Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three and Six Months Ended
March
31, 2020
Note
1. Basis of Presentation
While
the information presented in the accompanying March 31, 2020 financial statements is unaudited, it includes all adjustments which
are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for
the periods presented in accordance with the accounting principles generally accepted in the United States of America (“US
GAAP”). In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations
and financial position have been included and all such adjustments are of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. These
financial statements should be read in conjunction with the Company’s September 30, 2019 audited financial statements (and
notes thereto). Operating results for the three and six months ended March 31, 2020 are not necessarily indicative of the results
that can be expected for the year ending September 30, 2020.
The
accompanying unaudited condensed consolidated financial statements herein contain the operations of Virtual Interactive Technologies
Corp (“VIT”), and its wholly-owned subsidiaries Advanced Interactive Gaming Inc. (“AIG Inc.”) and Advanced
Interactive Gaming Ltd. (“AIG Ltd”) (collectively, the “Company”). All significant intercompany amounts
have been eliminated.
Note
2. Business
Nature
of Operations
AIG
Ltd was incorporated in Bermuda on September 19, 2016, and is in the business of assisting in the development of video games through
investments and royalty contracts. AIG Ltd had several royalty contracts with video game development companies during the three
and six months ended March 31, 2020 and 2019, with more games expected to be rolled out during 2020.
On
September 24, 2019, AIG Ltd was acquired by AIG Inc, a Colorado Corporation, through a reverse recapitalization and share exchange
agreement. After the transaction, AIG Ltd became a wholly owned subsidiary of AIG Inc.
VIT
was incorporated in the State of Nevada on November 3, 2011. On September 25, 2019, Mascota Resources, Corp. effected a name change
to Virtual Interactive Technologies Corp. (“VIT”), and a 20:1 reverse stock split applicable to all existing VIT shareholders
of record. The effects of the split have been retroactively applied to all periods presented.
On
September 27, 2019, AIG Inc effected a reverse recapitalization via a share exchange agreement with VIT, resulting in AIG Inc
becoming a wholly-owned subsidiary of VIT.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
certain reported amounts and disclosures of contingent assets and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimated.
Cash
Equivalents
The
Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents.
The Company had no cash equivalents at March 31, 2020 or September 30, 2019.
Fair
Value of Financial Instruments
The
Company accounts for fair value measurements in accordance with accounting standard ASC 820-10-50, “Fair Value Measurements.”
ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement and
enhances disclosure requirements for fair value measures. The three levels are defined as follows:
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Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
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-
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Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement.
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The
Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and notes payable.
The carrying value of these financial instruments approximates fair value due to the short-term nature of the instruments.
Royalties
Receivable
The
Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate
is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible
that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could
differ materially from the amounts estimated in determining the allowance. The Company has determined that no allowance is necessary
as of March 31, 2020 or September 30, 2019.
Net
Income (Loss) Per Share
In
accordance with ASC 260 “Earnings per Share,” the basic net income (loss) per share (“EPS”) is
computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding
during the period, excluding the effects of any potentially dilutive securities. Diluted EPS is computed by dividing the net loss
available to common stockholders by the weighted average number of common shares outstanding adjusted on an “if-converted”
basis (for convertible preferred stock). As of March 31, 2020 and September 30, 2019, the Company had Series B Preferred stock
issued and outstanding that was convertible into 595,612 shares of common stock. These potentially dilutive securities were excluded
from the EPS computation due to their anti-dilutive effect resulting from the Company’s net losses. To reflect the economics
of the merger transaction on September 27, 2019, for the purposes of calculating the weighted average shares outstanding, the
2018 shares of common stock have been adjusted to account for a 1:4 reverse split.
Foreign
Currency
The
Company’s functional currency is the US dollar. With the exception of stockholders’ equity (deficit), all transactions
that are originally denominated in foreign currency are translated to US dollars by our international customers, on a monthly
basis, when recognized by them and prior to paying royalties to the Company. All royalty revenues that are received and recognized
by the Company are recorded in US dollars.
The
Company has a Euro currency bank account located in Bermuda. This account is used for payments to vendors that bill the Company
in a currency other than US dollars and for funds received from shareholders located outside the United States. As of March 31,
2020 and September 30, 2019, the Euro account had a balance of $-0-.
