UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 1934

 

For the quarterly period end December 31, 2019

 

[  ]	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act Of 1934

 

For the transition period from __________ to __________

 

Commission File Number: None

 

VIRTUAL INTERACTIVE TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)

 

NEVADA		36-4752858
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

600 17^th Street, Suite 2800 South

Denver, CO 80202

(Address of principal executive offices, including Zip Code)

 

(303) 228-7120

(Issuer’s telephone number, including area code)

 

Check whether the issuer (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	[  ]		Accelerated filer	[  ]
Non-accelerated filer	[X]		Smaller reporting company	[X]
			Emerging growth company	[  ]

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [  ]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		N/A		N/A

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 6,817,784 shares of common stock as of February 14, 2020.

 

 

 

Virtual Interactive Technologies Corp.

 

Index

 

	Page
Part I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets	3
Unaudited Condensed Consolidated Statements of Operations	4
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	5
Unaudited Condensed Consolidated Statements of Cash Flows	6
Notes to Unaudited Condensed Consolidated Financial Statements	7-11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-12
Item 4. Controls and Procedures	13-13
Part II. Other Information
Item 6. Exhibits	14
Part III. Signatures	15

 

 

Virtual Interactive Technologies Corp.

Condensed Consolidated Balance Sheets

As of December 31, 2019 and September 30, 2019

(UNAUDITED)

 

		December 31, 2019				September 30, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	87,667			$	36,136
Royalties receivable			137,098				269,594
Notes receivable, related parties			25,000				8,970
Other assets			200				2,660
Total current assets		$	249,965			$	317,360
Land and improvements			-				36,195
TOTAL ASSETS		$	249,965			$	353,555
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	92,080			$	94,407
Accounts payable, related party			20,000				-
Notes payable, related party			-				50,900
Accrued interest payable, related party			-				3,371
Notes payable			10,000				10,000
Accrued interest payable			470				5,484
Total current liabilities			122,550				164,162
LONG-TERM LIABILITIES:
Note payable, related party			750,000				759,000
Accrued interest payable, related party			81,200				69,341
Notes payable			-				45,000
Total liabilities			953,750				1,037,503
Commitments and contingencies			-				-
STOCKHOLDERS’ EQUITY (DEFICIT)
Series A Preferred Stock, $  0.01 par value; 10,000,000 authorized;  50,000 shares issued and outstanding as of December 31, 2019 and September 30, 2019			500				500
Series B Convertible Preferred Stock $  0.01 par value; 10,000,000 authorized; 595,612 shares issued and outstanding as of December 31, 2019 and September 30, 2019			5,956				5,956
Common stock, $ 0.001 par value; 90,000,000 shares authorized, 6,817,784 and 6,817,484 shares issued and outstanding as of December 31, 2019 and September 30, 2019			6,817				6,817
Additional paid-in-capital			4,313,430				4,313,011
Accumulated deficit			(5,030,488	)			(5,010,232	)
Total stockholders’ equity (deficit)			(703,785	)			(683,948	)
Total liabilities and stockholders’ equity (deficit)		$	249,965			$	353,555

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Virtual Interactive Technologies Corp.

Condensed Consolidated Statements of Operations

For the three months ended December 31, 2019 and 2018

(UNAUDITED)

 

		For the three months ended,
		December 31, 2019				December 31, 2018
Revenue - royalties		$	25,044			$	100,278
Operating expenses:
General, administrative and selling			62,402				80,360
Research and development			40,000				78,441
Amortization			-				208,333
Total operating expenses			102,402				367,134
Loss before other income (expense)			(77,358	)			(266,856	)
Other income (expense)
Other income			1,543				-
Gain on extinguishment of debt, related party			59,417				-
Gain on extinguishment of debt			17,701				-
Interest expense, related party			(11,859	)			(44,789	)
Interest expense			(252	)			-
Losses from foreign currency transactions			(478	)			(1,722	)
Bad debt expense			(8,970	)			-
Total other income (expense)			57,102				(46,511	)
Net loss		$	(20,256	)		$	(313,367	)
Loss per share, basic and fully diluted		$	(0.0030	)		$	(0.0453	)
Weighted average number of shares outstanding -
basic and fully diluted			6,817,689				6,910,000

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Virtual Interactive Technologies Corp.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the three months ended December 31, 2019 and 2018

(UNAUDITED)

 

