UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED January 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 0-30499
-------------------------------
VISIONGATEWAY, INC.
(Exact name of Registrant as specified in its charter)
Nevada 90-0015691
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12707 High Bluff Drive, Suite 200,
San Diego, California 92130
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (858) 794-1416
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 [ ]
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
As of January 31, 2005 there were 42,268,217 shares of the registrant's
common stock outstanding.
Transitional Small Business Disclosure Format. Yes [ ]. No [X].
VISIONGATEWAY, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2005
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at January 31, 2005 (unaudited) 1
Consolidated Statements of Operations (unaudited) 2
Consolidated Statements of Cash Flows (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operations 15
Item 3. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
visionGATEWAY, Inc.
Including the accounts of its wholly owned subsidiaries
[A Development Stage Company]
Consolidated Balance Sheet
January 31, 2005
ASSETS
Assets
Current Assets
Cash $ 259
Other receivable 0
----------
Total current assets 259
Property (net) 24,833
Deposits 4,261
----------
Total Assets $ 29,353
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Current Liabilities:
Accounts payable $ 901,362
Accrued liabilities 216,779
Related party payable - Note 6 783,619
----------
Total Liabilities $1,901,760
Stockholders' Deficit:
Preferred Stock 10,000,000 shares authorized,
$.10 par value per share, nil outstanding 0
Capital Stock 75,000,000 shares authorized having
a par value of $.004 per share; 42,268,217 shares
issued and outstanding - Note 4 169,073
Additional paid-in capital 990,614
Deficit accumulated during the development stage (3,015,984)
Accumulated foreign currency translation adjustment (16,110)
-----------
Total Stockholders' Deficit (1,872,407)
-----------
Total Liabilities and Stockholders' Deficit $ 29,353
===========
See accompanying notes to financial statements.
visionGATEWAY, Inc.
Including the accounts of its wholly owned subsidiaries
[A Development Stage Company]
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended January 31, 2005, and for
the Period from Reactivation [November 30, 2001] through January 31, 2005
3 mths 9 mths Reactivation
ended Ended through
January 31, January 31, January 31,
2005 2005 2005
Revenues $ 0 $ 0 $ 53,406
Research & development 79,740 248,681 622,522
General & administrative expenses 261,058 942,005 2,446,868
---------- --------- ----------
Operating loss (340,798) (1,190,686) (3,015,984)
---------- --------- ----------
Net Loss Before Income Taxes (340,798) (1,190,686) (3,015,984)
Current Year Provision for Income Taxes 0 0 0
---------- ----------- ----------
Net Loss $ (340,798) $(1,190,686) $(3,015,984)
========== =========== ==========
Other Comprehensive Income
Unrealized gain(loss) on foreign
Currency translation (net of tax) (7,201) (15,263) (16,110)
Total Comprehensive Income (Loss) (347,999) (1,205,949) (3,032,094)
========== =========== ==========
Loss Per Share $ (0.01) $ (0.03) $ (0.09)
========== =========== ==========
Weighted Average Shares Outstanding 42,268,217 41,359,703 32,375,253
========== =========== ==========
See accompanying notes to financial statements.
visionGATEWAY, Inc.
[A Development Stage Company]
Consolidated Statements of Cash Flows
For the Three & Nine Months Ended January 31, 2005 and for the Period from
Reactivation [November 30, 2001] through January 31, 2005
Three Months Nine Months Reactivation
Ended Ended through
January 31, January 31, January 31,
2005 2005 2005
Cash Flows from Operating Activities
Net Loss $ (340,798) $(1,190,686) $(3,015,984)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,297 15,246 33,801
Stock issued for services 0 (200,000) 0
Change in current assets 18,532 18,532 (4,261)
Increase in current liabilities 149,378 474,884 1,118,142
---------- ----------- ------------
Net Cash Used for Operating Activities (167,591) (882,024) (1,868,302)
Cash Flows from Investing Activities
Purchase of property 0 (15,729) (58,635)
Cash Flows from Financing Activities
Proceeds from borrowing 170,981 470,887 783,619
Additional paid in Capital 0 438,964 1,159,687
Effect Of Exchange Rate on cash
and cash Equivalents (7,201) (15,263) (16,110)
Net Increase/(Decrease) in Cash (3,811) (3,165) 259
Beginning Cash Balance 4,070 3,424 0
----------- ----------- ------------
Ending Cash Balance $ 259 $ 259 $ 259
=========== =========== ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for
interest 2,060 7,687 12,320
Cash paid during the year for
income taxes 0 0 0
See accompanying notes to financial statements.
visionGATEWAY, Inc.
[A Development Stage Company]
Notes to Consolidated Financial Statements (unaudited)
January 31, 2005
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
visionGATEWAY, Inc. (the Company) was organized on September 13,
1999, as Peninsula Web Pages, Inc., under the laws of the State of Nevada. It
essentially became dormant until November 30, 2001, when its name was changed
to visionGATEWAY, Inc. and it acquired two companies. The Company is now a
holding company for the software business now being organized in these two
wholly owned subsidiaries. Both subsidiaries are Australian corporations;
visionGATEWAY Pty Ltd, a distribution and marketing company, and Software
Innovisions Pty Ltd, a software development company. The consolidated company
is an Enterprise Software Solutions company in the commercialization stage.
It is currently growing its planned principal operations, which is
development, distribution, and marketing of business software solutions for
Internet Resource Management. The accompanying financial statements include
the accounts of the Company as well as its wholly owned subsidiaries. All
intercompany transactions have been eliminated.