Foreign
currency translation gains/losses are recorded in other accumulated comprehensive income (“AOCI”) based on
exchange rates prevalent on reporting dates for balance sheet items, and at weighted average exchange rates during the reporting
period for the statement of operations. Foreign currency transaction gains/losses are recorded as other expense in the period
of settlement. No AOCI items were present during the three and six months ended March 31, 2020 and 2019, as all financial statement
items were denominated in the US dollar. Gains (losses) from foreign currency transactions during the three and six months
ended March 31, 2020 totaled $145 and ($333), respectively. Gains (losses) from foreign currency transactions
during the three and six months ended March 31, 2019 totaled ($4,121) and ($5,843), respectively.
Concentration
of Credit Risk
Some
of our US dollar balances are held in a Bermuda bank that is not insured. As of March 31, 2020, and September 30, 2019, uninsured
deposits in the Bermuda bank totaled $-0-. Our management believes that the financial institution is financially sound, and the
risk of loss is low. The Company is in the process of migrating its banking to the institutions in the United States, which are
insured by the FDIC up to $250,000.
Revenue
Recognition
On
October 1, 2018, the Company adopted guidance contained in ASC 606, “Revenue Recognition.” The core principle
of ASC 606 is that an entity should recognize revenue to depict the transfer of goods of services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 outlines
the following five-step revenue recognition model (along with other guidance impacted by this standard): (1) identify the contract
with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate
the transaction price to the performance obligations; (5) recognize revenue when or as the entity satisfies a performance obligation.
The
Company has several contracts with video game developers that entitle us to royalty streams as a percentage of revenues generated
by the game sales, which vary from contract to contract. As of March 31, 2020, the Company has four royalty contracts with three
developers that are generating royalty revenue, and two royalty contracts for games that are in development.
Once
a game has been developed and has met the terms of the underlying royalty agreement, the game is released for commercial sales.
Per each contract, the Company will receive reports on a regular basis from the game developers’ sales platforms that identify
the amount of game sales, from which consideration expected to be collected from the commercial customers is computed based on
the applicable royalty percentages. Royalty revenue is based on a percentage of net receipts as defined in each customer agreement,
and is recognized in accordance with the sale-based royalty provisions of ASC 606, which requires revenue recognition after the
subsequent sales occur. The Company’s performance obligation under each royalty contract as an investor in the game is complete
once funds are advanced to the gaming developer. Subsequent consideration is then received by the Company from the developers
in the amount of the Company’s percentage fee of royalty income (net receipts) received by the customer. Net receipts include
all gross revenues received by the customer as a result of sales of the games or related exploitation less certain taxes, refunds,
manufacturing costs, freight, and other items specified in the underlying contract.
New
Accounting Pronouncements
The
Company has evaluated recently issued or enacted accounting pronouncements, and has determined that all such pronouncements either
do not apply or their impact is insignificant to the financial statements.
Employees
At
this time, we have no full time or part time employees. Jason Garber is our current CEO and Director and acts as a contract employee.
James W. Creamer III is our current CFO and Director and acts as a contract employee. The Company has two other contractors it
utilizes for accounting and operations.
COVID-19
Uncertainties
The
COVID-19 pandemic could have an impact on our ability to obtain financing to fund the operations. The Company is unable to predict
the ultimate impact at this time.
Note
3. Long-Lived Assets
As
part of the reverse merger between VIT and AIG Inc, the Company acquired a parcel of undeveloped land from VIT in Anchorage, Alaska
with a fair market value on the merger date of $36,195. On October 23, 2019 the Company sold its property in Anchorage, Alaska
for $36,195. At March 31, 2020 and September 30, 2019, the total value of land and improvements was $-0- and $36,195, respectively.
No gain or loss was recognized on the sale of the land and improvements at March 31, 2020 due to the land selling at book
value. Funds received from the sale of the Company asset was used to pay notes payable, notes payable, related parties and the
respective accrued interest payable and accrued interest payable, related parties. (See Note 5 & 6)
Note
4. Stockholders’ Equity (Deficit)
The
Company’s common stock is quoted under the symbol “VRVR” on the OTC Pink tier operated by OTC Markets Group,
Inc. To date, an active trading market for the Company’s common stock has not developed.
