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, 2008.
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 45-0420093
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4483 West Reno Avenue, Las Vegas, Nevada 89119
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (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 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]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 12, 2008, there were
132,027,287 outstanding shares of the Registrant's Common Stock, $.001 par
value.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis and Plan of Operation 14
Item 3. Quantitative and Qualitative Disclosures of 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. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
SIGNATURES 21
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, 2008
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2008 2007
(Unaudited) (Audited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 5,591 $ 42,076
Prepaids 375 1,793
Deferred financing costs 50,000 50,000
Advances - related party 500,000 500,000
------------ ------------
Total current assets 555,966 593,869
FIXED ASSETS, net of accumulated depreciation of
$41,926 and $36,211, respectively 7,403 10,636
------------ ------------
Total assets $ 563,369 $ 604,505
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,244,308 $ 1,127,508
Accrued expenses - related party 1,410,000 1,250,000
Note payable 1,855,000 1,855,000
Due to related parties 280,000 125,000
Loans and settlement payable 878,239 878,239
------------ ------------
Total current liabilities 5,667,547 5,235,747
------------ ------------
Total liabilities 5,667,547 5,235,747
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' DEFICIT
Preferred stock: $.001 par value; authorized 50,000,000 shares
Series A - 1,500,000 designated, none outstanding - -
Series B - 10,000,000 designated, 1,000,000 outstanding 1,000 1,000
Common stock: $.001 par value; authorized 200,000,000 shares;
issued and outstanding:131,777,287 and 123,577,287 respectively 131,777 123,577
Additional paid-in capital 12,955,864 12,991,376
Deferred construction costs paid with common stock (112,500) (182,813)
Loan collateral paid with common stock (750,000) (750,000)
Receivable for return of stock related to canceled acquisition - (375,000)
Common stock payable 95,000 -
Accumulated deficit during the development stage (17,425,319) (16,439,382)
------------ ------------
Total stockholders' deficit (5,104,178) (4,631,242)
------------ ------------
Total liabilities and
stockholders' deficit $ 563,369 $ 604,505
============ ============
See accompanying notes to these condensed consolidated financial statements.
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
2008 2007 2008 2007 September 30, 2008
------------- ------------- ------------- ------------- ------------------
Revenues $ - $ - $ - $ - $ -
Operating Expenses:
Professional and
consulting fees 33,633 324,617 512,288 1,238,434 12,602,373
Project costs 13,376 14,406 28,973 20,798 192,909
Depreciation 1,600 2,259 5,715 7,311 41,926
Settlement expense - - - - 1,025,000
Other expense 32,322 66,752 100,232 138,379 1,130,334
------------ ------------ ------------ ------------ --------------
80,931 408,034 647,208 1,404,922 14,992,542
Operating loss (80,931) (408,034) (647,208) (1,404,922) (14,992,542)
Other income (expense):
Interest income 1 43,792 43,751 87,635 132,528
Interest expense (74,164) (167,851) (382,483) (521,664) (2,565,305)
------------ ------------ ------------ ------------ --------------
(74,163) (124,059) (338,732) (434,029) (2,432,777)
Net Loss (155,094) (532,093) (985,940) (1,838,951) (17,425,319)
Preferred stock dividends - - - - (130,000)
------------ ------------ ------------ ------------ --------------
Net loss allocable to
common stockholders $ (155,094) $ (532,093) $ (985,940) $ (1,838,951) $ (17,555,319)
============ ============ ============ ============ ==============
Net loss per common share
basic and diluted $ (0.00) $ (0.00) $ (0.01) $ (0.02)
============ ============ ============ ============
Weighted average number
of common shares
outstanding 131,777,287 119,344,095 126,267,798 116,399,438
============ ============ ============ ============
See accompanying notes to these condensed consolidated financial statements.
