a website are charged to expense
when incurred for the planning, content population, and administration or
maintenance of the website. All development costs for the application,
infrastructure, and graphics development are capitalized and subsequently
reported at the lower of unamortized cost or net realizable value. Capitalized
costs are amortized using straight-line basis over a three year estimated
economic life of the product.
8
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING GUIDANCE
Adopted
-------
In June 2009, the Financial Accounting Standards Board ("FASB") issued
authoritative guidance for "Accounting for Transfers of Financial Assets," which
eliminates the concept of a "qualifying special-purpose entity," changes the
requirements for derecognizing financial assets, and requires additional
disclosures in order to enhance information reported to users of financial
statements by providing greater transparency about transfers of financial
assets, including securitization transactions, and an entity's continuing
involvement in and exposure to the risks related to transferred financial
assets. This guidance is effective for fiscal years beginning after November 15,
2009. The Company adopted this guidance for the period ended March 31, 2010. It
does not have a material impact on the consolidated financial statements.
In June 2009, the FASB issued authoritative guidance amending existing guidance.
The amendments include: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is necessary
to reassess who should consolidate a variable-interest entity. This guidance is
effective for the first annual reporting period beginning after November 15,
2009 and for interim periods within that first annual reporting period. The
Company adopted this guidance for the period ended March 31, 2010. It does not
have a material impact on the consolidated financial statements.
In January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires new disclosures on the transfers of assets and liabilities between
Level 1 (quoted prices in active market for identical assets or liabilities) and
Level 2 (significant other observable inputs) of the fair value measurement
hierarchy, including the reasons and the timing of the transfers. The guidance
became effective for the Company beginning January 1, 2010. The adoption of this
guidance did not have a material impact on the Company's consolidated financial
statements.
In February 2010, the FASB issued amended guidance on subsequent events to
alleviate potential conflicts between FASB guidance and SEC requirements. Under
this amended guidance, SEC filers are no longer required to disclose the date
through which subsequent events have been evaluated in originally issued and
revised financial statements. This guidance was effective immediately and we
adopted these new requirements for the period ended March 31, 2010. The adoption
of this guidance did not have a material impact on our financial statements.
Issued
------
In October 2009, the FASB issued changes to revenue recognition for
multiple-deliverable arrangements. These changes require separation of
consideration received in such arrangements by establishing a selling price
hierarchy (not the same as fair value) for determining the selling price of a
deliverable, which will be based on available information in the following
order: vendor-specific objective evidence, third-party evidence, or estimated
selling price; eliminate the residual method of allocation and require that the
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method, which allocates any
discount in the arrangement to each deliverable on the basis of each
deliverable's selling price; require that a vendor determine its best estimate
of selling price in a manner that is consistent with that used to determine the
price to sell the deliverable on a standalone basis; and expand the disclosures
related to multiple-deliverable revenue arrangements. These changes become
effective on January 1, 2011. The Company has determined that the adoption of
these changes will not have an impact on the consolidated financial statements,
as the Company does not currently have any such arrangements with its customers.
In January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires a roll forward of activities on purchases, sales, issuance, and
settlements of the assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance will become
effective for the Company with the reporting period beginning July 1, 2011. The
adoption of this guidance will not have a material impact on the Company's
consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed
by management to, have a material impact on the Company's present or future
consolidated financial statements.
9
Note 2. Advances - Related Party
In 2006, the Company entered into a note with Diversified Lending, see Note 6.
From the proceeds of the debt facility we issued $500,000 to Western
Architectural Services, LLC ("Western") and recorded an Advance - Related Party
on our balance sheet. Our Chief Operating Officer is also the Chief Executive
Officer of Western. The repayment of this advance is contingent upon the
production of the project. We have analyzed the collectability of this note as
of September 30, 2010 and concluded that, with current economic conditions, it
is unknown whether production can be secured within the next twelve months. The
Company has recognized an allowance of $500,000 and $250,000, as of September
30, 2010 and December 31, 2009, respectively. In the event that the Company
secures a project site and sufficient project funding, the allowance against the
advance will be reversed in reevaluation for realizable collectability.
