Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended
December
31, 2019
Note
1. Basis of Presentation
While
the information presented in the accompanying December 31, 2019 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 months ended December 31, 2019 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
months ended December 31, 2019 and 2018, 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 December 31, 2019 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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-
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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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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 December 31, 2019 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 December 31,
2019 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 December
31, 2019 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 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 months ended December 31, 2019 and 2018, as all financial statement items were denominated
in the US dollar. Losses from foreign currency transactions during the three months ended December 31, 2019 and 2018 totaled $395
and $1,722, respectively.
Concentration
of Credit Risk
Some
of our US dollar balances are held in a Bermuda bank that is not insured. As of December 31, 2019 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 December 31, 2019, 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.
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 December 31, 2019 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 December 31, 2019 due to the land
setting 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 December 31, 2019 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 December 31, 2019 and September 30, 2019, the Company had 6,817,784 and 6,817,484
shares of common stock issued and outstanding, respectively.
During
the quarter ended December 31, 2019, 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 December 31, 2019, on which date accrued interest on the note totaled $470.
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 $17,701.
Notes
payable summary:
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As of December 31, 2019
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Short Term
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Long Term
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Notes Payable
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Principal
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Accrued Interest
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Total
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Principal
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Accrued Interest
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Total
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Promissory Note - March 20, 2019
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$
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10,000
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$
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470
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$
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10,470
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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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470
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$
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10,470
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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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Notes Payable
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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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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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$
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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
During
the periods ended December 31, 2019 and September 30, 2019, the Company incurred $20,000 and $40,000, respectively, in contract
management services rendered by an affiliate of our CEO. As of December 31, 2019 and September 30, 2019, $20,000 and $-0- were
payable.
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 December 31, 2019, the Company recorded a full allowance of $8,970 against the note receivable, related party. The
note carries an interest rate of 6% per annum, compounding annually, and matures on March 29, 2020. All principal and interest
are due at maturity and there is no prepayment penalty for early repayment of the note. As of December 31, 2019 and September
30, 2019, total balance on the debt was $750,000 and accrued interest on the note totaled $81,200 and $69,341, respectively.
From
2017 to 2019, a former executive member of VIT, loaned VIT a total of $59,900.
The notes carry 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 extinguishment of debt, related party of $59,417.
Notes
payable, related party summary:
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As of December 31, 2019
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Short Term
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Long Term
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Notes Payable, Related Party
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Principal
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Accrued Interest
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Total
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Principal
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Accrued Interest
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Total
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Promissory Note - March 29, 2021
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$
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-
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$
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-
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$
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-
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$
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750,000
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$
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81,200
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$
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831,200
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Total Notes Payable, Related Party
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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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$
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750,000
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$
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81,200
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$
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831,200
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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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Notes Payable, Related Party
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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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|
|
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|
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|
|
Promissory Note - March 29, 2021
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|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
750,000
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|
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$
|
69,341
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|
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$
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819,341
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Promissory Note - August 20, 2018
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|
|
6,900
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|
|
|
428
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|
|
|
7,328
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|
|
|
-
|
|
|
|
-
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|
|
|
-
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Promissory Note - September 10, 2018
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44,000
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|
|
|
2,418
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|
|
|
46,418
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|
|
|
-
|
|
|
|
-
|
|
|
|
-
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|
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Promissory Note - November 5, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
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|
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4,000
|
|
|
|
-
|
|
|
|
4,000
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Promissory Note - November 20, 2018
|
|
|
-
|
|
|
|
525
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|
|
|
525
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|
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5,000
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|
-
|
|
|
|
5,000
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Total Notes Payable, Related Party
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$
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50,900
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$
|
3,371
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|
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$
|
54,271
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|
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$
|
759,000
|
|
|
$
|
69,341
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|
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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 months ended December 31, 2019 and 2018, there was
no impairment on royalty contracts. Amortization expense on royalty contracts during the three months ended December 31, 2019
and 2018 totaled $-0- and $208,333, respectively. Net book value of royalty contract assets at December 31, 2019 and September
30, 2019 totaled $-0-.
Note
8. 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.