On March 4, 2004, the Company combined with Chiropractic 21
International, Inc., an inactive public Nevada corporation, for the purpose of
recapitalization. The combination is accounted for as a reverse purchase.
The financial statements of the Company have been prepared in
accordance with U. S. generally accepted accounting principles. The following
summarizes the more significant of such policies:
(b) Income Taxes
The Company applies the provisions of Statement of Financial
Accounting Standards No. 109 [the Statement], Accounting for Income Taxes.
The Statement requires an asset and liability approach for financial
accounting and reporting for income taxes, and the recognition of deferred tax
assets and liabilities for the temporary differences between the financial
reporting bases and tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Prior years' consolidated financial statements have not been
restated to apply the provisions of the Statement. The cumulative effect of
this change in accounting for income taxes as of January 31, 2005 is $0 due to
the valuation allowance established as described in Note 3.
(c) Net Loss Per Common Share
Net loss per common share is based on the weighted-average number of
shares outstanding for visionGATEWAY shares for the respective periods and
since November 2001.
visionGATEWAY, Inc.
[A Development Stage Company]
Notes to Consolidated Financial Statements
January 31, 2005
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[continued]
(d) Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers
cash on deposit in the bank to be cash. The Company had $259 cash at January
31, 2005.
(e) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(f) Revenue Recognition
The Company recognizes revenues in accordance with the Securities and
Exchange Commission, Staff Accounting Bulletin (SAB) number 101, "Revenue
Recognition in Financial Statements." SAB 101 clarifies application of U. S.
generally accepted accounting principles to revenue transactions. Revenue is
recognized as products or projects are delivered or services are provided to
customers. Uncollected, earned revenue is recorded in accounts receivable.
Billed amounts deemed to be uncollectible are charged to bad debt expense.
Revenue collected in advance is recorded as a liability until the earnings
process is complete.
(g) Foreign Currency Translation
Foreign currency exchange transactions and translation are accounted
for pursuant to Statement of Financial Accounting Standards (SFAS) No. 52,
Foreign Currency Translation. The functional currency of the non-USA based
operating entities is the Australian Dollar. All numbers in these financial
statements have been converted to U.S. dollars, unless specifically stated
otherwise.
(h) Impairment of Long-Lived Assets
The Company reviews long-lived assets, at least annually, to
determine if impairment has occurred and whether the economic benefit of the
asset (fair value for assets to be used and fair value less disposal costs for
assets to be disposed of) is expected to be less than the carrying value.
Triggering events, which signal further analysis, consist of a significant
decrease in the asset's market value, a substantial change in the use of an
asset, a significant
visionGATEWAY, Inc.
[A Development Stage Company]
Notes to Consolidated Financial Statements
January 31, 2005
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[continued]
physical change in the asset, a significant change in the legal or
business climate that could affect the asset, an accumulation of costs
significantly in excess of the amount originally expected to acquire or
construct the asset, or a history of losses that imply continued losses
associated with assets used to generate revenue. The Company did not make any
such adjustments for the quarter ended January 31, 2005.
(g) Recent Pronouncements
In June 2002, SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, was issued. SFAS No. 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally
before a liability has been incurred. The adoption of SFAS No. 146 did not
materially impact the Company's consolidated results of operations, financial
position, or cash flow.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-
Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123
to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
provisions of SFAS No. 148 are effective for financial statements for fiscal
years and interim periods ending after December 15, 2002. The disclosure
provisions of SFAS No. 148 have been adopted by the Company.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liability and Equity ("SFAS No. 150") was issued in
May 2003. SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liability
and equity in its statement of financial position. SFAS No. 150 became
effective for the Company for new or modified financial instruments beginning
June 1, 2003, and for existing instruments beginning June 28, 2003. The
adoption of SFAS No. 150 does not have a material impact on the Company's
Consolidated Financial Statements.
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Financial Accounting Standards Board Interpretation No. ("FIN") 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which requires the guarantor to
recognize as a liability the fair value of the obligation at the inception of
the guarantee. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002.
visionGATEWAY, Inc.
[A Development Stage Company]
Notes to Consolidated Financial Statements
January 31, 2005
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[continued]
Management believes the Company has no guarantees that are required
to be disclosed in the financial statements. The recognition provisions are to
be applied on a prospective basis to guarantees issued after December 31,
2002. The adoption of the recognition provisions of FIN 45 did not have a
material impact on the Company's financial statements.
In January 2003, the FASB issued FIN No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
("ARB") No. 51. FIN No. 46, as revised in December 2003, addresses
consolidation by business enterprises of variable interest entities. FIN No.
46 applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. FIN No. 46 applies in the first year or interim
period ending after December 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1,
2003. The adoption of FIN No. 46 did not have a material impact on the
Company's financial statements.
NOTE 2 LIQUIDITY/GOING CONCERN
The Company has accumulated losses through January 31, 2005 amounting
to $3,015,984, has minimal assets, and has a net working capital deficiency at
January 31, 2005.
Management plans include continued development of its planned
principal operations and seeking capital either through a private placement or
public offering. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
A fund raising is underway through an affiliate, Aspen Corporation
Limited, of the Company's major shareholder in Australia. The resultant funds
will be provided to the company through the issue of up to $10m of 8%
convertible notes. These notes would be convertible at the rate of $2.50 per
share. The notes would be due for conversion on a progressive basis, maturing
in 10 years from their date of issue with interest paid quarterly in arrears.