Note 3. Fixed Assets
Fixed assets of $40,770 that were no longer in use, and their related
accumulated depreciation of $40,219 have been removed from the accounting
records as of September 30, 2010. A loss on disposal of fixed assets of $551 has
been recognized for the disposition of assets that have not been fully
depreciated as of September 30, 2010. The disposed of assets consist of outdated
computer equipment which have not been replaced as of September 30, 2010.
Note 4. Website Development Costs
Costs of $40,594 relating to the application, infrastructure, and graphics
development of the Company's website have been capitalized during 2010. These
costs are being amortized over a three year period upon the launch of the
website on April 21, 2010. As of September 30, 2010, amortization of $6,006 has
been recognized.
Note 5. Stockholders' Deficit
The authorized common stock of the Company consists of 200,000,000 shares of
common stock with par value of $0.001 and 50,000,000 shares of preferred stock.
For our preferred stock, we have designated two series: 1,500,000 shares of
Series A Preferred Stock and 10,000,000 shares of Series B Preferred Stock both
with a par value of $0.001.
On February 21, 2010, the Company issued 1,500,000 shares of common stock that
were purchased for $30,000 on December 17, 2009.
On March 2, 2010, 3,000,000 shares of common stock, valued at $75,000, were
returned to treasury by a vendor of the Company. The vendor has chosen to accept
$75,000 cash, for services that were performed in 2009, at a later date when
funding becomes available.
On May 6, 2010, the Company issued 2,100,000 shares of common stock, valued at
$8,400, or $0.004 per share, for services performed.
On June 7, 2010, the Company issued 2,425,000 shares of common stock, valued at
$48,500, or $0.02 per share, for website development costs. $40,594 has been
capitalized (see Note 4).
On July 29, 2010, the Company issued 200,000 shares of common stock, valued at
$640, or $0.003 per share, for services performed.
On August 26, 2010, the Company issued 5,000,000 shares of common stock, valued
at $16,000, or $0.003 per share, for services. As of September 30, 2010,
approximately 10% of the contracted services have been performed. The Company
has recognized a prepaid expense for the remaining $14,400 worth of shares
issued.
Loan Collateral
---------------
On September 5, 2006, the Company entered into a note payable with Diversified
Lending Group, Inc. for $1,250,000. To collateralize the loan, the Company
issued 7,500,000 shares of its common stock valued at $750,000, or $0.10 per
share. As of September 30, 2010, we have marked these shares to market using the
period end closing price of our stock. The change in valuation was applied to
additional-paid in capital.
10
Common Stock Payable
--------------------
At September 30, 2010, common stock payable, net consists of:
o 500,000 shares payable to an Officer of the Company, valued at $4,500,
relating to the 2008 Western Acquisition Rescission. We have marked
these shares to market using the period end closing price of our
stock. The change in valuation was applied to additional-paid in
capital.
o $20,000 payable relating to a 2008 private purchase agreement. The
investor has not completed investment paperwork so that management can
release the shares.
Note 6. Related Party Transactions
Synthetic Systems
-----------------
During the three and nine months ended September 30, 2010 and 2009, the Company
incurred consulting fees of approximately $37,000 per month to Synthetic
Systems, LLC for a total of $111,000 and $333,000 for each respective period.
The Company leased furniture and equipment from Synthetic Systems for a total of
$1,150 per month for the three and nine months ending September 30, 2010 and
2009. The Company also paid on behalf of Synthetic Systems, LLC office rent
expenses of $9,109 and $8,623 and $26,942 and $25,499, for the three and nine
months ended September 30, 2010 and 2009, respectively. Synthetic Systems is
jointly owned by our Chief Executive Officer and Secretary.
