Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Six Months Ended
March
31, 2023
Note
1. Basis of Presentation
While
the information presented in the accompanying March 31, 2023 financial statements is unaudited and condensed, 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, 2022 audited financial statements (and notes thereto). Operating results
for the three and six months ended March 31, 2023 are not necessarily indicative of the results that can be expected for the year ending
September 30, 2023.
The
accompanying unaudited condensed consolidated financial statements herein contain the operations of Virtual Interactive Technologies
Corp. (OTCPINK: VRVR), and its wholly-owned subsidiaries Advanced Interactive Gaming Inc. (“AIG Inc.”) and Advanced Interactive
Gaming Ltd. (“AIG Ltd”) (collectively, the “Company” or “VIT”). All significant intercompany amounts
have been eliminated.
Note
2. Business
Nature
of Operations
The
Company is a next generation game and metaverse developer that creates immersion experiences by harnessing the latest technologies, including
Blockchain and digital assets. The Company’s newly launched brand, Extrosive, is building a metaverse that replaces traditional
boring financial experiences with a new paradigm, “global Prosperity space” (gPs). This new asset class dynamically augments
global and local realities and builds communities of aligned financial values, virtuous economies, and a trusted network. The result
would be a metaverse game for the glamourous world of Wall Street, High-Speed trading involving community building, quantified self,
and NFTs – a pure adrenal rush! In addition, the Company continues to build on its successful catalog that includes Carmageddon
Max Damage, Carmageddon Crashers, Interplanetary: Enhanced Edition, Catch & Release, and Worbitol. The Company also entered into
a joint development partnership with Duane Lee “Dog” Chapman, of the “Dog The Bounty Hunter” fame, to develop
and promote multiple games across several platforms. For more information, please visit www.vrvrcorp.com.
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, 2023 or September 30, 2022.
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.
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 three and six months ended March 31, 2023 and 2022, the Company had 270,612 and 595,612 shares, respectively, of Series
B Convertible Preferred stock issued and outstanding that are convertible into shares of common stock on a one-for-one basis. In addition,
during the three and six month ended March 31, 2023 and 2022, the Company had 1,300,000 and -0- warrants outstanding respectively. 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, 2023 and 2022.
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.
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 income (expense) in the period of settlement. No AOCI
items were present during the three and six months ended March 31, 2023 and 2022, as all financial statement items were denominated in
the US dollar. (Losses) gains from foreign currency transactions during the three months ended March 31, 2023 and 2022 totaled $46 and
($194), respectively. (Losses) gains from foreign currency transactions during the six months ended March 31, 2023 and 2022 totaled $16
and ($573), 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, 2023 and September 30, 2022, uninsured deposits
in the Bermuda bank totaled $250 and $20,495, 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 all of 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.
Revenue
- Royalties
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. 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, 2023,
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.
During
the three months ended March 31, 2023 and 2022, the Company recognized revenue from royalties of $33,373 and $29,638, respectively. During
the six months ended March 31, 2023 and 2022, the Company recognized revenue from royalties of $75,597 and $60,030, respectively.
Royalties
Receivable
The
Company provides an allowance for doubtful accounts equal to the estimated uncollectible royalties. The Company’s estimate is based
on historical collection experience and a review of the current status of royalties 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 had royalties receivable of $125,991 and $83,644 at March 31, 2023 and September
30, 2022, respectively, and has determined that no allowance is necessary.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity with US 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.
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.
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 June 30, 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, 2023 and September 30, 2022, the Company held these shares in treasury.
Common
Stock
The
Company is authorized to issue 90,000,000 shares of common stock at par value of $0.001. At March 31, 2023, the Company had 8,312,784
shares issued and 8,271,534 shares outstanding, with 41,250 shares held as treasury stock. At September 30, 2022, the Company had 8,100,284
shares issued and 8,059,034 shares outstanding, with 41,250 shares held as treasury stock.
On
August 16, 2022, the Company entered into a one-year agreement with two groups to assist the Company with creating interactive gaming
and entertainment experiences, including metaverse, utilizing blockchain and Non-Fungible Tokens, as well as assisting the Company with
investor and public relations. As part of the agreement, each group received 225,000 shares which were valued at $2.10 per share and
a total expense of $945,000 was recorded as prepaid expense and will be amortized over the life of the contract. Total expense recognized
for the three months ended March 31, 2023 was $233,014. Total expense recognized for the six months ended March 31, 2023 was $471,205.
As of March 31, 2023, total prepaid stock expense amortized was $587,712, resulting in $357,288 remaining prepaid expense.
On
October 26, 2022, the Company entered into a one-year agreement with a group to assist the Company with creating a customized positive
investment image and communicate that image to the investment community. As part of the agreement, they received 200,000 shares which
were valued at $1.49 per share and a total of $298,000 was recorded as prepaid expense and will be amortized over the life of the contract.
The total expense recognized for the three months ended March 31, 2023 was $73,479. Total expense recognized for the six months ended
March 31, 2023 was $127,364 resulting in $170,636 remaining prepaid expense.
On
November 28, 2022, the Company entered into a four-month agreement with a group to assist the Company with product awareness program
and to conduct customer lead generation activities. Under the agreement the Company agreed to issue the group 12,500 shares during each
month of the agreement. During the three months ended December 31, 2022, the Company issued 12,500 shares of common stock, which were
valued at $1.19 per share. The total expense recognized for the three months ended December 31, 2022 was $14,875. Work on this contract
was temporarily paused after one month so no further payments were made, and the Company is currently renegotiating the contract with
the vendor.
