Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three and Six Months Ended
March
31, 2022
Note
1. Basis of Presentation
While
the information presented in the accompanying March 31, 2022 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, 2021 audited financial statements (and notes thereto). Operating results for the
three and six months ended March 31, 2022 are not necessarily indicative of the results that can be expected for the year ending September
30, 2022.
The
accompanying unaudited condensed consolidated financial statements herein contain the operations of Virtual Interactive Technologies
Corp (“VRVR”), 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
Advanced
Interactive Gaming, Ltd. (“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 past three years.
On
September 24, 2019, AIG Ltd was acquired by Advanced Interactive Gaming, Inc. (“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.
Virtual
Interactive Technologies Corp. (f/k/a Mascota Resources, Corp.) 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. (“VRVR”), and a 20:1
reverse stock split applicable to all existing VRVR 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 VRVR, resulting in AIG Inc becoming
a wholly-owned subsidiary of VRVR.
VRVR
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, VRVR offers expertise in development solutions,
publishing and marketing video game products and is actively involved in the early stages of VR/AR game development. VRVR 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, VRVR 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 March 31, 2022 or September 30, 2021.
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. |
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 and related accrued interest payable. The carrying value of these financial
instruments approximates fair value due to the short-term nature of the instruments.
Royalty
Contracts
The
Company enters into agreements with third-party developers that require us to make payments for game development and production services.
In exchange for our payments, we receive the exclusive publishing and distribution rights to the finished game titles as well as, in
some cases, the underlying intellectual property rights. Such agreements typically allow us to fully recover these payments, plus a profit,
to the developers at an agreed-upon royalty rate earned on the subsequent sales of such software, net of any agreed-upon costs. Prior
to establishing technological feasibility of a product, we record any costs incurred by third-party developers as research and development
expenses. Subsequent to establishing technological feasibility of a product, we capitalize all development and production service payments
to third-party developers as royalty contracts. The Company had no capitalizable research and development costs during the periods ended
March 31, 2022 or 2021.
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, 2022 or September 30,
2021.
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). During the periods ended March 31, 2022 and 2021, the Company had Series B Convertible 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 during
the three and six months ended March 31, 2022 and the six months ended March 31, 2021. During the three months ended March 31, 2021,
the Company had a net income, so fully diluted weighted average shares outstanding and income per share have been presented in the accompanying
consolidated statements of operations.
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, 2022 and September
30, 2021, the Euro account had a balance of $0 and $0 Euros respectively.
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 income (expense) in the period of settlement. No AOCI items were present
during the six months ended March 31, 2022 and 2021, as all financial statement items were denominated in the US dollar. (Losses) gains
from foreign currency transactions during the six months ended March 31, 2022 and 2021 totaled ($573)
and $625,
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, 2022 and September 30, 2021, uninsured deposits
in the Bermuda bank totaled $20,495 and $20,616, 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 the 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, 2022, the Company has four royalty contracts with three developers
that are generating royalty revenue.
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 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.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the
United States of America (“GAAP”), which contemplates the Company’s continuation as a going concern. The Company has
not established profitable operations and has incurred significant losses since its inception. The Company’s plan is to grow significantly
over the next few years through strategic game development partnerships, through internal game development and through the acquisition
of independent game development companies globally.
The
Company has taken much of the cash flow from its first royalty agreement and has invested in royalty agreements for the development of
several other video games. By continuing to reinvest these royalties into agreements to develop new games, along with actively managing
corporate overhead, management’s plan is to substantially increase its video game royalty portfolio and cash flow over the next
several years. The Company intends to continue to grow its game portfolio over the next several years, focusing on console games, virtual
reality games and mobile games.
There
are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (2) obtain additional financing through either private placement, public offerings and/or debt financing necessary to
support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings
and/or debt financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional
financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available
to the Company, it may be required to curtail or cease its operations.
Due
to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern.
The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of
asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a
going concern.
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.
Treasury
Stock
The
Company accounts for treasury stock using the cost method. During the three months ended March 31, 2022, the Company acquired 41,250
shares at $0 cost of its then-issued and outstanding common stock pursuant to a claw-back provision in one of its notes payable (Note
4). At March 31, 2022 and September 30, 2021, the Company held in treasury 41,250 and 0 shares, respectively, at total cumulative cost
of $0.
Common
Stock
The
Company is authorized to issue 90,000,000 shares of common stock at par value of $0.001. At March 31, 2022, the Company had 7,042,784
shares issued and 7,001,534 shares outstanding, with 41,250 shares held as treasury stock. At September 30, 2021, the Company had 6,900,284
shares of common stock issued and outstanding.