It is anticipated that these funds will begin flow to the Company from April
of 2005.
NOTE 3 INCOME TAXES
Below is a summary of deferred tax asset calculations on net
operating loss carry forward amounts. Loss carry forward amounts expire at
various times through 2024. A valuation allowance is provided when it is more
likely than not that some portion of the deferred tax asset will not be
realized.
NOL
Description Balance Tax Rate
Federal Income Tax $1,825,298 $620,601 34%
Valuation allowance (620,601)
--------
Deferred tax asset 4/30/04 $ 0
The allowance has increased $401,557 from $219,044 as of April 30,
2003.
NOTE 4 ISSUANCE OF STOCK
Effective June 30, 2002, the Company acquired two Australian
companies to further develop its planned principal operations. In connection
with this acquisition, the Company issued 2,600,000 shares of common stock for
100% of the shares of the Australian entities. In addition, 5,625,000 shares
of common stock were issued for cash and services at approximately $0.01,
based on the cash component.
Over the following months, the Company issued 1,000,000 shares of
common stock for services and cash at US $0.08 per share. Through March 3,
2004, an additional 6,815,500 shares of common stock were issued for
approximately $510,000, in cash and services or $0.07 per share for the cash
component only.
On March 4, 2004, pursuant to an Agreement and Plan of
Reorganization, the Company combined with Chiropractic 21 International, Inc.
(Chiropractic), for the purpose of re-capitalizing.
As a result of this combination, the Company's capital structure
changed. The surviving company had authorized 10,000,000 shares of $0.10 par
value preferred stock with no preferred shares issued and outstanding. Common
stock authorized is 75,000,000, $0.004 par value. In the transaction, the
Company's pre-reorganization 36,040,500 shares of common stock were converted,
one for one, into Chiropractic common shares. The pre-reorganization
1,777,717 shares of common stock of Chiropractic were combined to make
37,818,217 common shares after recapitalization.
On April 2, 2004, the Company had decided to issue 2,000,000 shares
of preferred stock to a related party (which shares common ownership and
management) for services, at par. The Company was to record the transaction
at $200,000. The related party has been established to facilitate future
investment in the Company. After further advice, the company determined not
to issue preferred stock to its affiliate and has issued 2 million shares of
common stock in place of the preferred stock, which is reflected in the
balance sheet above.
The Company issued additional shares of common stock in the quarter
to July 31, 2004, in the following manner.
# Shares Issued to: Issued for:
500,000 Company officer/shareholder Management services
50,000 Individual Legal services
750,000 Outside Professionals Services
650,000 Investor Cash contribution
500,000 Creditor Loan settlement
- ---------
2,450,000 Total
NOTE 5 PROPERTY
Property consists primarily of computer equipment with the original
cost of $58,835. Accumulated depreciation through January 31, 2005, is
$34,002. Depreciation expense for the quarter ended January 31, 2005 was
$5,297.
NOTE 6 RELATED PARTY PAYABLE
Shareholders have advanced money to the Company in the amount of
$783,619 for the purpose paying operating expenses and providing working
capital. The outstanding balance is unsecured, non- interest bearing and
payable on demand.
NOTE 7 LEASES
The Company has entered into four offices leases, two in Australia
and two in the USA.
Location Square Feet Annual Payments Other terms
Brisbane 3,337 $ 60,480 Through February 2007
Sydney 377 25,200 Renewable annually (Nov.)
San Diego, CA Shared space 2,500 Renewable quarterly
Marina del Rey, CA 300 13,800 Renewable annually (Mar.)
--------
$101,980
Rent expense includes car parking and other miscellaneous related expenses.
For the quarter ended January 31 the expense was $44,931.
NOTE 8 STOCK OPTIONS
On March 1, 2004, options were granted to an individual and to two
entities for services rendered to the Company. These options are exercisable
at $0.50 over a 10 year period and vest over four years beginning March 1,
2005. On the grant date, the trading price of the stock was $0.33 per share.
There were 6,500,000 options granted. On April 2, 2004, an additional 300,000
options were granted with the same exercise and vesting terms.
Compensation cost for stock options is measured as the excess, if
any, of the estimated fair market value of the Company's stock at the date of
grant over the amount the recipient must pay to acquire the stock. Unearned
compensation, which is recorded as a separate component of stockholders'
equity, as a result of the compensatory stock options is generally amortized
to expense over the vesting periods of the underlying stock options. No
compensation expense was recorded for these option grants.
Item 2. Management's Discussion and Analysis of Financial Condition
and Plan of Operations
Forward-Looking Statements
Statements made in this Form 10-QSB, particularly in this section, which
are not purely historical are forward-looking statements with respect to the
goals, plan objectives, intentions, expectations, financial condition, results
of operations, future performance and business of the Company, including,
without limitation, (i) the Company's ability to raise capital and (ii)
statements preceded by, followed by or that include the words "may," "could,"
"should," "expects," "projects," "anticipates," "believes," "estimates,"
"plans," "intends," "targets," or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and
important factors (many of which are beyond the Company's control) that could
cause actual results to differ materially from those set forth in the forward-
looking statements, including the following: general economic or industry
conditions, either nationally, internationally or in the communities in which
the Company conducts its business, changes in the interest rate environment,
legislation or regulatory requirements, conditions of the securities markets,
the Company's ability to raise capital, changes in accounting principles,
policies or guidelines, financial or political instability, acts of war or
terrorism, other economic, governmental, regulatory and technical factors
affecting the Company's operations, products, services and prices.
