Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this offering. Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We're turning stationary bikes into something gym goers actually use. VZfit, our third-gen product, turns any bike into VR fitness fun in 5 minutes. Over the last 3 years, we proved VR-equipped bikes motivate riders to come back to the gym, increasing gym retention rates and profit margins. Now, we're selling our tech directly to gyms through Life Fitness, the world's largest commercial fitness equipment manufacturer, which has resulted in 50 VZfits sold worldwide – all before official launch. 

We employ VR to solve a very old and very large customer problem: motivating the masses to get the cardio they need.  And, the VZfit is a win all around: we help Acer sell VR headsets, Intel sell NUCs, Life Fitness sell bikes, and gyms retain members. Users don't have to buy or set up expensive VR systems. All the pieces are in place for us to scale VZfit into every fitness center health club, higher education, real estate, and corporate customers around the world. 

Milestones

VirZOOM, Inc. was incorporated in the State of Delaware in February 2015.

Since then, we have:

• Harnessed the power of VR motivate exercise to help thousands of consumers to get the cardio they need.
• The VirZOOM development team, was behind the success of Guitar Hero, Rock Band, and Dance Central
• Since June 2016 shipped over 2,000 units of first generation consumer product.
• Installed VirZOOM Commercial Kiosk demo systems at locations in the US, China, Japan, Russia, Australia, Brazil, Turkey, Barcelona and more
• Sold 130 units in the first 30 days of VZfit Sensor Kit
• For VZfit Sensor Kit, Cost of Customer Acquisition estimated at $15 and Customer LTV estimated $250.
• $9.3M in funding raised to date.

Historical Results of Operations

• Revenues & Gross Margin. For the period ended December 31, 2019, the Company had revenues of $219,279 compared to the year ended December 31, 2018, when the Company had revenues of $278,234. Our gross margin was 26.37% in fiscal year 2019, compared to 35.32% in 2018.
• Assets. As of December 31, 2019, the Company had total assets of $183,922, including $49,586 in cash. As of December 31, 2018, the Company had $209,577 in total assets, including $7,977 in cash.
• Net Loss. The Company has had net losses of $2,827,248 and net losses of $2,277,396 for the fiscal years ended December 31, 2019 and December 31, 2018, respectively.
• Liabilities. The Company's liabilities totaled $1,944,837 for the fiscal year ended December 31, 2019 and $9,207,015 for the fiscal year ended December 31, 2018.

Related Party Transaction

Refer to Question 26 of this Form C for disclosure of all related party transactions.

Liquidity & Capital Resources

To-date, the company has been financed with $305,000 in debt, $1,477,758 in equity, and $8,692,940 in convertibles.

After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is 6 months before we need to raise further capital.

We plan to use the proceeds as set forth in this Form C under "Use of Funds". We don’t have any other sources of capital in the immediate future.

We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. We plan to raise capital in 2 months. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.

Runway & Short/Mid Term Expenses

VirZOOM, Inc. cash in hand is $139,736, as of July 2020. Over the last three months, revenues have averaged $29,000/month, cost of goods sold has averaged $5,500/month, and operational expenses have averaged $140,000/month, for an average burn rate of $116,500 per month. Our intent is to be profitable in 18 months.

The Company has evaluated subsequent events through July 7, 2020, the date these financial statements were available to be issued. Subsequent to December 31, 2019, the Company raised an additional $345k for the 2019 NPA.

Also subsequent to December 31, 2019, holders of both sets of Short Term Notes agreed to amend their notes, adjusting $205,000 of principal, $201,690 in accrued interest into the 2019 NPA Convertible Note. Subsequent to the aforementioned amendment, $100,000 in principal remains short-term debt, accruing interest at the federal minimum rate adjusted monthly at year end starting January 1st 2020.  

Also subsequent to December 31, 2019, the Company has enabled compatibility with existing 3rd party hardware on the market and will cease production and sales of VZ Sensor after existing inventory levels are sold through. Revenues will be only recurring subscription access to the VirZOOM game platform on a monthly or annual basis. Cost of Goods will reduce as sales will no longer include hardware.

Last 3 month revenue and expense data listed above is reported on a cash basis. 

We expect in-month revenues to average $10,000/month and MRR $20,000 until our new VZ Fit for Oculus Quest product ships Q4 2020. One our new product ships, we expect in-month revenues to increase to $90,000/month and MRR to be approximately $40,000/mo in the first month and increase to $180,000/mo over a 12-month period based on comparable products on the Oculus Quest VR platform.

VirZOOM continues to attract capital on an on-going basis from accredited investors. Since May 2020 these have been largely directed to the WeFunder plaform; $130,000 is now committed at launch. Commitments from accredited investors ranging from $25,000 to $100,000 for investment on or off the WeFunder platform are in process. In addition, we have been in a due diligence process with Fitness Ventures since May 2020 for a $250k investment; August 15 is indicated as the target closing date.