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VIZC > SEC Filings for VIZC > Form 10-Q on 15-Nov-2013All Recent SEC Filings

Show all filings for VIZCONNECT, INC.

Form 10-Q for VIZCONNECT, INC.


15-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

Overview

The Company was incorporated in the State of Nevada on October 15, 2010. We assist companies across a diverse range of industries to utilize mobile devices, technology, and targeted advertising to enhance and cultivate companies' marketing campaigns. Our proprietary video marketing platform (the "Platform") allows companies to integrate traditional print media with video messages to create effective mobile marketing. Our Platform utilizes QR (Quick Response) codes that have the ability to link to or store all types of media and data information. A QR code is a visual pattern that directs the browser on the user's mobile device to a particular location or IP address. It allows that device to quickly go to that link on the Internet. Our Company specializes in linking video data, in a user-friendly format, into these QR codes. Accordingly, when a mobile device equipped with a QR Code reader application scans a QR code associated with our Platform, a unique video created by the subscriber will play. A subscriber can further enhance its marketing by providing ways for the viewer to connect with the company following conclusion of the video message. Our Company delivers the integration of video marketing messages with the strategic placement of QR codes.

In July 2013, the Company began offering certain SMS texting services as a supplement to the Platform. Through a licensing agreement with AvidMobile LLC, the Company offers its subscribers the ability to receive "keyword" texts from consumers, as well as send out text messages to consumers who have "opted in" to such communications. Text messages from Company subscribers can include links to video hosted on the Platform.

On February 13, 2013 (the "Closing Date"), we entered into a Share Exchange Agreement (the "Exchange Agreement") with (i) VizConnect LLC ("VizConnect"),
(ii) all of the members of VizConnect (the "Members") and (iv) our former principal shareholder pursuant to which we acquired all of the outstanding units of VizConnect in exchange for the issuance of 25,000,000 shares of our common stock to the Members (the "Share Exchange"). The shares issued to the Members in the Share Exchange constituted approximately 61.46% of our issued and outstanding shares of common stock as of and immediately after the consummation of the Share Exchange. In connection with the closing, 40,000,000 shares of our common stock held by our former principal shareholder have been cancelled. As a result of the Share Exchange, VizConnect became our wholly owned subsidiary.

The acquisition is being accounted for as a "reverse merger," and VizConnect is deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the acquisition will be those of VizConnect and will be recorded at the historical cost, and the consolidated financial statements after completion of the acquisition will include the assets, liabilities and operation of the Company and VizConnect from the closing date of the acquisition. As a result of the issuance of the shares of common stock pursuant to the Exchange Agreement, a change in control of occurred as a result of the acquisition.

In connection with the closing of the Exchange Agreement, Mr. Anthony Pasquale, the Company's principal shareholder, agreed to cancel his 10,000,000 pre-split (or 40,000,000 post-split) shares of common stock that he owned in the Company and we issued 6,250,000 pre-split (or 25,000,000 post-split) shares to members of VizConnect. Additionally, the existing officers and directors from the Company resigned from its board of directors and all officer positions effective immediately after the closing of the reverse merger. Accordingly, our Board of Directors appointed Mr. Paul Cooleen as our President, Mr. Brian Dee as our Secretary, and Mr. James Henderson as our Treasurer, effective upon the closing of the Share Exchange.


The Company's directors approved the Exchange Agreement and the transactions contemplated thereby. Simultaneously, the Members of VizConnect also approved the Exchange Agreement and the transactions contemplated thereby.

As a result of the Exchange Agreement, the Company ceased its prior business and acquired 100% of the mobile marketing operations of VizConnect, the business and operations of which now constitutes its primary business and operations. Specifically, as a result of the Exchange Agreement on February 13, 2013:

? The Company acquired and now owns 100% of the issued and outstanding units of VizConnect LLC, a Massachusetts limited liability company and their mobile marketing business; and

? The Company issued 25,000,000 shares of common stock to the Members of VizConnect, constituting approximately 61.46% of the issued and outstanding common stock.

As a result of the Company's reverse acquisition of VizConnect, the Company has assumed the business and operations of VizConnect with its principal activities engaged in the mobile marketing platform business.

We effected a 4-for-1 forward stock split, which became effective as of February 25, 2013.

On or about April 13, 2013, the Company received written consents in lieu of a meeting of Stockholders from stockholders holding 50.86% of the outstanding shares of the Company's common stock. This written consent authorized the Company to amend its Articles of Incorporation to change the name of the Company from "VB Clothing, Inc." to "VizConnect, Inc." and to increase the number of authorized shares of common stock, par value $0.001, from 70,000,000 to 250,000,000. The Certificate of Amendment, referencing these amendments, was recorded with the State of Nevada on May 10, 2013.

