ESPORTS ENTERTAINMENT GROUP, INC. - Quarter Report: 2010 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2010
 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to __________________
 

Commission File Number: 333-156302
 

VIRTUAL CLOSET, INC.
(Exact name of registrant as specified in its charter)
 

Nevada                       26-3062752

(State of or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

      112 North Curry Street, Carson City                89703

(Address of principal executive offices)                 (Zip Code)

(775) 284-3705
(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer   o                                  Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company x 
 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).                                               Yes x No o
 

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of March 31, 2010, the registrant had 10,255,000 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

Index

                         

	Page Number
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management`s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3. Defaults Upon Senior Securities	15
Item 4. Submission of Matters to a Vote of Security Holders	15
Item 5. Other Information	16
Item 6. Exhibits	16

 

 

 

 

VIRTUAL CLOSET, INC.
(A Development Stage Company)
 
FINANCIAL STATEMENTS
 
MARCH 31, 2010
 
 

BALANCE SHEETS
 
STATEMENTS OF OPERATIONS
 
STATEMENT OF STOCKHOLDERS’ EQUITY

STATEMENTS OF CASH FLOWS
 
NOTES TO THE FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

VIRTUAL CLOSET, INC.

(A Development Stage Company)

 

BALANCE SHEETS

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

VIRTUAL CLOSET, INC.

(A Development Stage Company)

 

STATEMENTS OF OPERATIONS

Unaudited

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

VIRTUAL CLOSET, INC.

(A Development Stage Company)

 

STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

FROM INCEPTION (July 22, 2008) TO MARCH 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

VIRTUAL CLOSET, INC.

(A Development Stage Company)

 

STATEMENTS OF CASH FLOW

(Unaudited)

 

 

 

 

Supplemental cash flow information and noncash financing activities:

Cash paid for:

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

 

 

VIRTUAL CLOSET, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2010

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Virtual Closet, Inc. (“Company”) is in the initial development stage and has incurred losses since inception totalling $31,396. The Company was incorporated on July 22, 2008 in the State of Nevada and established a fiscal year end of September 30. The company was formed to seek business opportunities in the light manufacturing and household appliances industries specializing in the design, manufacture and sales of automated household storage systems.
 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there were no such events that warrant disclosure or recognition in the financial statements.
 

Basis of Presentation
 

Interim Financial Statements

The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months period ended March 31, 2010 is not necessarily indicative of the results that may be expected for the year ending September 30, 2010. For further information, refer to the financial statements and footnotes thereto included in our Form 10-K Report for the fiscal year ended September 30, 2009

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates and Assumptions

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Income Taxes

The Company follows the liability method of accounting for income taxes in accordance with FASB Accounting Standards Codification (“ASC”) No.109, “Accounting for Income Taxes” and clarified by FIN 48 “Accounting for Uncertainty in Income Taxes – an interpretation of ASC No. 109.” Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.

 

 

VIRTUAL CLOSET, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Net Loss per Share

Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.

Foreign Currency Translation

The financial statements are presented in United States dollars. In accordance with ASC No. 830, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented. Related translation adjustments are reported as a separate component of stockholders’ equity (deficit), whereas gains or losses resulting from foreign currency transactions are included in results of operations.
 

Share Based Compensation

We follow ASC 718-10, "Stock Compensation", which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company has not adopted a stock option plan and has not granted any stock options. The Company granted stock awards, at par value, to its officers, directors and advisors for services rendered in its formation. Accordingly, stock-based compensation has been recorded to date.

Recent Accounting Pronouncements

In February 2010, the FASB issued Accounting Standards Update ("ASU") No.2010-09, "Amendments to Certain Recognition and Disclosure Requirements" ("ASU2010-09"), which is included in the FASB Accounting Standards Codification (the "ASC") Topic 855 (Subsequent Events). ASU 2010-09 clarifies that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued. ASU 2010-09 is effective upon the issuance of the final update and did not have a significant impact on the Company's financial statements.