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. Series A preferred shares
are not convertible, whereas Series B preferred shares are convertible into common stock on a one-for-one basis at the option of the
holder and there is no redemption feature.
At
March 31, 2023 and September 30, 2022, the Company had 270,612 shares of Series B convertible preferred stock issued and outstanding.
Warrants
In
connection with the August 16, 2022 agreements under “Common Stock” above, the Company issued one-year warrant to purchase
225,000 common shares at $1.00 and a two-year warrant to purchase 225,000 common shares at $1.00. On the date of the grant, the Company
elected to treat the warrants as a single award, and valued the warrants of 1 and 2 years, expected volatility of 109.88%, risk-free
rate of 3.28% and no dividend yield. The total expense of $1,127,722 is being amortized over the life of the contract and a total of
$317,172 was recognized for the three months ended March 31, 2023.A total of $641,392 was recognized for the six months ended March 31,
2023 resulting in $486,330 remaining as prepaid expense at March 31, 2023.
In
connection with the October 26, 2022 agreement under “Common Stock” above, the Company issued a one-year warrant to purchase
200,000 common shares at $1.00 and a two-year warrant to purchase 200,000 common shares at $1.00. On the date of the grant, the Company
elected to treat the warrants as a single award, and valued the warrants at $363,209 using the Black-Scholes option pricing model with
the following assumptions: expected life of the options of 1 and 2 years, expected volatility of 111.16%, risk-free rate of 4.75% and
no dividend yield. The total expense of $363,209 is being amortized over the life of the contract and a total of $89,559 was recognized
for the three months ended March 31, 2023. A total of $155,234 was recognized for the six months ended March 31, 2023, resulting in $207,975
remaining as prepaid expense at March 31, 2023.
The
following table reflects a summary of Common Stock warrants outstanding and warrant activity during the year ended March 31, 2023:
Schedule of Common Stock Warrants Outstanding and Warrant Activity
| | |
Underlying Shares | | |
Weighted
Average Exercise
Price | | |
Weighted
Average Term
(Years) | |
| Warrants outstanding at September 30, 2022 | |
| 900,000 | | |
| 1.00 | | |
| 1.38 | |
| Granted | |
| 400,000 | | |
| 1.00 | | |
| 1.07 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | | |
| - | |
| Warrants outstanding
and exercisable at March 31, 2023 | |
| 1,300,000 | | |
$ | 1.00 | | |
| 0.94 | |
The
intrinsic value of warrants outstanding as of March 31, 2023 was $-0-, as the exercise price exceeded the Company’s stock price.
Note
4. Notes and Convertible 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, and then amended on July 27, 2022 to mature on March 20, 2024. The maturity
date has been extended to March 20, 2025. As of March 31, 2023 and September 30, 2022, the note balance was $10,000,
and accrued interest on the note totaled $2,420
and $2,121,
respectively.
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. Under the terms of the agreement, the Company paid any accrued interest
on a monthly basis. 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 September 30, 2021,
principal and accrued interest totaled $235,000 and $571, respectively. On March 23, 2022, the note payable balance of $235,000 and unpaid
interest of $1,958 were repaid in full in the amount of $236,958. During the period of October 1, 2021 through March 23, 2022, interest
payments totaling $12,811 were made, resulting in $14,769 total interest payments during the nine months ended June 30, 2022, and $0
principal and interest balances at June 30, 2022. As a result of this repayment, 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, 2023 and September 30, 2022, the note balance was $235,000
and $235,000,
respectively, and the accrued interest was $36,796
and $19,218,
respectively. The note is convertible at a price of $1.25
per share. As of March 15, 2023, the note was in default. On March 28, 2023, the Company paid $5,000
to extend the maturity date to May
31, 2023. This fee is included in interest expense on the statements of operations.
On
March 21, 2022, an unrelated third party, loaned VRVR $235,000
that consisted of cash received by the Company, on April 4, 2022, 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 12%
annual interest rate and matures on March 21, 2023. As of March 31, 2023 and September 30, 2022, the note balance was $235,000
and $235,000,
respectively, and the accrued interest was $28,974
and $14,911,
respectively. The note is convertible at a price of $1.25
per share. As of March 15, 2023, the note was in default. On March 28, 2023, the Company paid $5,000
to extend the maturity date to May
31, 2023. This fee is included in interest expense on the statements of operations.
Debt
discount amortization on the above notes totaled $94,457 and $96,376 during the three months ended March 31, 2023 and 2022, respectively.
Debt discount amortization on the above notes totaled $207,314 and $192,439 during the six months ended March 31, 2023 and 2022, respectively.
Total unamortized debt discount totaled $0 and $207,314 at March 31, 2023 and September 31, 2022, 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 note carries an interest rate of 6% per annum, compounding annually, and matured on December 31, 2022. All principal and
interest were due at maturity and there was no prepayment penalty for early repayment of the note. As of March 31, 2023 and September
30, 2022, total balance on the debt was $741,030 and accrued interest totaled $251,577 and $223,940, respectively. As of December 31,
2022, the note was in default. The Company is currently negotiating new terms for this note.
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. As of March 31, 2023 and September 30, 2022 accrued interest was $5,334 and $4,586, respectively.
Note
7. Subsequent Events
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.