Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three and Nine Months Ended
June
30, 2021
Note
1. Basis of Presentation and Consolidation
While
the information presented in the accompanying June 30, 2021 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, 2020 audited financial statements (and notes thereto). Operating results for the
three and nine months ended June 30, 2021 are not necessarily indicative of the results that can be expected for the year ending September
30, 2021.
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
Virtual
Interactive Technologies Corp. was incorporated in Nevada on November 3, 2011 under the name Mascota Resources Corp.
On
November 25, 2019 the following became effective on the over-the-counter market
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a
1-for-20 reverse split of the Company’s common stock, and
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the
Company’s name was changed to Virtual Interactive Technologies Corp.
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On
September 27, 2019, Virtual Interactive Technologies Corp merged with Advanced Interactive Gaming Inc, and its subsidiary Advanced Interactive
Gaming Ltd. (collectively “Advanced Interactive Gaming” or “AIG”), through a reverse merger transaction. Advanced
Interactive Gaming was founded in 2016 to provide financing solutions for independent video game developers globally. Advanced Interactive
Gaming was deemed to be the accounting acquirer of the transaction and will be the operating entity moving forward under the name of
Virtual Interactive Technologies Corp (“VIT,” “the Company” or “we”).
VIT
finances the development of video game projects to be released on various popular gaming platforms in exchange for a royalty stream on
the games. To date the Company has financed several gaming titles including Carmageddon Max Damage, Carmageddon Crashers, Interplanetary:
Enhanced Edition, Catch & Release and Worbital. Collectively these games are distributed world-wide on various gaming platforms including
Sony PlayStation, Xbox, Steam and Oculus among others. In addition to financing solutions, VIT offers expertise in development solutions,
publishing and marketing video game products and is actively involved in the early stages of VR/AR game development. VIT continues to
reinvest its royalty income into growing its royalty contracts and intellectual property in the video game development industry.
The
Company’s strategy moving forward is to continue to invest in new game development through partnerships and royalty contracts.
Management believes that there is significant opportunity in VR games given the relatively early stage in the product cycle and the growing
need for content to support VR hardware sales. While the Company has historically participated mostly in the PC and console market, it
will continue to explore addition opportunities in the gaming space as they present themselves. In addition, the VIT may explore strategic
alliances and acquisitions in order to expand its business.
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 June 30, 2021 or September 30, 2020.
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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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, royalties receivable, notes receivable and related accrued interest 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 June 30, 2021 or September 30,
2020.
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 June 30, 2021 and September 30, 2020, 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 for the three and nine months ended June 30, 2021 and June 30, 2020.
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 June 30, 2021 and September
30, 2020, 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 June 30, 2021 and 2020, as all financial statement items were denominated in the US dollar. Gains and losses from
foreign currency transactions during the three and nine months ended June 30, 2021 totaled $5 loss and $620 gain, respectively. Gains
and losses from foreign currency transactions during the three and nine months ended June 30, 2020 totaled $542 gain and $209 gain, respectively.
Concentration
of Credit Risk
Some
of our US dollar balances are held in a Bermuda bank that is not insured. As of June 30, 2021 and September 30, 2020, uninsured deposits
in the Bermuda bank totaled $20,583 and $20,649, respectively. 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
The
Company follows 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 June 30, 2021, 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 all other 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.
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. 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 June 30,
2021 and September 30, 2020, 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. To date, no dividends have been declared.
Common
Stock
The
Company is authorized to issue 90,000,000 shares of common stock at par value of $0.001. At June 30, 2021 and September 30, 2020, 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
4. Note Payable
On
March 20, 2019, an unrelated individual loaned VIT $10,000.
The note carries a 6%
interest rate and was payable March 20, 2020.
The note has been amended to mature on March 20, 2022. As of June 30, 2021 and September 30, 2020 the notes balance was $10,000.
As of June 30, 2021 and September 30, 2020, the accrued interest on the note totaled $1,369
and $921,
respectively.
Note
5. Related Party Transactions
During
the three and nine months ended June 30, 2021 the Company incurred $0 in contract management services rendered by an affiliate of our
CEO. During the three and nine months ended June 30, 2020 the Company incurred $30,000 and $90,000, respectively, in contract management
services rendered by an affiliate of our CEO. As of June 30, 2021 and September 30, 2020, the Company owed $0 for these services.
During
the three and nine months ended June 30, 2021, the Company incurred $16,000
and $64,000
in contract management services rendered by an
affiliate of our CFO. During the three and nine months ended June 30, 2020, the Company incurred $24,000
and $72,000
in contract management services rendered by an
affiliate of our CFO. As of June 30, 2021 and September 30, 2020, the Company owed $4,000
and $9,994,
respectively, for these services.
Note
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, 2020. As of September 30, 2020, the Company applied the $8,970 that was recorded as a note receivable to the outstanding promissory
note. The Company amended the note payable principal to $741,030 to correspond with the funds actually received. The note carries an
interest rate of 6% per annum, compounding annually, and matures on December 31, 2022. All principal and interest are due at maturity
and there is no prepayment penalty for early repayment of the note. As of June 30, 2021 and September 30, 2020, total balance on the
debt was $741,030 and accrued interest totaled $155,161 and $118,263, respectively.
Note
6. 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 June 30, 2021 and September
30, 2020, accrued interest was $2,709 and $1,586, respectively.
Note
7. Convertible Note Receivable
On
November 20, 2020, the Company invested $7,500 in a Convertible Note from an unrelated entity developing a freemium gaming concept that
combines online auctions and gift card purchasing. The note matures on November 20, 2022. The note carries an interest rate of 4% per
annum and is convertible into 1.25% of the entity’s stock at the Company’s option. As of June 30, 2021, accrued interest
was $178.
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.