Western Architectural
---------------------
As previously disclosed in our 2009 Form 10-K, filed on March 30, 2010, the
Company executed a Contractor Agreement with Western Architectural Services, LLC
("Western") where Western would provide to the Company certain architectural
services for the Las Vegas Observation Wheel Project in exchange for which the
Company issued 2,812,500 shares of restricted common stock to Western. Although
he was not an affiliate of the Company upon execution of the Contractor
Agreement, Western's Chief Executive Officer is currently an executive officer,
director and significant stockholder of the Company. We have accounted for these
shares as Deferred Construction Costs in these financial statements.
Western plans to sell the 2,812,500 shares of common stock at the time before
and during the contract to purchase supplies and to pay subcontractor fees for
the construction of a wheel. At the time the contract was issued the shares of
the Company were trading at $6.50 per share, our current stock price is trading
significantly below that amount. If at the time Western performs the services
contracted and the share price is below $6.50 per share, the Company will be
required to issue additional shares to Western in order for the contract to be
fulfilled. Western's Chief Executive Officer is currently an affiliate of the
Company which will also limit the amount of shares that can be sold based on the
trading volume and shares outstanding in accordance with Rule 144 of the
Securities Act of 1933. As of September 30, 2010, we have marked these shares to
market using the period end closing price of our stock. The change in valuation
was applied to additional-paid in capital due to the deferred construction cost
nature of these shares.
In 2006, the Company entered into a note with Diversified Lending. From the
proceeds of the debt facility we issued $500,000 to Western and recorded an
Advance - Related Party on our balance sheet. Our Chief Operating Officer is
also the Chief Executive Officer of Western. The repayment of this advance is
contingent upon the production of the project. We have analyzed the
collectability of this note as of September 30, 2010 and concluded that, with
current economic conditions, it is unknown whether production can be secured
within the next twelve months. The Company has fully allowed for the receivable
as of September 30, 2010. In the event that the Company secures a project site
and sufficient project funding, the allowance against the advance will be
reversed in reevaluation for realizable collectability.
As of September 30, 2010, we have received advances in the amounts of $799,000
from Western Architectural Services, LLC. The advances are unsecured, carry no
interest and are due upon demand. As of September 30 2010, no payments have been
made to Western.
Note 7. Fair Value
As required by the Fair Value Measurements and Disclosures Topic of the FASB
ASC, fair value is measured based on a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows: (Level 1)
observable inputs such as quoted prices in active markets; (Level 2) inputs,
other than the quoted prices in active markets, that are observable either
directly or indirectly; and (Level 3) unobservable inputs in which there is
little or no market data, which require the reporting entity to develop its own
assumptions.
11
The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or
liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that
are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level 3 Prices or valuation techniques that require inputs that are
both significant to the fair value measurement and unobservable
(supported by little or no market activity).
In accordance with authoritative guidance, the table below sets forth the
Company's financial assets and liabilities measured at fair value by level
within the fair value hierarchy. Assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement.
Fair Value at September 30, 2010
------------------------------------------
Total Level 1 Level 2 Level 3
------------------------------------------
Assets:
Deferred construction costs $ 25,312 $ 25,312 $ -- $ --
Loan collateral costs 67,500 67,500 $ -- $ --
Common stock payable 4,500 4,500 $ -- $ --
------------------------------------------
$ 97,312 $ 97,312 $ -- $ --
==========================================
Liabilities:
None $ -- $ -- $ -- $ --
The valuation of these assets and liabilities are expected to fluctuate in
accordance with the market rate of the Company's common stock.
Note 8. Subsequent Events
On October 26, the Company issued 1,000,000 shares of common stock, valued at
$10,000 or $0.01 per share, for services performed.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following discussion and analysis ("MD&A") of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this report.
References in this section to "Voyager Entertainment International, Inc.," the
"Company," "we," "us," and "our" refer to Voyager Entertainment International,
Inc. and our direct and indirect subsidiaries on a consolidated basis unless the
context indicates otherwise.