Accordingly, results actually received may differ materially from results
expected in these statements. Forward-looking statements speak only as of the
date they were made. The Company does not undertake, and specifically
disclaims, any obligation to update any forward-looking statements to reflect
events or circumstances occurring after the date such statements were made.
Overview
Description of Business
The Company is an Enterprise Software Solutions company in the
commercialization stage. The Company, through its subsidiary corporations, is
now engaged in the development, distribution and marketing of business
software solutions with global distribution partners. Although total sales
during its last two fiscal years were only approximately $42,000, the Company
considers itself in the commercialization stage of its development rather than
as a development stage enterprise, because its product, the INTERScepter
software business program, its only product at this time, is ready for sale
and distribution. To date, the company has installed the product at 35 sites
in USA, Australia and Asia, primarily for evaluation, marketing and reference
sites. The Company is presently primarily engaged in sales activities to
develop markets for its product in conjunction with its strategic partners.
The January quarter has seen an expansion of these activities in the USA and
Australia, as major distribution arrangements have been finalized and
commencement of market segment activities, particularly in higher education,
telecommunications, healthcare and various public and private enterprises get
underway. Further global expansion is set to commence in April as more fully
described herein.
visionGATEWAY (through its Australian subsidiaries) has been operating for
almost five years, commencing in 2000. The Company's only product
("INTERScepter ") is an Internet Resource Management software tool. This
product is an enterprise business solution that helps to improve Company
earnings by assisting organizations in understanding, managing and exploiting
Internet usage and valuable resources, including bandwidth, systems and
employee productivity. INTERScepter software empowers managers to
effectively control, schedule and utilize costly Internet resources, while
placing responsibility on users to self manage and modify their Internet usage
behavior.
The Internet is an ever growing global communications and commerce medium.
Traditional organizations (both government and corporate) continue to
demonstrate a significant growth in their need for integration of Internet
based technologies into their core business and marketing needs. As a result,
chief operating and financial officers and managers of business units are
faced with three very compelling issues:
1. Managing large amounts of information from the Internet while
meeting their corporate and government obligations.
2. Measuring and managing the growing non-productive use of the
Internet by staff at work, who use the Internet while at work for
non-productive, personal purposes.
3. Maintaining secure and private internet access for staff, while
reducing risk and liability relative to internet usage.
The Company recognized a market opportunity for the development of software
solutions to identify and redirect non-productive use of staff employees at
work to profitable uses of their time and Internet availability, while
maintaining security and privacy. Based on the Company's preliminary
investigations of market demand for this type of product, it believed that
moving forward with the INTERScepter project was more than justified.
The benefit of the Company's product to its customers is based upon
improving productivity and reducing costs through the use of its software
tools.
The three primary industry segments for INTERScepter at present are:
1. Education . INTERScepter was originally developed for the
education environment to meter and cost control Internet usage by
students and staff. It contains tailored functionality around the
volume of Internet use, the type of Internet usage and
functionality for improved learning in lecture and classroom
activities. INTERScepter can reduce Internet cost and bandwidth
usage; it can allocate costs to cost centers and allow students to
be charged correctly according to their own personal use beyond
base level quotas. Through its access policy facilities, it allows
teachers to "regain control of the classroom" without having to
revert to the IT department.
2. Government. INTERScepter allows government agencies to record
Internet traffic, the type of usage made and allows costs to be
allocated against the proper budget. In the Company's opinion,
significant benefits can be achieved through implementing Internet
policy by use of the INTERScepter software. It provides the
means to self manage the use of the Internet as well as reducing
direct Internet and bandwidth costs.
3. Private Enterprise. Businesses have a need to maximize
productivity to achieve better performance to stakeholders through
a combination in top line performance or bottom line cost
reduction. The product allows for both outcomes and can be focused
on a particular business objective or a series of them as
required. It benefits the business with a growth agenda or one
that is looking to streamline costs.
At this time the INTERScepter business software program is the Company's
only product; however, the Company is involved in ongoing development of other
software solutions for business and other purposes.
The Company has an international presence. Its core software research and
development team is based in Brisbane, Australia. The Australia/Asia office
for marketing and distribution is close to Sydney, Australia. The Company's
principal office is located in San Diego, California. The main U.S. Sales and
Distribution office is in Los Angeles, at Marina del Rey, California. Sales
activities have commenced in Asia through the Company's Malaysian and
Singapore channel partners. Currently, the Company is in the relationship-
building/partnership phase for marketing and sales activities through product
bundling for Western Europe and China, particularly in the area of
telecommunications. Major emphasis is concurrently being placed on driving the
major strategic partnerships and sales channels that have been put in place in
the USA and Australia.
Sales and Marketing
INTERScepter is marketed and sold as a business tool, not as a technical
product, although it is, in the Company's opinion, technically robust and
innovative. The sales proposition is primarily commercial and is targeted at
senior management and not solely the IT department. The Company's business
model is to use outsourced sales channels and to offer meaningful margins to
its channel partners, which will encourage early and considerable commitment.
The value chain in the product also provides substantial recurring service
revenue opportunities to channel partners. The Company offers significant
product breadth to meet the holistic requirements in Internet Resource
Management.
The Company's strategic decisions, dependent on available capital, are
based on rapidly building on an international scale. Three key sales channels
will be utilized: strategic partnerships, large technology resellers and niche
technology firms. Additionally, the Company has set a price point and payment
model that we believe encourages product trial and sale. This product
distribution business model also facilitates further growth through the
introduction of complementary products in the future.