		Preferred Stock Series A Convertible								Preferred Stock Series B Convertible								Common Stock								Additional Paid-In				Accumulated				Total Stockholders’
		Shares				Par Value				Shares				Par Value				Shares				Par Value				Capital				Deficit				Equity (Deficit)
Balance, September 30, 2019			50,000			$	500				595,612			$	5,956				6,817,484			$	6,817			$	4,313,011			$	(5,010,232	)		$	(683,948	)
Stock issued for notes payable, related party			-				-				-				-				94				-				131				-				131
Stock issued for accrued interest payable, related party			-				-				-				-				6				-				8				-				8
Stock issued for notes payable			-				-				-				-				144				-				202				-				202
Stock issued for accrued interest payable			-				-				-				-				56				-				78				-				78
Net loss			-				-				-				-				-				-				-				(20,256	)			(20,256	)
Balance, December 31, 2019			50,000			$	500				595,612			$	5,956				6,817,784			$	6,817			$	4,313,430			$	(5,030,488	)		$	(703,785	)

 

		Preferred Stock Series A Convertible								Preferred Stock Series B Convertible								Common Stock								Additional Paid-In				Accumulated				Total Stockholders’
		Shares				Par Value				Shares				Par Value				Shares				Par Value				Capital				Deficit				Equity (Deficit)
Balance, September 30, 2018			-			$	-				1,000,000			$	11				27,640,000			$	276			$	2,027,354			$	(4,227,145	)		$	(2,199,504	)
Preferred stock series B dividends			-				-				-				-				-				-				-			$	(30,000	)			(30,000	)
Net loss			-				-				-				-				-				-				-				(313,367	)			(313,367	)
Balance, December 31, 2018			-			$	-				1,000,000			$	11				27,640,000			$	276			$	2,027,354			$	(4,570,512	)		$	(2,542,871	)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Virtual Interactive Technologies Corp.

Condensed Consolidated Statements of Cash flows

For the Three Months Ended December 31, 2019 and 2018

(UNAUDITED)

 

		For the three months ended,
		December 31, 2019				December 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(20,256	)		$	(313,367	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization			-				208,333
Gain on extinguishment of debt, related party			(59,417)				-
Gain on extinguishment of debt			(17,701)				-
Bad debt expense			8,970				-
Changes in operating assets and operating liabilities:
Other assets			2,761				1,728
Royalty receivable			132,496				(67,094	)
Accounts payable and accrued liabilities			(2,628	)			25,670
Accounts payable, related parties			20,000				(40,000	)
Accrued interest payable, related parties			12,144				-
Accrued interest payable			(33	)			44,789
Net cash provided by (used in) operating activities			76,336				(139,941	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of land			36,195				-
Advances to related parties			(25,000	)			-
Net cash provided by investing activities			11,195				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable			(32,000	)			-
Payment on notes payable, related parties			(4,000)				-
Net cash used in financing activities		$	(36,000	)		$	-
Net change in cash and cash equivalents			51,531				(139,941	)
Cash and cash equivalents, beginning of period			36,136				375,855
Cash and cash equivalents, end of period		$	87,667			$	235,914
Supplemental disclosure of cash flow information:
Interest paid		$	248			$	-
Income taxes paid		$	-			$	-
Non-cash Investing and Financing Activities
Stock issued for note payable, related party		$	131			$	-
Stock issued for accrued interest, related parties		$	8			$	-
Stock issued for note payable		$	202			$	-
Stock issued for accrued interest		$	78			$	-
Accrued preferred stock dividends		$	-			$	30,000

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

VIRTUAL INTERACTIVE TECHNOLOGIES CORP.

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:

 

	-	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	-	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.
	-	Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

 

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:

 

As of December 31, 2019
		Short Term												Long Term
Notes Payable		Principal				Accrued Interest				Total				Principal				Accrued Interest				Total
Promissory Note - March 20, 2019		$	10,000			$	470			$	10,470			$	-			$	-			$	-
Total Notes Payable		$	10,000			$	470			$	10,470			$	-			$	-			$	-

 

As of September 30, 2019
		Short Term												Long Term
Notes Payable		Principal				Accrued Interest				Total				Principal				Accrued Interest				Total
Promissory Note - March 20, 2019		$	10,000			$	718			$	10,718			$	-			$	-			$	-
Promissory Note - November 20, 2017			-				2,383				2,383				22,500				-				22,500
Promissory Note - November 20, 2017			-				2,383				2,383				22,500				-				22,500
Total Notes Payable		$	10,000			$	5,484			$	15,484			$	45,000			$	-			$	45,000

 

 

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:

 

As of December 31, 2019
		Short Term												Long Term
Notes Payable, Related Party		Principal				Accrued Interest				Total				Principal				Accrued Interest				Total
Promissory Note - March 29, 2021		$	-			$	-			$	-			$	750,000			$	81,200			$	831,200
Total Notes Payable, Related Party		$	-			$	-			$	-			$	750,000			$	81,200			$	831,200

 

As of September 30, 2019
		Short Term												Long Term
Notes Payable, Related Party		Principal				Accrued Interest				Total				Principal				Accrued Interest				Total
Promissory Note - March 29, 2021		$	-			$	-			$	-			$	750,000			$	69,341			$	819,341
Promissory Note - August 20, 2018			6,900				428				7,328				-				-				-
Promissory Note - September 10, 2018			44,000				2,418				46,418				-				-				-
Promissory Note - November 5, 2018			-				-				-				4,000				-				4,000
Promissory Note - November 20, 2018			-				525				525				5,000				-				5,000
Total Notes Payable, Related Party		$	50,900			$	3,371			$	54,271			$	759,000			$	69,341			$	828,341

 

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.