Results of Operations

Comparison for the three months ended September 30, 2013 and 2012

Revenue:

Revenues for the three months ended September 30, 2013 were $140,856, compared with $3,975 for the three months ended September 30, 2012, reflecting an increase of 3,443.55%. The increase in revenues was primarily attributable to the implementation of the Company's new business and sales model.

Operating Expenses:

Operating expenses for the three months ended September 30, 2013 were $273,329, compared with $161,051 for the three months ended September 30, 2012, reflecting an increase of 69.72%. The increase in operating expenses was primarily attributable to the implementation of the Company's new business and sales model, including investment in consulting and business infrastructure.

Operating loss:

We incurred operating losses totaling $132,473 for the three months ended September 30, 2013, compared to losses from operations totaling $157,076 for the three months ended September 30, 2012 reflecting a decrease of 15.67%. The decrease in operating losses was primarily attributable to increase in operating expenses associated with the implementation of the Company's new business and sales model. The increase in operating expenses was offset by the overall increases in revenue.


Other Expense:

The Company had interest expenses during the three months ended September 30, 2013 in the amount of $65,316, compared with $0 during the three months ended September 30, 2012. The increase in interest expenses during the three months ended September 30, 2013 was primarily attributable to the issuance of promissory notes and amortization of debt discount during the nine months ended September 30, 2013.

The Company recognized losses based upon the derivative liability attributed to convertible promissory notes issued to certain investors. The amount of the gain was $614,586 for the three months ended September 30, 2013, compared with $0 for the three months ended September 30, 2012. This gain reflects the difference between the calculated fair value of the derivative liability, which was $136,641 at September 30, 2013, and the issuance price of the notes, which is $480,250.

The loss on the derivative exchange reflected in the income statement is associated with the potential future contingent payments that could result upon a conversion of the note payable at its face value at issuance into shares of common stock at their current fair value at September 30, 2013, discounted to its net present value using a Black Scholes modeling calculation. The convertible notes are recorded initially at their issuance price and then marked to market using the Company's current stock price extrapolated among all the units of stock traded by the Company through September 30, 2013. The mark to market adjustment is discounted to its net present value using a Black Scholes formula and the difference in issuance price and its calculated fair value is included in the statement of operations in accordance with the guidance FASB ASC Topic 815. The loss on the derivative exchange is not a normal component of the net loss from the operations of the Company, because this item is merely a mark to market adjustment on a contingent note rather than an item of income or expense associated with normal and recurring business transactions associated with the Company's daily operating activities.

Comparison for the nine months ended September 30, 2013 and 2012

Revenue:

Revenues for the nine-month period ended September 30, 2013 were $249,190, compared with $11,825 for the nine months ended September 30, 2012, reflecting an increase of 2,007.32%. The increase in revenues was primarily attributable to the implementation of the Company's new business and sales model.

Operating Expenses:

Operating expenses for the nine months ended September 30, 2013 were $573,556, compared with $221,815 for the nine-month period ended September 30, 2012, reflecting an increase of 158.57%. The increase in operating expenses was primarily attributable to the implementation of the Company's new business and sales model, including investment in consulting and business infrastructure.

Operating loss:

We incurred operating losses totaling $324,366 for the nine months ended September 30, 2013, compared to losses from operations totaling $209,990 for the nine-month period ended September 30, 2012 reflecting an increase of 54.47%. The increase in operating losses was primarily attributable to the implementation of the Company's new business and sales model, including investment in consulting and business infrastructure.

Other Expense:

The Company had interest expenses during the nine months ended September 30, 2013 in the amount of $85,213, compared with $0 during the nine months ended September 30, 2012. The increase in interest during the nine months ended September 30, 2013 was primarily attributable to the issuance of promissory notes and amortization of debt discount during the nine months ended September 30, 2013.


The Company recognized losses based upon the derivative liability attributed to convertible promissory notes issued to certain investors. The amount of the gain was $343,609 for the nine-month period ended September 30, 2013, compared with $0 for the nine-month period ended September 30, 2012. This gain reflects the difference between the calculated fair value of the derivative liability, which was $136,641 at September 30, 2013, and the issuance price of the notes, which is $480,250.

Plan of Operations

Over the next 12 months, we are looking to expand our IBA number from approximately 400 current IBA consultants to 600 by the end of the first quarter of 2014 and 1,000 by the end of the Fourth quarter. We expect that this goal will be supported by the recruitment of top sales people and the increased efforts in our marketing campaign. We currently have IBAs in 29 states with most being located in the northeast where our headquarters are located.

By the end of fiscal year 2013, we plan to begin expanding our subscriber reach into Canada.

Critical Accounting Policies and Estimates

Organization

The Company was incorporated in the State of Nevada on October 15, 2010. The Company provides cloud based marketing services using a combination of mobile video marketing, video storage, and cloud computing in one easy to access system for a monthly fee. The Company's year-end is December 31.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2013 and December 31, 2012, the Company had no cash equivalents.