This interim report contains forward looking statements relating to our
Company's future economic performance, plans and objectives of management for
future operations, projections of revenue mix and other financial items that are
based on the beliefs of, as well as assumptions made by and information
currently known to, our management. The words "expects, intends, believes,
anticipates, may, could, should" and similar expressions and variations thereof
are intended to identify forward-looking statements. The cautionary statements
set forth in this section are intended to emphasize that actual results may
differ materially from those contained in any forward looking statement.
EXECUTIVE SUMMARY AND OVERVIEW
During the next 12 months, we are continuing our efforts on the development of
the Observation Wheel in Las Vegas, Nevada; however, actual production will not
commence until we have sufficient capital for construction and marketing. As of
the year ending December 31, 2009, the Company did not have enough cash on hand
to continue operations through the next year. However, from time-to-time the
officers of the Company loan funds to provide for operations. There can be no
guarantees that the Company's officers and directors will continue to loan funds
to the Company on an ongoing basis. We will continue to seek alternative funding
sources, however if we do not receive a substantial amount of funding it will be
unlikely we can continue operations.
We have been successful in the past in selling our common stock in private
transactions to provide for minimal operations. We plan to seek additional
funding through debt transactions and the sale of our common stock either
privately or publicly. There can be no guarantees we will continue to be
successful in completing those transactions. Significant expenses for the
Company consist of consulting fees that are primarily paid by the issuance of
our common stock and the costs of being a public company and remaining current
with our periodic filings.
We are not the traditional Company that has the standard research and
development expenses. As a result, most of our research and development expenses
consist of presentation materials and architectural designs. Upon funding of the
project the initial expense will be engineering and architectural.
Our primary costs consist mainly of professional and consulting, legal and
accounting fees along with those fees paid to related parties, rent expenses and
printing expenses. As the project is being developed we are incurring additional
architectural and travel related fees. If this project is successful there will
be a significant increase in expenses for all aspects of the construction
process to include an additional office set up, additional employees and
continual travel.
We plan to focus primarily on the development of the Observation Wheel in Las
Vegas over the next 12 months although we may entertain discussions with any
interested party in other locations. Other than presentation materials, if a
suitable site is acquired and selected, the primary focus will be on completing
engineering and starting the construction of an Observation Wheel.
For an additional detailed discussion regarding the Company's business and
business trends affecting the Company and certain risks inherent in the
Company's business, see "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operation" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2009.
DEVELOPMENT OF OUR BUSINESS
Voyager Entertainment International, Inc., formerly named Dakota Imaging, Inc.,
was incorporated in North Dakota on January 31, 1991. Effective February 8,
2002, the Company completed a reverse triangular merger between Dakota
Subsidiary Corp. ("DSC"), a wholly-owned subsidiary of the Company, and Voyager
Ventures, Inc., a Nevada Corporation ("Ventures"), whereby the Company issued
3,660,000 shares of its Series A preferred stock in exchange for 100% of
Ventures' outstanding common stock. Pursuant to the terms of the merger, DSC
merged with and into Ventures and ceased to exist, and Ventures became a
wholly-owned subsidiary of the Company.
On April 2, 2002, we amended our Certificate of Incorporation to change our name
from Dakota Imaging, Inc. to Voyager Entertainment International, Inc.
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In June 2003, the Company reincorporated in the State of Nevada. The
reincorporation became effective in the states of North Dakota and Nevada on
June 23, 2003, the date the Certificate of Merger was issued by the Secretary of
State of North Dakota.
Voyager Ventures, Inc. and Outland Development, LLC have been dormant companies
since 2002 and were discontinued as of December 31, 2007 and June 30, 2009,
respectively. Voyager Entertainment Holdings, Inc. and Voyager Viridian LLC,
wholly-owned subsidiaries, were formed on May 2, 2002 and August 3, 2009,
respectively. Voyager Entertainment Holdings, Inc. has been a dormant company
and has been discontinued as of June 30, 2010.