 

 

VIRTUAL CLOSET, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2010
 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In June 2009, the FASB issued guidance now codified as ASC 105, Generally Accepted Accounting Principles as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. The adoption of ASC 105 did not have a material impact on the Company’s financial statements, but did eliminate all references to pre-codification standards.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Going concern
 
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have cash nor material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs giving substantial doubt for it to continue as a going concern. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan, or merge with an operating company. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The officers and directors have committed to advancing certain operating costs of the Company.

The ability of the Company to continue as a going concern is dependent on raising capital to fund its business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company is funding its initial operations by way of issuing Founder’s shares. As of March 31, 2010, the Company had issued 10,000,000 Founder’s shares at $0.001 per share for net funds to the Company of $10,000, and issued 255,000 shares at $0.03 per share for net funds to the Company of $6,900 and Subscription Receivable $750.

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with the requirements of ASC 825-10-50 and ASC 270-10-50, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.
 

 

 

VIRTUAL CLOSET, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2010

NOTE 4 – RELATED PARTY TRANSACTION

The Company received $4,000 on February 2, 2010 as a loan from related party. The loan is payable on demand and without interest.

NOTE 5 – CAPITAL STOCK

The Company’s capitalization is 75,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
 
As of March 31, 2010, the Company has not granted any stock options and has not recorded any stock-based compensation.
 
On September 26, 2008, a director of the Company purchased 10,000,000 shares of the common stock in the Company at $0.001 per share for $10,000.
 
During February and March 2009, the Company issued 255,000 share of the common stock at $0.03 per share for $6,900 and Subscription Receivable $750.
 
 

NOTE 6 – INCOME TAXES

We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.

The components of the Company’s deferred tax asset as of March 31, 2010 are as follows:

 

	March 31, 2010
Net operating loss carryforward		$  31,396
Effective tax rate		35%
Deferred tax asset		$10,989
Less: Valuation Allowance		(10,989)
Net deferred tax asset		$        0

    

The net federal operating loss carry forward will expire between 2027 and 2028. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Overview
 

Virtual Closet, Inc., ("Virtual Closet", "the Company", “our” or "we") was incorporated in the State of Nevada as a for-profit company on July 22, 2008. Virtual Closet is a development-stage company organized to seek business opportunities in the light manufacturing and household appliances industries specializing in the design, manufacture and sales of automated household storage systems. Since our incorporation we have been engaged in organizational activities and the initial design stages of an automated storage and retrieval device for household attic use. Our intention is to make existing technology for automated storage and retrieval systems available to the individual householder by designing and manufacturing scaled-down, lightweight versions of systems currently in use in commercial and industrial application, such as libraries, warehousing and manufacturing. Our product will allow householders to utilize the wasted storage space in their attics for automatically storing and retrieving midsized household items that would normally be stored manually in attic and crawl spaces.

     We do not seek to manufacture the storage systems we design ourselves, but rather plan to contract with independent third parties to manufacture our products for us.

     Our business office is located at 112 North Curry Street, Carson City, Nevada, 89703; our telephone number is (775) 284-3705 and our fax number is (775) 313-9870. Our United States and registered statutory office is located at 112 North Curry Street, Carson City, Nevada, 89703, telephone number (775) 882-1013.

The Company has not yet implemented its business model and to date has generated no revenues.

Virtual Closet has no plans to change its business activities or to combine with another business and is not aware of any circumstances or events that might cause this plan to change.

Plan of Operation
 

The Company has not yet generated any revenue from its operations. As of March 31, 2010 we had $504 of cash on hand. We incurred operating expenses in the amount of $7,814 in the six months ended March 31, 2010. These operating expenses were comprised of professional fees and office and general expenses. From the inception date to March 31, 2010, we incurred operation expense in amount of $31,396.

Our current cash holdings will not satisfy our liquidity requirements and we will require additional financing to pursue our planned business activities. We have registered 4,000,000 of or our common stock for sale to the public. Our registration statement became effective on July 22, 2008 and we are in the process of seeking equity financing to fund our operations over the next 12 months. As of March 31, 2010 we have raised $17,650 from the sales of our common stock.