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Statement about Forward-Looking Statements

 

This Form 10-Q contains forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbors created under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the Company’s management. Words such as “hopes,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of the Company’s future financial performance, and other characterizations of future events or circumstances are forward-looking statements.

 

The Company is under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements.

 

EXECUTIVE OVERVIEW

 

On September 27, 2019, VIT merged with AIG Inc, and its subsidiary AIG 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” or “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 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.

 

Results of Operations

 

The following discussion involves the results of operations for the three months ended December 31, 2019 and December 31, 2018.

 

Revenue decreased from $100,278 for the three months ended December 31, 2018 to $25,044 for the three months ended December 31, 2019. Revenue was derived from royalty interests in five games, Carmageddon Max Damage, Carmageddon Crashers, Catch & Release, Interplanetary: Enhanced Edition and Worbital. The decrease was the result of lower sales in all five games.

 

In 2016, the Company began amortizing our investment in royalty contacts for Carmageddon Crashers and Max Damage over a three-year period. During the three months ended December 31, 2019 and 2018 we amortized $0 and $208,333, respectively.

 

 

General and Administrative expense for the three months ended December 31, 2019 and 2018 was $62,402 and $80,360, respectively. This represents a 22% decrease over the periods.

 

The increase was due to the fees related to the merger that occurred on September 27, 2019 that were incurred in the three months ended December 31, 2019.

 

For the three months ended December 31, 2018 we recorded a loss of $313,367. For the three months ended December 31, 2019, we recorded a loss of $20,256, a decrease of 94%. The decrease of $293,111 was mainly associated with the amortization of our long-term asset, research and development expense associated with this asset that was incurred during the three months ended December 31, 2018 and the recognition of a gain on the extinguishment of debt and extinguishment of debt, related party during the three months ended December 31, 2019.

 

Liquidity and Capital Resources

 

As of December 31, 2019, we had cash and cash equivalents of $87,667. As of September 30, 2019, we had cash and cash equivalents of $36,136. Working capital was $127,415 as of December 31, 2019 compared to $153,198 at September 30, 2019. The decrease in working capital of $25,783 was primarily the result of the Company collecting $132,413 on royalty receivables, offset by payments on accounts payable and accrued liabilities of $2,327, payoff of notes payable of $36,000, advances to related parties of $25,000, and payments made on expenses.

 

Cash Flows from Operating Activities:

 

Net cash provided by operating activities for the three months ended December 31, 2019 was $76,336. Net cash used in operating activities for the three months ended December 31, 2018 was $139,941. The change over the two periods presented of $216,277 was primarily a result of decreases in our net loss of $293,111, amortization of royalty contracts of $208,333, royalty receivable of $199,590, accounts payable of $28,298 and accrued interest payable of $44,822, that was offset by increases in accounts payable related parties of $60,000, accrued interest payable, related parties of $12,144, and other assets of $967.

 

Cash Flows from Investing Activities:

 

Net cash provided by investing activities for the three months ended December 31, 2019 and December 31, 2018 was $11,195 and $0. During the 1^st quarter ended December 31, 2019, the Company advanced $25,000 to a related party as well as sold its land for $36,195.

 

Cash Flows from Financing Activities:

 

Net cash used in financing activities for the three months ended December 31, 2019 and December 31, 2018 was $36,000 and $0, respectively. During the three months ended December 31, 2019, the Company paid down $32,000 of notes payable and $4,000 notes payable, related party.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2019. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive and Financial Officer.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Based upon that evaluation, our Chief Executive and Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

Item 6. Exhibits

 

Exhibits

 

3.1		Articles of Incorporation (1)
3.2		Amended Articles of Incorporation (1)
3.3		Bylaws (1)
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

 

(1) Incorporated by reference to the same exhibit filed with the Company’s registration statement on Form S-1 (File #333-190265).

* Provided herewith

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 19th day of February 2020.

 

	VIRTUAL INTERACTIVE TECHNOLGIES CORP.
	By:	/s/ Jason D. Garber
		Jason D. Garber
		Principal Executive Officer
	By:	/s/ James W. Creamer III
		James W. Creamer III
		Principal Financial and Accounting Officer