CRITICAL ACCOUNTING POLICIES
The methods, estimates and judgments we use in applying our accounting policies
have a significant impact on the results we report in our financial statements,
which we discuss under the heading "Results of Operations" following this
section of our MD&A. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Our most critical accounting
estimates include the assessment of value of our deferred construction costs.
We believe the following critical accounting policy reflects our most
significant estimates and assumptions used in the preparation of our
consolidated financial statements:
Stock Based Compensation
Stock based compensation is accounted for using the Equity-Based Payments to
Non-Employees Topic of the FASB ASC, which establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. We determine the value of stock issued at the date of
grant. We also determine at the date of grant the value of stock at fair market
value or the value of services rendered (based on contract or otherwise)
whichever is more readily determinable.
Shares issued to employees are expensed upon issuance.
Stock based compensation for employees is accounted for using the Stock Based
Compensation Topic of the FASB ASC. We use the fair value method for equity
instruments granted to employees and will use the Black Scholes model for
measuring the fair value of options, if issued. Stock based compensation fair
value is determined as of the date of the grant or the date at which the
performance of the services is completed (measurement date) and is recognized
over the vesting periods.
We do not have any of the following:
* Off-balance sheet arrangements.
* Certain trading activities that include non-exchange traded contracts
accounted for at fair value.
* Relationships and transactions with persons or entities that derive benefits
from any non-independent relationships other than related party transactions
discussed herein.
RESULTS OF OPERATIONS
As of September 30, 2010, we have not constructed an Observation Wheel and
therefore have not generated revenues.
Three Month Comparison
----------------------
Results of operations for the three months ended September 30, 2010 compared to
the three months ended September 30, 2009 consist of the following:
Three Months Ended September 30, 2010 September 30, 2009 $ Change % Change
Revenue $ -- $ -- $ -- -- %
Professional and consulting fees 133,775 237,978 (104,203) (44)%
Project costs 1,833 1,968 (135) (7)%
General and administrative expenses 277,006 32,720 244,286 747%
-------------------------------------------
Operating loss $(412,614) $(272,666) $(139,948) 51%
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We had operating expenses of $412,614 for the quarter ended September 30, 2010
compared to operating expenses of $272,666 for the quarter ended September 30,
2009; September 30, 2010 expenses primarily consisted of professional and
consulting fees of $133,775 and bad debt expense of $250,000. The 51% increase
in operating expenses for the three months ended September 30, 2010 as compared
to the three months ended September 30, 2009 is due to a $250,000 allowance of
our related party advances which was offset by a decrease in professional and
consulting fees of $104,203. This decrease is a result of consultants engaged in
2009 to assist us in analyzing possible business prospects inside and outside of
the Las Vegas area. No comparable engagements have been entered into for the
three months ending September 30, 2010.
Nine Month Comparison
---------------------
Results of operations for the nine months ended September 30, 2010 compared to
the nine months ended September 30, 2009 consist of the following:
Nine Months Ended September 30, 2010 September 30, 2009 $ Change % Change
Revenue $ -- $ -- $ -- -- %
Professional and consulting fees 398,141 501,732 (103,591) (21)%
Project costs 6,352 134,535 (128,183) (95)%
General and administrative expenses 329,546 109,841 219,705 200 %
-------------------------------------------
Operating loss $(734,039) $(746,108) $ 12,069 (2)%
We had operating expenses of $734,039 for the nine months ended September 30,
2010 compared to operating expenses of $746,108 for the nine months ended
September 30, 2009; September 30, 2010 expenses primarily consisted of
professional and consulting fees of $398,141 and bad debt expense of $250,000.