The majority of the Company's revenues will come from product licenses. As
described above, the Company's only product is the INTERScepter software
tool. It is sold through a network of distribution channels consisting of
technology resellers and other distribution outlets, which the Company refers
to as its "channel partners." It provides measurable added value to resellers
with only marginal overheads.
In the U.S., the Company has worked with a number of partners to assist in
the development of opportunities in all segments. They have also assisted the
Company to build a distribution and reseller network. In addition the Company
has completed two major distribution arrangements. One of these is with Avnet
Partner Solutions, a division of the $4.35 billion Avnet Technology Solutions
operating group of Avnet, Inc. (NYSE: AVT). This arrangement now covers North
America and Australia/New Zealand. With the Company's expansion into Europe,
Avnet Partners are being solicited in those areas to distribute a bundled
solution. Avnet Partner Solutions has incentivised its Business Development
Managers to sign resellers as channel partners and help them drive customer
sales. As a result of this activity the Company is currently negotiating with
a number of new channel partners across USA and Canada. The other major
distribution arrangement has been formed as a joint venture business known as
ECCI-VGI Solutions in conjunction with Education Communications Consortia Inc.
("ECCI"). ECCI is a privately-held telecommunications management company,
focused on technology applications and solutions for the education community.
Since 1988, ECCI has exclusively served the education community, tailoring
telecommunications products and services that focus on the needs of
educational communities, enhancing service and lowering costs. Working in
partnership with Colleges, Universities, and Independent Schools, a portion of
all ECCI revenue is returned to their member institutions.
Additionally, ECCI announced in January 2005, its strategic partnership
with NetWolves Corp.., (NASDAQ:WOLV), a global network continuity and security
provider that supports in excess of 1,000 companies in more than 65 countries.
visionGATEWAY intends on leveraging its relationship with ECCI/NetWolves to
increase its sales efforts in the education and corporate markets.
As a result of these channel partner activities, the Company has end
user opportunities that are being pursued across the U.S. with a number of
Universities, Educational institutions, Government Departments, and Corporate
enterprises. During the quarter as part of our expansion into the US Education
market, trial installations and proofs of concept are being completed at DeVry
University at their Pomona campus and also at Fountain Valley School in
Colorado. ECCI-VGI Solutions is finalizing negotiations for the
implementation of its bundled solution - ECCI INTERNET TRACKER with an East
Coast University for commencement in April. Three other are schools and
colleges are discussing timing for implementation of the solutions in April
and May of 2005. This is the commencement of a major ramp-up of take-up by
existing ECCI clients of the Internet Resource Management solutions. After
the initial highlight by ECCI-VGI Solutions at the Educause 2004 Annual
Conference in Denver as well as two ACUTA Conferences in St. Louis and San
Antonio, the joint venture has received interest for trialing the ECCI
INTERNET TRACKER solution from schools and colleges in over 30 states across
the U.S.
Pricing for INTERScepter is currently based around a three year contract
License Pack followed by an ongoing Update Pack. In the three year license
contract, pricing is based on the number of workstations accessing the
Internet rather than the number of users in an organization.
Under the ECCI-VGI Solutions joint venture with the ECCI INTERNET TRACKER
solution, the basic program can be established at little or no cost to the
educational institution; and in fact, provides the opportunity not only to
allocate costs, but also to earn new, discretionary revenue from students'
internet usage. This new discretionary revenue opportunity for schools is
significant in that during the past several years, schools have lost revenues
from long distance billing due to the student population's overwhelming access
to cellular phones. Schools are able to recapture some of this lost revenue.
Beyond the basic program, there are significant value-adding features of
benefit to the institution including distributed management capability, cost
allocation controls, risk reduction facilities, and extensive real-time
reporting.
Standard Channel Partners are contracted to the Company through a Channel
Partner Agreement which sets out the terms and conditions of the arrangement,
including responsibilities of the parties, product pricing, volume discounts,
and channel partner commissions which vary according the value of product sold
in a calendar year.
INTERScepter The Internet Resource Management (IRM) Solution
The Internet impacts every aspect of today's busy organization so it is no
surprise that an organization can benefit from deploying INTERScepter to
manage Internet resources.
Internet Resource Management "(IRM)" is the Company's approach to helping
organizations maximize their return on investment in Internet services. Unlike
simple content filtering solutions, IRM calls for a more holistic approach to
understanding and managing the constellation of Internet resources in any
organization.
Most organizations lack a comprehensive understanding of what Internet
resources are being used and how, making it all but impossible to ensure they
are being used productively, or to predict or plan for their growth. With IRM,
an organization can monitor and report usage, set and enforce policies, and
improve productivity.
Competition
The Company does not believe that it has any direct competition with
respect to its INTERScepter software program and it is not aware of any
competitor offering the same complete solution with the full elements of the
software for sale.
There is, however, substantial indirect competition from products which
address issues of immediate concern to clients such as Internet security and
violation of web resources. These products address "bad behavior" on network
usage. Policing activities tend, however, to intimidate users and bad behavior
goes underground and re-offending will generally occur. INTERScepter assists
staff to police their own behavior and guides them to do what is more
efficient for the Company.
Competition is also realized from filtering software. Filters eliminate
offending materials from the web but the INTERScepter approach is one of
self management rather than forced elimination.
Other products which provide reporting and presentation of gathered
statistics, analytics and performance measurement also offer competition for
the Company's product.