On
September 23, 2021, the Company issued 82,500 shares of common stock valued at $165,000 as a commitment fee related to a note payable
(Note 4). The commitment fee was recorded as an additional discount to the note and was amortized over the life of the note. On March
24, 2022, the note payable and accrued interest was paid off in full in the amount of $235,000 and $1,958. As per the terms of the contract,
the Company recorded a claw back of half of the common shares associated with the commitment fee in the amount of 41,250 shares that
are being held in treasury at $0 cost.
On
December 3, 2021, the Company issued shares to two of our directors for director compensation. Jerry Lewis received 35,000 shares and
Janelle Gladstone received 25,000 shares. The closing price of our common stock on the grant date was $1.55 per share, and an expense
of $93,000 was recorded for the issuance of these shares.
On
March 15, 2022, the Company issued 82,500 shares of common stock valued at $206,250 as a commitment fee related to a note payable (Note
4). The commitment fee was recorded as an additional discount to the note and is being amortized over the life of the note.
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, 2022 and September 30, 2021, the Company had 50,000 shares
of Series A preferred stock and 595,612 shares
of Series B convertible preferred stock issued and outstanding. The
50,000 Series A preferred shares currently outstanding are not convertible, but the Series B preferred shares are convertible to
common stock on a one-for-one basis.
Note
4. Notes Payable
On
March 20, 2019, an unrelated individual loaned VRVR $10,000. The note carries a 6% interest rate and was initially payable March 20,
2020. The note has been amended to mature on March 20, 2022. As of March 31, 2022 and September 30, 2021, the note balance was $10,000,
and accrued interest on the note totaled $1,820 and $1,520, respectively. We are currently negotiating an extension of the maturity date
for this note.
On
September 23, 2021, an unrelated third party loaned VRVR $235,000
that consisted of cash received by the Company
in the amount of $217,375
and an original issue discount of $17,625.
This discount was amortized over the life of the note commencing October 1, 2021. The note carried a 12.5%
annual interest rate and matured on March
23, 2022.
In addition, under the terms of the agreement, the Company issued 82,500
commitment
shares to the holder at $2.00
per
share and an expense of $165,000
was
applied as an additional discount to the note and amortized over the life of the note. The Company had the right to redeem 41,250
of
the commitment shares if the note was repaid on or before the maturity date. On March 23, 2022, the note payable and accrued interest
was paid off in full in the amount of $236,958
and
41,250
of
the commitment shares were redeemed at $0
cost
and are being held in treasury.
On
March 15, 2022, an unrelated third party loaned VRVR $235,000
that consisted of cash received by the Company
in the amount of $217,375
and an original issue discount of $17,625.
This discount is being amortized over the life of the note commencing March 15, 2022. The note carries a 15%
annual interest rate and matures on March
15, 2023.
As of March 31, 2022, the note balance was $235,000
and
the accrued interest was $1,545.
The note is convertible at a price of $1.25
per
share.
As
part of the March 15, 2022 note of $235,000, the Company paid a commitment fee of $206,250 by issuing 82,500 shares of common stock at
$2.50 per share. The commitment fee of $206,250 was recorded as a discount to the note and will be amortized over the life of the note
commencing on March 15, 2022.
Debt
discount amortization on the above notes totaled $192,439 and $0 during the three months ended March 31, 2022 and 2021, respectively.
Note
5. Related Party Transactions
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, 2019. 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 March 31, 2022 and September 30, 2021, total balance on the
debt was $741,030 and accrued interest totaled $195,885 and $167,597, 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 March 31, 2022 and September
30, 2021, accrued interest was $3,834 and $3,086, respectively.
Note
7. Convertible Note Receivable
On
November 20, 2020, the Company invested $7,500 in a Convertible Note from and 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 March 31, 2022 and September 30,
2021, accrued interest was $404 and $254, respectively.
Note
8. Subsequent Events
On
April 4, 2022, an unrelated third party loaned VRVR $235,000
that consisted of cash received by the Company
in the amount of $217,375
and an original issue discount of $17,625.
This discount is being amortized over the life of the note commencing April 4, 2022. The note carries a 12%
annual interest rate and matures on April
4, 2023.
The note is convertible at $1.25
per
share.
As
part of the note, the Company paid a commitment fee of $198,000 by issuing 82,500 shares of common stock at $2.40 per share. The commitment
fee of $198,000 was recorded as a discount to the note and will be amortized over the life of the note commencing on April 4, 2022.
The
Company has evaluated other events subsequent to the balance sheet date through the date these financial statements were issued and determined
that there are no events requiring disclosure.