The 21% decrease in professional and consulting fees and the 95% decrease in
project costs for the nine months ended September 30, 2010 as compared to the
nine months ended September 30, 2009 is due to costs incurred in 2009 for the
execution of our project and for the assessment of alternative projects outside
of the Las Vegas area. As of September 30, 2010, no such costs were incurred and
we have not settled on any additional Observation Wheel projects. We are
continuing to focus on the L.V. Project for the remainder of 2010. The 200%
increase in general and administrative expenses is due to a $250,000 allowance
of our related party advances.
In general, we are reducing costs where able in an attempt to prolong our cash
reserves. If the Company receives funding for the L.V. Project, we expect our
expenses to increase substantially, including support for employees that will be
required and other operating expenses related to the construction of the
project. Additionally, we anticipate issuing bonuses to management for services
rendered at a time when the Company is more fiscally able.
LIQUIDITY
We plan to focus primarily on the development of the Observation Wheel in Las
Vegas during the next twelve months although we may entertain discussions with
any interested party in other locations.
September 30, 2010 September 30, 2009 $ Change % Change
Cash $ 2,771 $ 7,488 $ (4,717) (63)%
Accounts payable and accrued expenses 1,839,563 1,638,121 201,442 12 %
Due to related parties 2,808,000 2,354,000 454,000 19 %
Total current liabilities 7,380,802 6,725,360 655,442 10 %
-------------------------------------------
Cash proceeds from the sale of common stock -- 90,000 (90,000) (100)%
We have financed our operations during the year primarily through the use of
cash on hand, issuance of stock for services, and aging of our payables.
Cash on hand decreased $4,717, or 63%, as of September 30, 2010 compared to
December 31, 2009. The decrease is a result of the payment of payables during
the year.
As of September 30, 2010, we had total current liabilities of $7,380,802
compared to $6,725,360 as of December 31, 2009. These items increased $655,442
as a result of the aging of our payables and related party borrowings. We
anticipate that our current lack of cash will result in an increase in aging of
payables and need for additional cash infusion.
15
Accounts Payable and Accrued Expenses
-------------------------------------
Our accounts payable and accrued interest increased by approximately 12%, as of
September 30, 2010 compared to December 31, 2009 primarily due to cash payments
towards our vendors, offset by the aging of more recent expenditures and the
accrual of interest on our loans. Until the payment of our loans and their
corresponding interest can be made upon our initial project financing, it is
likely that our interest expense will continue to accumulate steadily throughout
2010.
For the remainder of the year ending 2010, we anticipate to incur recurring
expenses of approximately $150,000 as a result of related party consulting,
furniture and equipment leases, utilities, accounting fees, health insurance and
rent expense.
Due to Related Parties
----------------------
September 30, 2010 December 31, 2009 $ Change % Change
Accrued Expenses - Related Party $2,009,000 $1,778,000 $ 231,000 13%
Due To - Related Party 799,000 576,000 223,000 39%
------------------------------------------------------
Total Related Party $2,808,000 $2,354,000 $ 454,000 19%
The total amount Due to Related Parties increased $454,000, or 19%, as of
September 30, 2010 compared to December 31, 2009 as a result of unpaid
consulting services and cash advances. These items increased as our lack of cash
has resulted in an increase in aging of payables to our related parties and the
need for additional cash infusion from our related parties.
Additionally, loans due to related parties increased $223,000, or 39%, as of
September 30, 2010 compared to December 31, 2009 as a result of borrowing
capital from related parties. The receipt of funds allowed us to pay our vendors
so that we could continue our operating efforts. Future borrowings may be deemed
necessary to sustain our operations until alternative funding can be received.
As of September 30, 2010, we owe $799,000 in related party loans and $2,009,000
for professional fees and unpaid bonuses. No bonuses were issued for the fiscal
years ending December 31, 2009 or 2008.
These related party trends are likely to continue throughout 2010 and until
fiscal stability can be reached, either by project funding or through the
generation of operating revenues.