There are other competitors in the market as well, however, they mainly
supply the home market for parental control of the Internet. Some other
products are hardware based and cover the aspect of INTERScepter that
controls bandwidth usage. In the Company's opinion, no other product has the
same total coverage as INTERScepter .
It must, nevertheless, be considered that competition in the business
software industry is intense, with many companies making entries into the
market every day. Most of the competitors in the industry are very large
businesses with far greater resources than the Company in terms of capital,
size and number of employees. The Company's growth will depend on many
variables not in its control, including the ability to obtain additional
funding for its operations and development plus many other unforeseen economic
and competitive conditions.
Sources and availability of raw materials and the names of principal suppliers
The Company is a producer of software and is not dependent on any one
supplier for raw materials for its software products. The underlying
technologies are built on publicly available components that are used in
conjunction with other software products.
Dependence on one or a few customers
The Company has outsourced its sales channels and has established or is in
process of making alliances with distribution channels in numerous locations
and, consequently, most of its sales are generated from these various sources.
At this time there is no single reseller or group of resellers upon which the
Company is dependent. In May 2004, the Company completed its agreement with
Avnet Hall-Mark (since renamed Avnet Partner Solutions) to distribute
INTERScepter, pre-installed on IBM hardware, through that company's reseller
channels. It is estimated that 50% of the Company's U.S. Sales could come
through that source over the next twelve months. Negotiations were finalized
in September to extend this arrangement to Australia. The Company plans to
extend Avnet's reseller channel relationship to Western Europe in April and
May of 2005.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or
labor contracts, including duration
The Company has registered product trade marks, trade names and logos in
Australia and is now in the process of registering these items in the U.S. The
Company is dependent on its trademark for INTERScepter to distinguish its
software from other products in the market and to create a market identity for
its product. Patents are under consideration for Version 2 of INTERScepter .
At the present time there are no patents in effect upon which the Company
is dependent. There are also no concession agreements, franchises, licenses,
royalty agreements or labor agreements in effect at this time.
Government approval
The Company is not subject to direct governmental regulation in the conduct
of its business.
Effect of existing or probable governmental regulations on the business
At the present time, based on the Company's business as now conducted,
direct governmental regulation of its business is not anticipated.
The Company is, however, subject to the Sarbanes-Oxley Act in the conduct
of its business as follows:
Sarbanes-Oxley Act
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002. This Act imposes a wide variety of new regulatory requirements on
publicly-held companies and their insiders. Many of these requirements will
affect the Company.
The Sarbanes-Oxley Act has required the Company to review its current
procedures and policies to determine whether they comply with the Sarbanes-
Oxley Act and the new regulations promulgated thereunder. The Company will
continue to monitor its compliance with all future regulations that are
adopted under the Sarbanes-Oxley Act and it will take whatever actions are
necessary to ensure that it is in compliance.
This Act may also result in higher operating costs to comply as well as
higher professional fees.
The estimated amount of capital spent during each of the last two fiscal years
on research and development activities, and the extent to which the cost of
such activities are borne directly by its customers
The estimated amount spent on research and development in the last two
fiscal years is approximately $400,000. Research and Development expenditure
is currently running at an annual rate of just under $350,000 based on the
January quarter. All of these expenses have been borne by the Company.
Costs and effects of compliance with environmental laws (federal state and
local)
The Company has not had any significant cost or effect with respect to
compliance with environmental laws, either in the U.S. or in Australia.
Number of employees and number of full time employees
As of January 31, 2005, the total number of employees of the Company is
fourteen (14) full-time employees of which twelve (12) were engaged in
production and sales activities and two (2) was engaged in administrative
operations. The Company also uses the services of numerous part-time employees
or contract service employees in the areas of product development, accounting
and sales functions. Over the course of 2005 the Company anticipates that it
will be increasing its full-time work force to 30 as needed to support its
proposed growth, dependent on future sales prospects and the availability of
capital.
Reports to Security Holders
The Company will voluntarily deliver to all Security holders an annual
report which will contain audited financial statements.
The Company regularly files reports with the Securities and Exchange
Commission (the "Commission"). These reports include annual reports on Form
10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K.
The public may read and copy any materials the Company files with the
Commission at the Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information about the Public
Reference Room of the Commission by calling the Commission at 1 800 SEC 0330.
The Commission also maintains an Internet site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically that may be accessed at the Commission's web site address:
http://www.sec.gov.
Management's Discussion and Analysis of recent activity and Plan of Operation
The January quarter was focused on growing our presence in the USA with the
focus on leveraging from the new distribution arrangements with Avnet and ECCI
as outlined above as well as promoting the company and product in key market
segments, particularly higher education. The company now has a number of
major contracts that will facilitate its future growth. In Australia
enhancement of Version 2 of the product has continued and feedback from
clients who have trialing the product in live environments have exceeded
expectations in relation to the improvements and enhancements in functionality
and performance.
The following discussion should be reviewed in conjunction with our
consolidated financial statements and the related notes and other financial
information appearing elsewhere in this report. In addition to historical
information, the following discussion and other parts of this document contain
forward-looking information that involves risks and uncertainties. Please
refer to the section entitled "Forward-Looking Statements" earlier in this
Form 10-QSB.
Plan of Operation
Funding
The visionGATEWAY business over the last two years has focused on product
development and building its market positioning, presence and distribution
channels. In recent months, the three key aspects of expenditure have been:
* Building reseller networks and client opportunities through growth
of its US base with the main sales/business development location
near Los Angeles and Technical Support across the country;
* Building new distribution channels in Australia and New Zealand in
conjunction with the new arrangement with Avnet Partner Solutions;
and
* Enhancement of INTERScepter version 2 with significant
enhancements in functionality and a new underlying platform in
Linux for the iGateway component of the product.