Preferred
Stock
The
Company is authorized to issue 10,000,000 each of Series A and B preferred shares at a par value of $0.01, respectively. At March
31, 2020 and September 30, 2019, the Company had 50,000 shares of Series A preferred stock and 595,612 shares of Series B preferred
stock issued and outstanding. The holders of the Series B preferred stock are entitled to dividends (which are not guaranteed),
carry one vote per share, and are convertible into common stock on a 1:1 basis at the option of the holder. The 50,000 shares
of Series A preferred stock currently outstanding are not convertible.
Common
Stock
The
Company is authorized to issue 90,000,000 shares of common stock at par value of $0.001. At March 31, 2020 and September 30, 2019,
the Company had 6,817,784 shares of common stock issued and outstanding.
During
the six months ended March 31, 2020, the Company issued 300 shares of common stock as part of a payoff on notes payable and accrued
interest. Of the 300 shares issued, 100 shares were issued to a related party for notes payable and accrued interest.
Note
5. Notes Payable
On
March 20, 2019, an unrelated individual loaned VIT $10,000. The note carries 6% interest rate and is payable March 20, 2020. No
payments had been made on the note at March 31, 2020, on which date accrued interest on the note totaled $620.
On
November 20, 2017, VIT issued $45,000 in unsecured notes payable to two unrelated individuals. The notes carry a 6% interest rate
and are payable upon the earlier of October 31, 2022 or the sale of the Company’s Anchorage, Alaska property. On October
23, 2019 the Company sold its property in Anchorage, Alaska for $36,195. On October 29, 2019, the Company paid $32,000 in cash
and issued 200 shares of common stock for the remaining balance on the notes payable of $13,000 and accrued interest of $4,981.
The fair value of the 200 shares of stock was $1.40 a share or $280. This resulted in a gain on extinguishment of debt
of $17,701.
Notes
payable summary:
As
of March 31, 2020
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Short Term
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Long Term
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Principal
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Accrued Interest
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Total
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Principal
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Accrued Interest
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Total
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Notes Payable
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Promissory Note - March 20, 2019
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$
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10,000
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$
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620
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10,620
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$
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-
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$
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-
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$
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-
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Total Notes Payable
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$
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10,000
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$
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620
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$
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10,620
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$
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-
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$
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-
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$
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-
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As
of September 30, 2019
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Short Term
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Long Term
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Principal
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Accrued Interest
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Total
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Principal
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Accrued Interest
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Total
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Notes Payable
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Promissory Note - March 20, 2019
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$
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10,000
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$
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718
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10,718
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$
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-
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$
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-
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$
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-
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Promissory Note - November 20, 2017
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-
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2,383
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2,383
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22,500
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-
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22,500
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Promissory Note - November 20, 2017
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-
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2,383
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2,383
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22,500
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-
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22,500
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Total Notes Payable
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$
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10,000
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$
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5,484
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$
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15,484
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$
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45,000
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$
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-
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$
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45,000
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Note
6. Related Party Transactions
Accounts
Payable, Related Party
During
the three and six months ended March 31, 2020, the Company incurred $20,000 and $40,000, respectively, in contract management
services rendered by an affiliate of our CEO. During the three and six months ended March 31, 2019, the Company incurred $-0-
and $-0-, respectively, in services rendered by the affiliate. As of March 31, 2020 and September 30, 2019, the Company owed $40,000
and $-0-, respectively, for these services.
Notes
Payable, Related Party
On
March 29, 2018, the Company issued a $750,000, unsecured promissory note to the Company’s CEO for a potential acquisition
and working capital. The actual funds received by the Company were $741,030, with $8,970 recorded under note receivable, related
party as of September 30, 2019. As of March 31, 2020, the Company recognized bad debt expense for the receivable totaling $8,970.
The note carries an interest rate of 6% per annum, compounding annually, and was set to mature on March 29, 2021. The
Company is currently working on extending the terms. All principal and interest are due at maturity and there is no prepayment
penalty for early repayment of the note. As of March 31, 2020, and September 30, 2019, total balance on the debt was $750,000
and accrued interest on the note totaled $92,930 and $69,341, respectively.