CAPITAL RESOURCES
Cash decreased by $4,717, or 63%, as of September 30, 2010 due to the payment of
some of our payables throughout the year. Additionally, we received no cash for
the purchase of common stock, for the nine months ended September 30, 2010
compared to $90,000 for the year ended December 31, 2009. Until we can launch
our project, it is more likely than not that the issuance of shares for cash
will be minimal during the next twelve months as a result of the apprehension
shareholders have towards the volatility of the stock market. The issuance of
common stock for cash assists us in continuing our operating efforts. Should we
be unable to issue common stock for cash sufficient enough to sustain our
operations, either alternative capital raising efforts will proceed or
operations will halt until the proper funding can be obtained.
We had $2,771 cash on hand as of September 30, 2010 compared to $7,488 as of
December 31, 2009. We will continue to need additional cash during the following
twelve months and these needs will coincide with the cash demands resulting from
our general operations and implementing our business plan. It is possible that
an agreement finalizing the security of a project site and the corresponding
construction of an observation wheel may begin in the next twelve months.
Assuming no such occurrences, our remaining anticipated minimum cash payments
for 2010 will be approximately $150,000.
There is no assurance we will be able to obtain additional capital as required,
or obtain the capital on acceptable terms and conditions. Our failure to obtain
sufficient funding may result in our need to halt operations until such funding
can be obtained. A halt in operations could significantly setback the progress
we have made in negotiating a project site and the related financing.
Additionally, during this time, a stronger competitor may prevail with a similar
project.
A critical component of our operating plan impacting our continued existence is
the ability to obtain additional capital through additional equity and/or debt
financing. We do not anticipate enough positive internal operating cash flow
until such time as we can generate substantial revenues, which may take the next
few years to fully realize. In the event we cannot obtain the necessary capital
to pursue our strategic plan, we may have to cease or significantly curtail our
operations. This would materially impact our ability to continue operations.
16
Our near term cash requirements are anticipated to be offset through the receipt
of funds from private placement offerings and loans obtained through private
sources. Since inception, we have financed cash flow requirements through debt
financing and issuance of common stock for cash and services. The acquisition of
sufficient funding presents a challenge in the current economy that we may be
unable to overcome. As we initiate operational activities, we may continue to
experience net negative cash flows from operations, pending receipt of servicing
or licensing fees, and will be required to obtain additional financing to fund
operations through stock offerings and bank borrowings to the extent necessary
to provide working capital.
Over the next twelve months, we believe that existing capital and anticipated
funds from operations will not be sufficient to sustain operations and planned
development. Consequently, we will be required to seek additional capital in the
future to fund growth and expansion through additional equity or debt financing
or credit facilities. No assurance can be made that such financing would be
available, and if available it may take either the form of debt or equity. In
either case, the financing could have a negative impact on our financial
condition and our stockholders.
We anticipate incurring operating losses over the next twelve months. Our lack
of operating history makes predictions of future operating results difficult to
ascertain. Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
development related companies. Such risks include, but are not limited to, an
evolving and unpredictable business model and the management of growth. To
address these risks we must, among other things, implement and successfully
execute our business and marketing strategy, continue to develop and upgrade
technology and products, respond to competitive developments, and attract,
retain and motivate qualified personnel. There can be no assurance that we will
be successful in addressing such risks, and the failure to do so can have a
material adverse effect on our business prospects, financial condition, results
of operations and cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures
Based on the management's evaluation (with the participation of our President
and Principal Financial Officer), our President and Principal Financial Officer
has concluded that as of September 30, 2010, our disclosure controls and
procedures (as defined in Rules 13a - 15(e) and 15d-15(e) under the Securities
Exchange of 1934 (the "Exchange Act") are effective to provide reasonable
assurance that the information required to be disclosed in this quarterly report
on Form 10-Q is recorded, processed, summarized and reported within the time
period specified in Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to the Company's management,
including the Chief Executive Officer and Principal Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure.