Since the beginning of 2004, the Company has focused on arranging major
funding that will enable it to take full advantage of the significant platform
that has been built through its product development and distribution channels.
We anticipate using this funding to drive sales in global markets with a key
focus on the U.S. It also enables the Company to focus on some new product
initiatives that are aligned to market needs and sales potential.
In the twelve months ended January 2005, the Company has been able to
acquire investment funds for working capital of over $1,000,000 from existing
investors. This has enabled us to pay key creditors, cover the salaries of the
development staff in Brisbane, office expenses in Brisbane, Sydney, San Diego
and Los Angeles, the employment of new sales and marketing staff, pay the fees
for outsourced services, and travel expenses related to the development of
sales efforts in U.S. and Australia.
The Company continues to obtain bridge financing to meet the key short term
requirements of activating the distribution channels and related outsourced
sales force in the U.S., ramping up the U.S. operational presence, and
providing additional working capital for specific revenue related development
projects. The bridging is to a main round of funding that is anticipated to
close within the next six to twelve months in two tranches, to provide
additional working capital for next stage growth in global markets. Any delay
in obtaining the larger amounts of funding outlined above does not effect
existing day-to-day operations that are funded by existing investors. Any
delay in the receipt of these larger funding tranches would have the effect of
delaying the next stage growth strategies that have been planned.
The Company anticipates that sales revenue will commence in the second
quarter of calendar 2005 in the U.S. and Australian markets, as the key
strategic distribution arrangements, such as those with Avnet Partner
Solutions and ECCI, step up their operations. Already installations have
commenced in educational institutions that will begin revenue during next
quarter of 2005.
A fund raising is underway through an affiliate, Aspen Corporation Limited,
of the Company's major shareholder in Australia. The resultant funds will be
provided to the company through the issue of up to $10m of 8% convertible
notes. These notes would be convertible at the rate of $2.50 per share. The
notes would be due for conversion on a progressive basis, maturing in 10 years
from their date of issue with interest paid quarterly in arrears. It is
anticipated that these funds will begin flow to the Company from April of
2005.
As a result of the increased activity and strong distribution arrangements
that are now in place, the Company has also been approached by some US based
companies that wish to assist in funding activities. The Company is
considering these approaches as part of its overall funding approach.
Research & Development
In conjunction with new funding commitments from mid 2003 onwards, the R&D
division has been revamped and specific R&D plans incorporated. This was
enhanced with the opening of the Company's new R&D Center in Brisbane during
February 2004. The key component of this has been version 2.0 ("V2") of
INTERScepter . V2 is currently being used by a number of clients in
Australia and USA. V2 provides enhanced sales potential in the Company's
growing market place.
Version 2.0 provides a number of major improvements over the previous
version 1.3. Apart from the change to a Linux operating environment for the
INTERScepter iGateway system component, there are a number of other
improvements in functionality as listed below.
* Port Management
* Simplified and More Flexible Directory Structure
* Intranet Based Management
* Refreshed Intranet Interfaces
* Client Notifications System
* Web based user identification
As a result of global exposure to the Company's Business Model through
investor forums and reseller networks, there is significant interest from
other businesses for the Company to consider adding on synergistic product
modules and expand the product offering.
The INTERScepter product provides the underlying Internet Resource
Management platform on which other modules can be added. These will include
modules provided by the Company as well as specialist modules from third
parties such as :
* Whole of network traffic monitoring and analysis tools;
* Facilities to monitor, control and charge Internet traffic over
wi-fi networks as well as mobile telephony (including PDA's with
phones);
* Facilities to monitor, control and charge VOIP traffic;
* Specialist content review modules as "plug-ins"; and
* Process improvement tools e.g. video conferencing - a strategic
cooperative marketing alliance with a Texas based company is
currently being finalized.
Business Strategy
The strategy to be adopted for the development of a strong, sustainable
market for these products across key global markets incorporates a number of
elements including:
* The continuing development or acquisition of innovative technology
products providing business solutions to the market;
* The strengthening of a global market presence, a clear corporate
and product identity, branding, and wide promotion of the
brand(s); and
* The growth of distribution channels through resellers and OEM's
with strong dedicated sales teams to directly market the products
to their own existing and potential clients.
These proposals and initiatives are integral components of a co-coordinated
marketing strategy designed to exploit the identified key market segments and
distribution channels to maximize the potential for the successful and
profitable distribution of the products globally.
Distribution and Marketing
Current Sites INTERScepter is has been installed in 35 sites covering
over 5,000 workstations and 50,000 users in three countries Australia,
U.S.A. and Malaysia.
Significant New Sales Initiatives are underway in U.S. and Australia, while
strategic partnerships are being formed to launch sales in Western Europe and
China later this year..
With new investor funding starting to flow and the listing event completed,
the Company's focus is to drive sales. In the U.S., the new team members, in
conjunction with the new distribution channels, are active with sales
opportunities across the U.S. from the Company's base in Los Angeles. The
Company has also commenced a recruitment campaign for new Business Development
and Pre-Sales Technical staff across the U.S. to support the strategic
partnerships that have been and are being completed.