Income Taxes

The Company accounts for income taxes under FASB Accounting Standards Codification Topic 740, Income Taxes. Under FASB Accounting Standards Codification Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB Accounting Standards Codification No. 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Advertising Costs

Advertising Costs are expensed in the period when the advertisements have reached their intended users. Advertising expense during the nine months ended September 30, 2013 and 2012 were $403 and $1,115, respectively.


Software Development Costs

We expense software development costs to be marketed to external users, before technological feasibility of such products is reached. We have determined that technological feasibility is reached shortly before the release of those products and as a result, the development costs incurred after the establishment of technological feasibility and before the release of those products were not material, and accordingly, were expensed as incurred. Software development costs totaled $23,872 and $36,527 for the nine months ended September 30, 2013 and 2012, respectively.

Business Segments

The Company operates in one segment and therefore segment information is not presented.

Revenue Recognition

The Company will recognize revenue on arrangements in accordance with FASB ASC Topic 605, "Revenue Recognition". In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company recognizes revenue from monthly subscriptions fees in the month in which services are used. Because a portion of the fees are earned over a month period, any fees collect in which the services are not provided are recorded as deferred revenue. The Company recognizes revenue from set up fees at the time the initial set up is complete and the fees are earned. The Company recognizes revenue from distributor membership fees monthly over the one year membership period. Any fees collected in which the services are not provided are recorded as deferred revenue.

Concentrations

As of September 30, 2013, the Company has no customers whose sales account for more than 10% of total sales.

Fair Value of Financial Instruments

The carrying amount reported in the balance sheet for accounts payable approximate fair value based on the short-term maturity of these instruments.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board (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 financial statements.


Liquidity and Capital Resources

Our cash and cash equivalents is $44,252, and a working capital deficit of $501,569, as of September 30, 2013. Despite capital contributions and sales, and both related party and third party loan commitments, we may experience cash flow shortages that can slow our expected growth. We have primarily financed our activities from loans from related and third parties. A significant portion of the funds raised from loans from related and third parties have been and will be used to cover working capital needs such as office expenses, software development expenses and various professional fees.

Our cash flow requirements during this period have been met by contributions of capital and debt financing, plus receipts from sales of the Company's services and from membership fees from the Company's distributors. We anticipate that financing will be required until such time as we are able to generate adequate cash flow from operations to support both our cash needs for normal operations, and to support the cash needs for our investment into additional resources and assets to support our growth. Currently we cannot determine when either will occur and as such we will need to obtain financing to cover our costs for the foreseeable future. We continue to seek financing sources, such as those described hereinbelow, as well as others, in order to continue funding normal operations. However, no assurance can be given that these sources of financing will continue to be available. If we are unable to generate profits, or unable to obtain additional funds for its working capital needs, we may have to curtail normal operations, or cease operations completely.

Between March 2013 and May 2013, a shareholder contributed $20,000 in capital to the Company for the purpose of paying certain professional fees.

On May 6, 2013, the Company made available to certain investors a private placement memorandum, pursuant to which the Company offered convertible promissory notes, at a purchase price of $10,000 per note. In response to such offer, the Company closed on sales of single notes to five (5) individuals, on May 23, May 30, June 24 and June 30, 2013, resulting in total net proceeds to the Company of $50,000. The notes bear interest at the rate of 12% per annum. All interest and principal must be repaid on March 1, 2018. Each note may be converted, in whole or in part, into common stock of the Company at any time beginning on March 1, 2014 and ending on March 1, 2018. At the time an investor elects to convert a note, such note is convertible into shares of the Company's common stock at a conversion price of $0.14 per share. The Company used the proceeds therefore for working capital purposes, including software development associated with the Company's compensation system and new short code texting service.

On June 26, 2013 and September 2013, the Company entered into two Securities Purchase Agreements with Asher Enterprises, Inc. ("Asher"), for the sale of two 8% convertible notes in the principal amounts of $42,500 and $42,500, respectively. The financings closed on July 11, 2013 and September 2013, respectively. The notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on May 28, 2014 and June 2014, respectively. The notes are convertible into common stock, at Asher's option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

In September 2013, the Company entered into a Securities Purchase Agreement with Auctus Private Equity Fund, LLC ("Auctus"), for the sale of an 8% convertible note in the principal amount of $32,750. The note bears interest at the rate of 8% per annum. All interest and principal must be repaid by June 24, 2014. The note is convertible into common stock, at Auctus' option, at a 42% discount to the average of the two lowest closing bid prices of the common stock during the 20 trading day period prior to conversion.


Going Concern

The Company had a net loss of $65,970 for the nine months ended September 30, 2013, a Stockholders' deficit of $524,879 and a working capital deficit of $501,569 as of September 30, 2013. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital through member contributions and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding through implementing its strategic plans, multilevel marketing strategy and sales incentives to expand operations and will provide the opportunity for the Company to continue as a going concern.

Off-balance Sheet Commitments and Arrangements

We have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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