 

 

     Management believes that if subsequent private placements are successful, we will generate sales revenue within the following twelve months thereof. However, additional equity financing may not be available to us on acceptable terms or at all, and thus we could fail to satisfy our future cash requirements.
 
     If Virtual Closet is unsuccessful in raising the additional proceeds through a private placement offering it will then have to seek additional funds through debt financing, which would be very difficult for a new development stage company to secure. Therefore, the company is highly dependent upon the success of the anticipated private placement offering described herein and failure thereof would result in Virtual Closet having to seek capital from other resources such as debt financing, which may not even be available to the company. However, if such financing were available, because Virtual Closet is a development stage company with no operations to date, it would likely have to pay additional costs associated with high risk loans and be subject to an above market interest rate. At such time these funds are required, management would evaluate the terms of such debt financing and determine whether the business could sustain operations and growth and manage the debt load. If Virtual Closet cannot raise additional proceeds via a private placement of its common stock or secure debt financing it would be required to cease business operations. As a result, investors in Virtual Closet common stock would lose all of their investment.
 
     Within 12 months after we are able to raise the necessary funds, we intend to complete the design of a technically feasible automated home storage system. Our planned operations during this period involve two phases:

 

     In the first phase, we intend to hire a mechanical engineering firm to design the hardware components of our proposed storage systems and a software engineer to design our planned PLC controller and Windows-based user interface. We intend to develop our systems within 9 months after we are able to raise the necessary funds.

     The second phase, contingent upon a favourable outcome of the first phase, may be devoted to our Marketing and Sales efforts. We intend to fully develop our webpage and our PDF guides for maintenance of our products. We expect to devote about 3 months, after the first phase is completed.

 

We do not currently have any employees and management does not plan to hire employees at this time. We do not expect the purchase or sale of any significant equipment and has no current material commitments.

Off Balance Sheet Arrangement
 

The company is dependent upon the sale of its common shares to obtain the funding necessary to carry its business plan. Our President, You Ting Zhu has undertaken to provide the Company with operating capital to sustain its business over the next twelve month period, as the expenses are incurred, in the form of a non-secured loan. However, there is no contract in place or written agreement securing these agreements. Investors should be aware that Mr. Zhu expression is neither a contract nor agreement between him and the company.

Other than the above described situation the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.
 

Item 4. Controls and Procedures

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

As of March 31, 2010 management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in SEC guidance on conducting such assessments.  Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on the Company's board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by the Company's Chief Financial Officer in connection with the review of our financial statements as March 31, 2010 and communicated the matters to our management.

Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not affect the Company's financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on the Company's board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures can affect the Company's results and its financial statements for the future years.

We are committed to improving our financial organization. As part of this commitment, we will create a position to  segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to the Company: i) Appointing one or more outside directors to our board of directors who shall be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and ii) Preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

 

 

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on the Company's Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support the Company if personnel turn over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues the company may encounter in the future.

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the small business issuer's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated.

No director, officer, or affiliate of the issuer and no owner of record or beneficiary of more than 5% of the securities of the issuer, or any security holder is a party adverse to the small business issuer or has a material interest adverse to the small business issuer.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 

None.
 

Item 3. Defaults Upon Senior Securities
 

None
 

Item 4. Submission of Matters to a Vote Security Holders

None
 

 

Item 5. Other Information

None
 

Item 6. Exhibits

3.1     Articles of Incorporation [1]
 
3.2     By-Laws [1]    

 

31.1      Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer 

31.2      Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer *

32.1     Section 1350 Certification of Chief Executive Officer **
  
32.2      Section 1350 Certification of Chief Financial Officer **
 

[1] Incorporated by reference from the Company’s filing with the Commission on December 19, 2008.

* Included in Exhibit 31.1
** Included in Exhibit 32.1

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 

Virtual Closet, Inc.

 

BY: /s/ You Ting Zhu

You Ting Zhu
President, Secretary Treasurer, Principal Executive Officer,
Principal Financial Officer and sole Director
 

Dated: April 22, 2010.