VirZOOM

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 founded VirZOOM in February 2015 and shipped our first commercial product in June 2016. Since then have shipped multiple generations of our award winning, IP-protected, scientifically proven VRfitness apps on every major VR platform, including Oculus Rift, Sony PSVR, Microsoft WinMR, and Oculus Go and Quest. We developed and sold our own proprietary VR bike (VZ Bike) and later a proprietary VR sensor (VZ Sensor) that converts any ordinary stationary bike into a VR bike. We sold our VRfitness products to consumers directly and through Amazon where we received a 4.3 Star rating. We sold a fitness club version of our VRfitness apps to commercial customers worldwide in partnership with Life Fitness, the largest commercial fitness equipment company at the time.
Over that time we generated over $1M in revenue, refined our products and IP and continued to build our customer knowledge for a future when VR became mainstream. We are the only team that has over 36 years of combined VRfitness producy experience.

In late 2018 we tested an Oculus Quest development kit and took a decision to go all-in on the B2C market on the Quest platform exclusively. We made that decision because we believed that the Oculus Quest was destined to take the VR market by storm and by focusing on it we could maximize the value of our resources.
By the winter of 2019 the wisdom of that decision was confirmed as the Oculus Quest outsold all other VR platforms by a wide margin. But we still had one major hurdle to overcome. Our VR apps required a 3rd party product, a stationary bike or elliptical, to use our VXfitness app. Oculus Store policy prohibits the listing of apps that require 3rd party hardware. We sold our VR apps directly from our website, while we distributed the app on the Oculus store. This limited our access to the wider market of Oculus Quest users and increased the cost of reaching it.

Over that period we established outstanding unit economics, including a 90% Trial-to-Paid conversion rate, 75% retention after six months, and a Customer Acquisition Cost (CAC) to Customer Lifetime Value (CLV) ratio of 1:6. Our active Facebook community grew and grew. But our MRR had only grown to $30k by March 2021 and we had only 3,000 accounts. To truly grow, we needed to get on the Oculus Store where we could directly access millions of Quest users directly.

After a year of development we launched a new version of our flagship VZfit product on the Oculus Store in April 2021. The new version included a standing mode that lets you use VZfit without 3rd party hardware. Within 60 days after launch on the store we more than doubled the number of accounts than we previousy cultivated over the 22 months before store launch.

Over 140,000 Quest users have downloaded the app, and we are busy converting them to paid accounts. Our Customer Acquisition Cost (CAC) plummeted from $25 to $8. That's the cost to acquire every customer who on average pays us $10/mo for ten months, yielding an unusually high Customer Lifetime Value (CLV) of $100 and a CLV/CAC of 12.5. It means we need to spend more on marketing to generate more revenue.
That’s where this raise comes in. We plan to increase our marketing spending to convert more VZfit app installs and app trials to paid memberships.

Since store launch we have shipped three major new VZfit updates and have big plans for new VZfit features and new apps, as well. This funding will allow us to increase the rate of new product development as well as market reach. We aim to reach profitability and beyond on the funds raised in this round and believe that aim is achievable.
Milestones

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

Since then, we have:

- Learned how to harness the full power of VR to motivate exercise to help thousands of consumers to get the cardio they need.

- In 2016 invented and in 2019 patented the only effective solution found to date to allow users to move and turn as they move though huge virtual worlds without inducing locomotion discomfort, much like in the real world.
- Since June 2016 shipped over 2,000 units of first generation consumer product, 4,000 units of 2nd generation product, and now have over 6,000 paid membership accounts.  All patents are owned by VirZOOM, Inc.

- We installed VirZOOM Commercial Kiosk demo systems at locations in the US, China, Japan, Russia, Australia, Brazil, Turkey, Barcelona and more in partnership with Life Fitness. The pandemic paused the commercial fitness market for a period of time but we plan to re-enter it in the future.
>$12M in funding raised to date.

Historical Results of Operations

Revenues & Gross Margin. For the period ended December 31, 2021, the Company had revenues of $459,757 compared to the year ended December 31, 2020, when the Company had revenues of $372,537.

Assets. As of December 31, 2021, the Company had total assets of $95,477, including $49,669 in cash. As of December 31, 2020, the Company had $211,553 in total assets, including $150,122 in cash.

Net Loss. The Company has had net losses of $1,555,161 and net losses of $1,706,244 for the fiscal years ended December 31, 2021 and December 31, 2020, respectively.

Liabilities. The Company's liabilities totaled $4,709,137 for the fiscal year ended December 31, 2021 and $3,581,695 for the fiscal year ended December 31, 2020.

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, $8,537,112 in equity, and $3,435,913 in convertibles.

After the conclusion of this Offering, should we hit a $2M funding target, our projected runway is 12 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". Other sources of capital in the immediate future include additional 2021 Note sales ahead of the Wefunder campaign launch and revenue financing.

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 12 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 the VR industry and the Oculus Store partnership we rely on for product distribution and sales, 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 $120,000, as of August 2021. Over the last three months, revenues have averaged $49,000/month, cost of goods sold has averaged $8,887/month, and operational expenses have averaged $136,000/month, for an average burn rate of $87,000 per month. Our intent is to be profitable in 12 months. The Company has evaluated subsequent events through July 31, 2021, the date these financial statements were available to be issued. Subsequent to December 31, 2020, the Company raised an additional $520k for the 2021 NPA.

Last 3 month revenue and expense data listed above is reported on a cash basis.
We expect in-month revenues to average $49,000/month until the busy Q4 fitness products and services period begins in the fall. We expect in-month revenues to increase to an average of $90,000/month during that period. The addition of new product features, including an annual subscription option and Freemium pricing may provide additional upside to this projection.

VirZOOM continues to attract capital on an on-going basis from accredited investors. Since May 2021 these have been from sales of $425,000 in 2021 Notes (convertible). Commitments from accredited investors ranging from $50,000 to $100,000 in additional investment are in process.