From
2017 to 2019, a former executive member of VIT, (not considered a related party as of March 31, 2020), loaned VIT a total
of $59,900. The notes carry a 6% interest rate and mature through October 2022, on which dates principal and interest payments
are due in full. At September 30, 2019 accrued interest on the notes totaled $3,371. On October 23, 2019 the Company sold its
property in Anchorage, Alaska for $36,195. On October 29, 2019, the Company paid $4,000 in cash and issued 100 shares of common
stock for the remaining balance of the notes payable of $55,900 and accrued interest of $3,657. The fair value of the 100 shares
of stock was $1.40 a share or $140. This resulted in a gain on forgiveness of debt of $59,417. Due to the former
executive no longer being a related party of the Company on date the note was paid off, the gain was recognized in other income.
Notes
payable, related party summary:
As
of March 31, 2020
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Short Term
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Long Term
|
|
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Principal
|
|
|
Accrued Interest
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Total
|
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Principal
|
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Accrued Interest
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Total
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Notes Payable, Related Party
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Promissory Note - March 29, 2021
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$
|
-
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|
|
|
|
|
|
$
|
-
|
|
|
|
750,000
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|
|
$
|
92,930
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|
|
|
842,930
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Total Notes Payable, Related Party
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|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
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|
$
|
750,000
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|
|
$
|
92,930
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|
|
$
|
842,930
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|
As
of September 30, 2019
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Short Term
|
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Long Term
|
|
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|
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Principal
|
|
|
Accrued Interest
|
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|
Total
|
|
|
Principal
|
|
|
Accrued Interest
|
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Total
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|
Notes Payable, Related Party
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory Note - March 29, 2021
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
$
|
750,000
|
|
|
$
|
69,341
|
|
|
|
819,341
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|
|
Promissory Note - August 20, 2018
|
|
|
6,900
|
|
|
|
428
|
|
|
|
7,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
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|
|
Promissory Note - September 10, 2018
|
|
|
44,000
|
|
|
|
2,418
|
|
|
|
46,418
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|
|
|
-
|
|
|
|
-
|
|
|
|
-
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|
|
Promissory Note - November 5, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
-
|
|
|
|
4,000
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|
|
Promissory Note - November 20, 2018
|
|
|
-
|
|
|
|
525
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|
|
|
525
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|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
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Total Notes Payable, Related Party
|
|
$
|
50,900
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$
|
3,371
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|
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$
|
54,271
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|
|
$
|
759,000
|
|
|
$
|
69,341
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|
|
$
|
828,341
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|
Note
7. Royalty Contracts
The
Company has valued their acquired royalty contracts with customers using the “lower of cost or net realizable value”
method. Ultimately the market value of the contracts is equal to the present value of the anticipated future cash flow. Royalty
contracts are amortized over the life of the contact (generally three-to-five years). Management assesses the value of each royalty
contract asset on an annual basis and should it be apparent that the market value of the royalty contract becomes less than the
carrying value, the Company would then recognize an impairment of the asset at that time. During the three and six months ended
March 31, 2020 and 2018, there was no impairment on royalty contracts. Amortization expense on royalty contracts during the three
and six months ended March 31, 2020 totaled $-0- for both periods presented. Amortization expense on royalty contracts during
the three and six months ended March 31, 2019 totaled $208,333 and $416,666, respectively. Net book value of royalty contract
assets at March 31, 2020 and September 30, 2019 totaled $-0-.
Note
8. Note Receivable
On
December 11, 2019, the Company issued a $25,000, unsecured promissory note receivable to a non-related entity. The note
carries an interest rate of 6% per annum and is due on demand. There is no prepayment penalty for early repayment of the note.
As of March 31, 2020 and September 30, 2019, principal balance on the debt was $25,000 and $0, respectively. Accrued interest
on the note totaled $830 and $0 at March 31, 2020 and September 30, 2019, respectively. Interest income on the note
for the three and six months ended March 31, 2020 totaled $830 and $830, respectively.
Note
9. Subsequent Events
The
Company has evaluated events subsequent to the balance sheet date through the date these financial statements were issued and
determined that there are no events requiring disclosure.