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
2008 2007 September 30, 2008
------------- ------------- ------------------
Cash Flows from Operating Activities:
Net Loss $ (985,940) $ (1,838,951) $ (17,425,319)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 5,715 7,311 41,926
Issuance of common stock for services 208,000 837,000 6,258,315
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 150,000 35,012 709,088
Accretion of debt issuance costs - 303,750 450,000
Changes in assets and liabilities:
Prepaid expenses 1,420 (446) (375)
Accounts payable and accrued expenses 116,801 72,779 1,238,567
Accrued expenses - related party 160,000 175,000 1,410,000
Accrued settlement obligation - - 650,000
------------ ------------ --------------
Net cash used in operating activities (344,004) (408,548) (5,542,798)
Cash flows from Investing Activities:
Payments to acquire fixed assets (2,481) (4,195) (49,850)
Proceeds from Note Receivable - - (500,000)
------------ ------------ --------------
Net cash used in investing activities (2,481) (4,195) (549,850)
Cash flows from Financing Activities:
Proceeds from notes payable, short term debt - 20,000 2,103,239
Proceeds from notes payable, due to
related parties 161,000 100,000 286,000
Payment on notes payable, short term debt - (20,000) (20,000)
Payment on notes payable, due to
related parties (6,000) - (6,000)
Proceeds from the sale of preferred stock - - 150,000
Proceeds from the sale of common stock 135,000 320,000 3,665,000
Proceeds from common stock payable 20,000 - 20,000
Payments for loan fees - - (50,000)
Payments for deferred financing costs - (50,000) (50,000)
------------ ------------ --------------
Net cash provided by financing
activities 310,000 370,000 6,098,239
------------ ------------ --------------
Net (decrease) increase in cash (36,485) (42,743) 5,591
Cash, beginning of year 42,076 76,241 -
------------ ------------ --------------
Cash, end of quarter $ 5,591 $ 32,498 $ 5,591
============ ============ ==============
Cash paid for:
Interest $ 56 $ 43,750 $ 93,053
Income Taxes $ - $ - $ -
See accompanying notes to these condensed consolidated financial statements.
VOYAGER ENTERTAINMENT INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
Supplemental schedule of non-cash Investing and Financing Activities:
Common stock issued for financing costs $ - $ - $ 988,300
Common stock issued for loan collateral $ - $ - $ 750,000
Deferred construction costs, adjusted
to fair value $ 70,313 $ 196,875 $ 112,500
Conversion of preferred shares $ - $ - $ 12,600
Common stock issued as acquisition deposit $ - $ - $ 750,000
Common stock cancelled due to business
combination cancellation $ 375,000 $ - $ 375,000
Common stock payable $ 75,000 $ - $ 75,000
See accompanying notes to these condensed consolidated financial statements.
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-KSB for the year ended December 31,
2007. Significant accounting policies disclosed therein have not changed except
as noted below.
The accompanying Condensed Consolidated Financial Statements and the related
footnote information are unaudited. In the opinion of management, they include
all normal recurring adjustments necessary for a fair presentation of the
condensed consolidated balance sheets of the Company at September 30, 2008, the
condensed consolidated results of its operations and cash flows for the three
and nine months ended September 30, 2008 and 2007. Results of operations
reported for interim periods are not necessarily indicative of results for the
entire year.
Voyager Entertainment International, Inc. (the "Company"), 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. The Company's wholly owned subsidiaries include
Voyager Ventures, Inc. ("Ventures"), a Nevada corporation, Outland Development,
LLC ("Outland"), a Nevada Limited Liability Corporation, and Voyager
Entertainment Holdings, Inc. ("Holdings"), a Nevada corporation. Voyager
Ventures, Inc. has been a dormant company and was discontinued as of December
31, 2007. All organizational costs had been paid by the parent.
These Condensed Consolidated financial statements include the 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, 2007 Annual Report on
Form 10-KSB. Operating results for the period ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008.
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. However, the Company has not begun generating
revenue, is considered a development stage company, has experienced recurring
net operating losses, had a net loss of $985,940 and $1,838,951 for the nine
months ended September 30, 2008 and 2007, and a working capital deficiency of
$5,111,581 at September 30, 2008. 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.
RECLASSIFICATION
----------------
Certain reclassifications, which have no effect on net loss, have been made in
the prior period financial statements to conform to the current presentation.
Specifically, we have presented the 2007 nullification expense separate
from professional and consulting fees.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value Accounting
---------------------
In September 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
The provisions of FAS 157 were adopted January 1, 2008. In February 2008, the
FASB staff issued Staff Position No. 157-2 "Effective Date of FASB Statement No.