(b) Internal control over financial reporting
Management's quarterly report on internal control over financial reporting
--------------------------------------------------------------------------
Management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a- 15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
intended to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. GAAP. Our internal control over financial reporting should
include those policies and procedures that:
o pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our
assets;
o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with applicable GAAP, and that receipts and expenditures are being
made only in accordance with authorizations of management and the
Board of Directors; and
o provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Under the supervision and with the participation of our management, our Chief
Executive Officer and Principal Financial Officer, we have evaluated the
effectiveness of our internal control over financial reporting and preparation
of our quarterly financial statements as of September 30, 2010 and believe they
17
are effective. While we believe the present control design and procedures are
effective, future events affecting our business may cause the Company to modify
its controls and procedures.
Attestation report of the registered public accounting firm
-----------------------------------------------------------
This quarterly report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this quarterly report.
Changes in internal control over financial reporting
----------------------------------------------------
Based on the evaluation as of September 30, 2010, our Chief Executive Officer
and Principal Financial Officer has concluded that there were no significant
changes in our internal controls over financial reporting or in any other areas
that could significantly affect our internal controls subsequent to the date of
this most recent evaluation and there were no corrective actions during the
quarter with regard to significant deficiencies or material weaknesses.
18
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes from the Risk Factors described in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 21, 2010, the Company issued 1,500,000 shares of common stock that
were purchased for $30,000 on December 17, 2009.
On March 2, 2010, 3,000,000 shares of common stock, valued at $75,000, were
returned to treasury by a vendor of the Company. The vendor has chosen to accept
$75,000 cash, for services that were performed in 2009, at a later date when
funding becomes available.
On May 6, 2010, the Company issued 2,100,000 shares of common stock, valued at
$8,400, or $0.004 per share, for services performed.
On June 7, 2010, the Company issued 2,425,000 shares of common stock, valued at
$48,500, or $0.02 per share, for website development costs.
On July 29, 2010, the Company issued 200,000 shares of common stock, valued at
$640, or $0.003 per share, for services performed.
On August 26, 2010, the Company issued 5,000,000 shares of common stock, valued
at $16,000, or $0.003 per share, for services.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no changes from the Defaults Upon Senior Securities described in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
ITEM 4 - [REMOVED AND RESERVED]
ITEM 5 - OTHER INFORMATION
(1) Committees and financial reviews.
The board of directors has not established an audit committee. In addition, we
do not have any other compensation or executive or similar committees. We will
not, in all likelihood, establish an audit committee until such time as we
increase our revenues, of which there can be no assurance. We recognize that an
audit committee, when established, will play a critical role in our financial
reporting system by overseeing and monitoring management's and the independent
auditor's participation in the financial reporting process.
Until such time as an audit committee has been established, the board of
directors will undertake those tasks normally associated with an audit committee
to include, but not by way of limitation, the (i) review and discussion of the
audited financial statements with management, and (ii) discussions with the
independent auditors with respect to the matters required to be discussed by the
Statement On Auditing Standards No. 61, "Communications with Audit Committees",
as may be modified or supplemented.
19
ITEM 6 - EXHIBITS
(a) The following exhibits are filed with this report.
31.1 Rule 13a-14(a)/15d-14(a) Certifications.
32.1 Section 1350 Certifications.
SIGNATURES
Pursuant to the requirements 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.
VOYAGER ENTERTAINMENT INTERNATIONAL, INC.
-----------------------------------------
(Registrant)
Dated: November 10, 2010
By: /s/ Richard Hannigan
------------------------------------
Richard Hannigan,
President/Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Richard Hannigan, Sr.
------------------------------------
Richard Hannigan, Sr.
President/CEO/Director
November 10, 2010
By: /s/ Myong Hannigan
------------------------------------
Myong Hannigan
Secretary/Treasurer/Director
November 10, 2010
By: /s/ Tracy Jones
------------------------------------
Tracy Jones
COO/Director
November 10, 2010
20