The Company has also been promoting itself in the marketplace, initially
with a focus on Higher Education, to leverage from its origins and also from
the ECCI joint venture. This has occurred in two key ways. The first has been
through a series visionGATEWAY sponsored Webinars and Seminars focusing on
"The Escalating Problems of Internet Usage in Education" as a means of
educating the market on the issues associated with Internet Resource
Management. We have brought together a panel of Higher Education experts in
Law, IT, Finance and Consulting that have proven to be very successful. The
Company has also been enhancing its visibility in the market place by
participating in selected major conferences for decision makers from all major
market sectors. Recently for the Higher Education market the Company has been
involved in the conferences for NACUBO, Educause and ACUTA with over 8,000
participants between them representing many thousands of schools. The
resultant exposure has led to a significant and immediate increase in interest
in INTERScepter by over 60 universities and colleges with over 800,000
students. This is in addition to the almost 400 schools and colleges that
are already part of the ECCI client base. We also participated at the Avnet
Partner Solutions annual conference for its IBM resellers with over 1,000
attending. This is already led to new channel partner opportunities.
The Company now has sixteen channel partners in the U.S., of whom fifty per
cent are active, and are in negotiations with six other major companies,
primarily through the Avnet Distribution arrangement. They are providing a
good spread over Education, Government and Corporate markets. Some of these
new signings include specialist consulting and technology security firms.
Activities in the Australasia region have been enhanced with the completion
of the Avnet distribution agreement for that region. Since then five new
channel partners have signed and have commenced business development
activities that will lead to sales in the first quarter of calendar 2005.
Initiatives with these new channels have resulted in a number of government
departments and corporates agreeing to establish trials of INTERScepter . A
lot of the new interest is also attributable to the additional functionality
that is available under V2. There is also special interest in a special "Lite"
version of INTERScepter that will provide "Location Access Control" in schools
to facilitate classroom control of internet usage by teachers. A number of
schools have already requested the special system for installation in January.
The key component of the Avnet arrangement is to take INTERScepter on
board in an "appliance" model variation where INTERScepter will be linked to
IBM brand servers and taken to Avnet's resellers' major clients. Through this
link with IBM there are opportunities to leverage that company's resources and
client base.
Item 3. Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our
principal executive officer and our principal financial officer concluded that
our disclosure controls and procedures were effective as of the end of the
period covered by this quarterly report.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
2.1(1) Agreement and Plan of Reorganization, dated February 27, 2004, by
and among Chiropractic, Vision Nv, and the stockholders of Vision
Nv.
2.2(1) Addendum to the Agreement and Plan of Reorganization, dated
February 27, 2004.
3.1(2) Articles of Incorporation
3.2(2) Bylaws of Chiropractic 21 International, Inc.
3.3(2) Certificate of Amendment to Articles of Incorporation dated
September 23, 1970.
3.4(2) Certificate of Amendment to Articles of Incorporation dated
October 29, 1970.
3.5(2) Certificate of Amendment to Articles of Incorporation dated
October 6, 1972.
3.6(2) Certificate of Amendment to Articles of Incorporation dated
November 4, 1980.
3.7(2) Certificate of Amendment to Articles of Incorporation dated July
15, 1983.
3.8(2) Certificate of Amendment to Articles of Incorporation dated
December 29, 1999.
10.1(3) Lease, dated February 15, 2004 by and between vision Gateway Pty
Ltd and Masinello Holdings Pty Ltd.
10.2(3) Lease Agreement, dated October 25, 2001, by and between
visionGATEWAY and Executive Centre 133.
10.3(3) HQ Global Workplaces Virtual Office Program Service Agreement,
dated December 1, 2003 by and between the visionGATEWAY, Inc. and HQ
Global Workplaces, Inc.
10.4(3) Sublease, dated March 1, 2004, by and between Guidance Solutions,
Inc. and visionGATEWAY, Inc.
10.5(3) Buy/Sell Agreement, dated May 14, 2004, by and between
visionGATEWAY, Inc. and AVNET, INC.
10.6(3) Letter Agreement regarding Management Services by and between
visionGATEWAY, Inc. and Aspen Capital Partners Pty Ltd.
10.7(3) Letter Agreement regarding Agent and Consulting Arrangements by
and between visionGATEWAY, Inc. and Aspen Capital Partners Pty Ltd.
10.8(3) Letter Agreement regarding Employment of Michael Emerson by and
between visionGATEWAY, Inc., Michael Emerson and MICEL Pty Ltd.
10.9(3) Letter Agreement regarding Agent and Consulting Arrangements by
and between visionGATEWAY, Inc. and MICEL Pty Ltd.
10.10(3) Employment Agreement, September 23, 2003, by and between
visionGATEWAY, Inc. and Michael Bromley.
24.1 Power of Attorney (see signature page)
31.1 Certification by Michael Emerson, required by Rule 13a-14(a) or
Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Martin G. Wotton, required by Rule 13a-14(a) or
Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Michael Emerson, required by Rule 13a-14(b) or
Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of
Title 18 of the United States Code, promulgated pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Martin G. Wotton, required by Rule 13a-14(b) or
Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of
Title 18 of the United States Code, promulgated pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference to 8-K12G3 filed with the Securities and
Exchange Commission on April 7, 2004.
(2) Incorporated by reference to 10-SB filed with the Securities and Exchange
Commission on April 28, 2000.
(3) Incorporated by reference to 10-KSB filed with the Securities and Exchange
Commission on August 19, 2004.
(b) Reports on Form 8-K
We have not furnished to the SEC any reports on Form 8-K during the quarter
ended January 31, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VISIONGATEWAY, INC.
By:/s/Michael F. Emerson
Michael F. Emerson
Chief Executive Officer
Date: March 17, 2005