157" ("FSP FAS 157-2"). FSP FAS 157-2 delayed the effective date of FAS 157 for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The provisions of FSP FAS 157-2 are effective for the
Company's fiscal year beginning January 1, 2009.
FAS 157 establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques 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 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under FAS 157 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 February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("FAS 159"). FAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value, with the objective of improving financial reporting by mitigating
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The provisions of FAS 159 were adopted January 1, 2008. The Company
did not elect the Fair Value Option for any of its financial assets or
liabilities, and therefore, the adoption of FAS 159 had no impact on the
Company's consolidated financial position, results of operations or cash flows.
New Accounting Pronouncements
-----------------------------
In May 2008, the FASB issued Statement of Financial Accounting Standards No.
162, "The Hierarchy of Generally Accepted Accounting Principles," ("SFAS 162").
SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
non-governmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America. SFAS 162 will be
effective 60 days after the Securities and Exchange Commission approves the
Public Company Accounting Oversight Board's amendments to AU Section 411. The
Company does not anticipate the adoption of SFAS 162 will have an impact on its
financial statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards No.
163, "Accounting for Financial Guarantee Insurance Contracts - an interpretation
of FASB Statement No. 60," ("SFAS No. 163"). SFAS 163 requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement also clarifies how Statement 60
applies to financial guarantee insurance contracts, including the recognition
and measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements. SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of SFAS 163 will
have a material impact on its financial condition or results of operation.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities," ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included in
the computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share."
FSP EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 and earlier adoption is prohibited. The
Company is required to adopt FSP EITF 03-6-1 in the first quarter of 2009 and
is currently evaluating the impact that FSP EITF 03-6-1 will have on its
financial statements.
Note 2. 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.
In 2006, we issued a certificate for 2,000,000 shares and a separate certificate
for 3,000,000 shares for the total 5,000,000 shares required under the agreement
Western Architectural acquisition. On February 7, 2008, the share certificate
for 3,000,000 shares was sent to the Company as part of the 2,500,000 shares
required to be returned under the March 30, 2007 nullification agreement for
this rescinded acquisition. We have accounted for the 500,000 excess shares as a
common stock payable due for $75,000 to Western at September 30, 2008.
In March 2008, the Company issued 1,000,000 shares of common stock for $50,000
cash or $0.05 per share.
In April 2008, the Company issued 625,000 shares of common stock for $25,000
cash or $0.04 per share.
In April 2008, the Company issued 2,375,000 shares of common stock for
professional services rendered for total compensation of $98,000 or $0.04 per
share.
In May 2008, the Company issued 1,000,000 shares of common stock for $30,000
cash or $0.03 per share.
In June 2008, the Company issued 1,000,000 shares of common stock for $30,000
cash of $0.03 per share.
In June 2008, the Company issued 5,200,000 shares of common stock for
professional services and interest expense for $260,000 or $0.05 per share.
No preferred share transactions occurred during the three months ending
September 30, 2008.
Note 3. Related Party Transactions and Acquisitions
Related Party Transactions
--------------------------
During the quarters ended September 30, 2008 and 2007, the Company paid
consulting fees of approximately $35,000 per month to Synthetic Systems, LLC for
a total of $105,000 in each quarter. Synthetic Systems is jointly owned by our
Chief Executive Officer and Secretary. The Company also paid to Synthetic
Systems , LLC office rent expenses of approximately $25,912 and $26,869, and
furniture and equipment lease of $10,350 or $1,150 per month as of September 30,
2008 and 2007, respectively.
As previously disclosed in our 2007 Form 10-KSB, on May 30, 2002, 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. 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, 2008, we have marked these shares to
market in accordance with EITF No. 96-18 "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services", Issue 3, using the period end closing price of our
stock. The change in valuation was debited to additional-paid in capital due to
the deferred construction cost nature of these shares.
In March 2007, we received advances in the amounts of $100,000 from Western
Architectural Services, LLC. The advances are unsecured, carry no interest and
are due upon demand. As of September 30, 2008, no payments have been made to
Western.
On July 28, 2008, we received a $6,000 note payable from our Secretary. The note
was due upon demand and had an interest rate of 12% per annum. The note and
accumulated interest was paid in full on August 25, 2008.
As of September 30, 2008, we have received advances in the amounts of $180,000
from our Chief Operating Officer, who is also the Chief Executive Officer of
Western. The amounts are unsecured, carry no interest and are due upon demand.
As of September 30, 2008, no payments have been made toward the advances .
Acquisitions
------------
On April 10, 2006, we entered into a Unit Purchase (Buy-Sell) Agreement
("Agreement") to acquire all the outstanding units of Western Architectural
Services, LLC ("Western") in exchange for a total of 5,000,000 shares of
Voyager's common stock ("Shares"). On September 11, 2006, Voyager believed it
had fully completed the necessary due diligence pursuant to the Agreement and
consequently delivered the Shares consideration as required for the final
closing. Upon further evaluation of Voyager's due diligence of Western pursuant
to Section 2.02 of the Agreement, it has been determined that the existing
limited liability company ("LLC") operating agreement of Western would need to
be modified in order for Voyager to continue the existing operations of Western.
On March 30, 2007, Voyager and Western were not able to come to acceptable terms
with regards to the needed changes to the LLC operating agreement. The Agreement
was cancelled since the transaction did not meet all the requirements of Section
2.02 of the Agreement and was deemed to have never closed.
The acquisition was nullified effective March 30, 2007. As a result of the
nullification of the acquisition transaction, 2,500,000 shares of common stock
were be returned to the Company for cancellation and returned to the treasury.
The remaining 2,500,000 shares were accounted for as a fee for the nullification
in our Statement of Operations as of March 31, 2007. The shares were valued at
fair value of $0.15 per shares for a total value of $375,000.
In 2006, we issued a certificate for 2,000,000 shares and a separate certificate
for 3,000,000 shares for the total 5,000,000 shares required under the
agreement. On February 7, 2008, the share certificate for 3,000,000 shares was
sent to the Company as part of the 2,500,000 shares required to be returned
under the March 30, 2007 nullification agreement. We have accounted for the
500,000 excess shares as a common stock payable due for $75,000 to Western at
September 30, 2008.
Note 4. Fair Value
In accordance with FAS 157, the table below sets forth the Company's financial
assets and liabilities measured at fair value by level within the fair value
hierarchy. As required by FAS 157, 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, 2008
Total Level 1 Level 2 Level 3
---------------------------------------------------
Assets:
Deferred construction costs $ 112,500 $ 112,500 $ - $ -
---------------------------------------------------
$ 112,500 $ 112,500 $ - $ -
===================================================
Liabilities:
None $ - $ - $ - $ -
---------------------------------------------------
$ - $ - $ - $ -
===================================================
Note 5. Notes Due
On September 5, 2006, the Company entered into a note payable with Diversified
Lending Group, Inc. for $1,250,000. The Company is a joint tenant with Western
in this debt which bears interest of 14% (unless in default then 18%) and is due
within one year from the date of the note. As of December 31, 2007, Western paid
directly to Diversified Lending Group, Inc. six months of interest for the
original loan. We have accounted for this as both interest income and interest
expense of $87,500. As stated in the agreement, the Company could extend the
Maturity Date of the loan one time for a period of six months, which the Company
exercised for a fee of 3% of the loan amount or $37,500 (Western Architecture
paid to the Company $18,750 as their part of the loan extension). As of
September 30, 2008, management is negotiating with the note holder to extend the
terms of the note. Although management has ongoing negotiations to extend the
terms of the agreement, technically per the agreement we are in default.
Interest of $112,500 at 18% has been accrued through September 30, 2008.
Note 6. Extinguishment of Accrued Expense
On August 12, 2002, the Company entered into a consulting agreement with an
independent third party to assist us in financing objectives. Per the agreement,
the Company was required to pay a $100,000 commitment fee which we accrued at
the time expecting performance from the third party. Performance never occurred
and the commitment fee was not paid; therefore, the agreement was never
executed.
In accordance with the Nevada statute of limitations law, the Company's promise
to pay has expired and was written off, resulting in a $100,000 decrease in
consulting fees as of September 30, 2008.
Note 7. Subsequent Events
Subsequent to the quarter ended September 30, 2008, we issued 250,000 shares of
common stock for services valued at $10,000 or $0.04 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN 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, 2007, 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. 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. The primary expenses for the
Company consist of consulting fees that are primarily paid by the issuance of
our common stock.
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. 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 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 6: Management's Discussion and Analysis and Plan of
Operation" in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2007.
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.
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. has been a dormant company since 2002 and was
discontinued as of December 31, 2007.
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
On January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123(R), "Accounting for Stock-Based Compensation", to account for compensation
costs under our stock option plans. We previously utilized the intrinsic value
method under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (as amended).
We use the fair value method for equity instruments granted to non-employees and
will use the Black-Scholes model for measuring the fair value of options, if
issued. The stock based fair value compensation 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 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 ("2008")
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2007 ("2007")
Results of operations consist of the following:
September 30, 2008 September 30, 2007 $ Change % Change
Revenue $ - $ - $ - - %
General and administrative expenses 80,931 408,034 (327,103) (80)%
------------------------------------------------------------
Operating loss (80,931) $(408,034) $ 327,103 (80)%
As of September 30, 2008, we have not constructed an Observation Wheel and
therefore have not generated revenues.
The decrease in general and administrative expenses of 80% is due primarily to a
decrease in professional fees and loan expenses. In the third quarter of 2008,
$100,000 in unpaid consulting fees relating to a non-fully executed contract
were written off under Nevada statute of limitation as stated in Note 6 of our
financial statements. Additionally, other professional fees decreased to $33,633
as of September 30, 2008 compared to $324,617 as of September 30, 2007 because
fewer consultants were engaged for the project in the third quarter of 2008
compared to September 30, 2007.
Other general and administrative expenses have decreased to $32,322 as of
September 30, 2008 from $66,752 as of September 30, 2007 primarily because we
recognized a non-recurring loan fee of $18,750 in 2007 for extending our
Diversified Lending, Inc. note payable as stated in Note 5 of our financial
statements.
The decrease in expenses is also contributable to fewer travel and meeting
expenses with investors, a decrease in utilities and fewer purchases of office
supplies this quarter. Additionally, we experienced a decrease in interest
expense of $93,687 and a decrease in interest income of $43,971 as of September
30, 2008 compared to September 30, 2007 due to loan origination costs
being fully amortized as of September 30, 2007. Furthermore, the Diversified
Lending promissory note also holds an anti-dilution clause where the Company is
required to issue additional shares of its common stock to the debt holder so
that Diversified Lending maintains a 4% ownership in the Company. As of
September 30, 2008, there were no additional shares to be issued. Interest
expenses relating to the anti-dilution clause was $0 and $26,259 as of September
30, 2008 and 2007, respectively.
Although there was a general decrease in interest expense for the third quarter
of 2008, we did experience an increase in interest expense of $12,500 relating
to the accrued interest on the Diversified note payable as of September 30, 2008
compared to September 30, 2007. As stated in Note 5 of our financial statements,
this increase is due to an increase in the interest rate due to the default on
the loan. As of April 1, 2008, we began accruing interest at a rate of 18% up
from 14% in accordance with the agreement.
All other costs in the third quarter of 2008 remained relatively consistent
compared to September 30, 2007.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 ("2008")
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2007 ("2007")
Results of operations consist of the following:
September 30, 2008 September 30, 2007 $ Change % Change
Revenue $ - $ - $ - - %
General and administrative expenses 647,208 1,404,922 (757,714) (54)%
------------------------------------------------------------
Operating loss $(647,208) $(1,404,922) $ 757,714 (54)%
The decrease in general and administrative expenses of 54% is due primarily to
the decrease in professional and consulting fees as well as loan fees.
Professional fees decreased to $512,288 as of September 30, 2008 compared to
$1,238,434 as of September 30, 2007. The decrease is due to the engagement of
fewer consultants used to acquire the real estate needed in connection with the
project. As of September 30, 2008, we have settled on locations for the project
and have no current need to reengage the consultants at this time. The decrease
is also a result of the non-recurring nullification fee expense of $375,000 due
to the cancelled Western Architectural merger in the first quarter of 2007 as
stated in Note 3 of our financial statements. In August 2002, we entered into an
agreement with an unrelated third party and recorded, but never paid, a
consulting fee of $100,000 as the agreement was never finalized due to lack of
perform from the third party. During the third quarter of 2008, the statute of
limitations on the written contract expired allowing us to reverse the $100,000
consulting expense as stated in Note 6 of our financial statements.
Additionally, a non-recurring loan fee of $18,750 was recognized in the third
quarter of 2007 for the extension of the Diversified Lending note payable as
stated in Note 5 of our financial statements.
We have experienced a decrease in utilities and travel and meeting expenses in
2008 compared to September 30, 2007. As we continue to seek further investment
opportunities, total project costs of $28,973 as of September 30, 2008 increased
compared to $20,798 as of September 30, 2007.
Additionally, a decrease in both interest income and expense was realized as of
September 30, 2008 compared to September 30, 2007. Interest expense decreased
due to loan origination costs of $270,000 that were fully amortized and
recognized as interest expense as of September 30, 2007. Interest income
decreased $43,884 as of September 30, 2008 compared to September 30, 2007 due to
the expiration of the Diversified Lending note payable in the first quarter of
2008. Prior to the expiration of the note, we were recognizing $14,583 per month
of interest income and expense for the interest paid for by Western
Architectural. Six months of interest income and expense of $87,500 was
recognized in 2007 compared to three months of $43,750 in 2008.
Although interest expense has decreased in the nine months ending September 30,
2008, we did experience an increase in interest expense of $25,000 relating to
the accrued interest on the Diversified note payable as of September 30, 2008
compared to September 30, 2007. As stated in Note 5, this increase is due to an
increase in the interest rate due to the default on the loan. As of April 1,
2008, we began accruing interest at a rate of 18% up from 14% in accordance with
the agreement.
All other costs in the third quarter of 2008 remained relatively consistent when
compared to September 30, 2007.
LIQUIDITY AND CAPITAL RESOURCES
We plan to focus primarily on the development of the Observation Wheel in Las
Vegas the next twelve months.
September 30, 2008 December 31, 2007 $ Change % Change
Cash $ 5,591 $ 42,076 $ (36,485) (87)%
Accounts payable and accrued expenses $2,654,308 $2,377,508 $ 276,800 12%
Total current liabilities $5,667,547 $5,235,747 $ 431,800 8%
Cash proceeds from the sale of common stock $ 135,000 $ 390,000 $(255,000) (65)%
We have financed our operations during the year primarily through the use of
cash on hand and the aging of our payables.
As of September 30, 2008, we had total current liabilities of $5,667,547
compared to $5,235,747 as of December 31, 2007. The increase in total current
liabilities is primarily due to an increase in Due to Related Parties and
Accrued Interest. There was a $160,000 increase in Due to Related Parties as of
September 30, 2008 compared to December 31, 2007. These items increased as our
lack of cash has resulted in longer aging of payables to our related parties and
need for additional cash infusion from our related parties. Additionally, there
was a $188,677 increase in accrued interest as of September 30, 2008 compared to
December 31, 2007. As stated in Note 5, this increase is primarily due to
accrued interest of $112,500 relating to the expiration of the Diversified
Lending, Inc. note payable. As of April 1, 2008, we began accruing interest at a
rate of 18% or $56,250 per quarter in accordance with the agreement on the
defaulted note.
We had no long term liabilities as of September 30, 2008.
Cash decreased 87% as of September 30, 2008 due to payment of some of our
payables throughout the first nine months of 2008. Additionally, our accounts
payable decreased by approximately $80,000 as of September 30, 2008 compared to
September 30, 2007 primarily due to the statute of limitations expiration in the
third quarter of 2008 on a $100,000 expense recorded relating to an agreement
that was never finalized or paid as stated in Note 6 of our financial
statements.
We issued 3,625,000 shares of common stock for $135,000 cash in the first three
quarters of 2008. In the third quarter of 2008, we received $20,000 for the
purchase of common stock, however the sale is yet to be finalized and no shares
were issued as of September 30, 2008.
We had $5,591 cash on hand as of September 30, 2008 compared to $42,076 as of
December 31, 2007. 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. There is no assurance
that we will be able to obtain additional capital as required, or obtain the
capital on acceptable terms and conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
Based on the management's evaluation (with the participation of our President
and Principle Financial Officer), our President and Principle Financial Officer
has concluded that as of September 30, 2008, 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 Principle 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 Principle 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, 2008 and believe they
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 temporary rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this quarterly report.
Changes in Internal Controls
----------------------------
Based on the evaluation as of September 30, 2008, our Chief Executive Officer
and Principle 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
his most recent evaluation and there were no corrective actions during the
quarter with regard to significant deficiencies or material weaknesses.
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-KSB for the fiscal year ended December 31, 2007.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In March 2008, the Company issued 1,000,000 shares of common stock for $50,000
cash or $0.05 per share.
In April 2008, the Company issued 625,000 shares of common stock for $25,000
cash or $0.04 per share.
In April 2008, the Company issued 2,375,000 shares of common stock for
professional services rendered for total compensation of $98,000 or $0.04 per
share.
In May 2008, the Company issued 1,000,000 shares of common stock for $30,000
cash or $0.03 per share.
In June 2008, the Company issued 1,000,000 shares of common stock for $30,000
cash of $0.03 per share.
In June 2008, the Company issued 5,200,000 shares of common stock for
professional services and interest expense for $260,000 or $0.05 per share.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Line of Credit
On November 19, 2002, the Company entered into a line of credit financing
agreement which entitled the Company to borrow from a creditor up to an
aggregate of $2,500,000. Advances under this line of credit are based on
achievement of certain milestones pursuant to the agreement. Upon the receipt of
funds, the Company was required to issue up to 1,500,000 shares of its common
stock on a pro rata basis.
The Company borrowed $605,000 against this line of credit and issued 1,500,000
shares. The balance payable under this line of credit was due on April 15, 2003
and was secured by all of the Company's assets.
The original line of credit bore interest at the rate of 12% per annum. This
line of credit has expired and no principal or accrued interest has been paid
back. Consequently, during the year ended December 31, 2003, the Company agreed
to pay 100% interest related to this line of credit. As of September 30, 2008,
interest of $605,000 has been accrued and included in accrued expenses in the
accompanying consolidated financial statements.
As of September 30, 2008 and 2007, the total obligation including loans of
$605,000, and accrued interest of $605,000, amounted to $1,210,000. The debt
holder has agreed to be repaid from those funds received by the Company at its
next project funding. If the Company does not receive significant project
funding it will not be able to repay the debt. As collateral for the Loan and
Security Agreement the debt holder filed a UCC-1 against the assets and
intellectual property of the Company giving the debt holder the right to
institute foreclosure proceedings against the Company. Foreclosure proceedings
could be instituted at any time if the debt holder believes that he will not be
repaid. As of the date of these financial statements the debt holder has not
indicated any intentions to institute foreclosure proceedings.
Diversified Lending
-------------------
On September 5, 2006, the Company entered into a note payable with Diversified
Lending Group, Inc. for $1,250,000. The Company is a joint tenant with Western
in this debt which bears interest of 14% (unless in default then 18%) and is due
within one year from the date of the note. As of December 31, 2007, Western paid
directly to Diversified Lending Group, Inc. six months of interest for the
original loan. We have accounted for this as both interest income and interest
expense of $87,500.
As stated in the agreement, the Company could extend the Maturity Date of the
loan one time for a period of six months, which the Company exercised for a fee
of 3% of the loan amount or $37,500 (Western Architecture paid to the Company
$18,750 as their part of the loan extension). As of June 30, 2008, management is
negotiating with the note holder to extend the terms of the note. Although
management has ongoing negotiations to extend the terms of the agreement,
technically per the agreement we are in default. Interest of $112,500 at 18% has
been accrued through September 30, 2008.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
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.
ITEM 6 - EXHIBITS
(a) The following exhibits are filed with this report.
31.1 Certification by Chief Executive and Financial Officer pursuant to
Sarbanes Oxley Section 302.
32.1 Certification by Chief Executive and Financial Officer pursuant to
18 U.S.C. Section 1350.
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 12, 2008
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
-----------------------------
Richard Hannigan, Sr.
President/CEO/Director
November 12, 2008
By: /s/ Myong Hannigan
-----------------------------
Myong Hannigan
Secretary/Treasurer/Director
November 12, 2008
By: /s/ Tracy Jones
-----------------------------
Tracy Jones
COO/Director
November 12, 2008