UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For
the quarterly period ended
Commission
File Number:
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number:
N/A
(Former name or former address, if changed since last report)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value of $0.0001
(Title of each class)
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 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 ☐
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 (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark 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.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
The number of shares of the issuer’s common stock outstanding as of May 19, 2023, was shares, par value $0.0001 per share.
KeyStar Corp.
Form 10-Q
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our financial statements included in this Form 10-Q are as follows:
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities Exchange Commission (“SEC”) instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2023, are not necessarily indicative of the results that can be expected for the full year.
| 1 |
KEYSTAR CORP.
CONSOLIDATED BALANCE SHEETS
March 31, 2023 | June 30, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Discontinued operations - current assets | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Security deposit | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued expenses - related party | ||||||||
| Players balances | ||||||||
| Notes payable | ||||||||
| Notes payable - related party | ||||||||
| Line of credit - related party | ||||||||
| Derivative liability | ||||||||
| Discontinued operations - current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Notes payable - long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies - See Note 12 | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-1 |
KEYSTAR CORP.
CONSOLIDATED BALANCE SHEETS - Continued
March 31, 2023 | June 30, 2022 | |||||||
| (unaudited) | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock,
series A, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2023, and June 30, 2022, respectively | ||||||||
| Preferred stock, series
B, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2023, and June 30, 2022, respectively | ||||||||
| Preferred stock, series
C, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2023, and June 30, 2022, respectively | ||||||||
| Common stock, $ par value,
shares authorized, and shares issued and outstanding as of March 31, 2023, and June 30, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions receivable | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
KEYSTAR CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended March 31, | For the nine months ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Operating | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Gain on assignment of assets | ||||||||||||||||
| Gain on refund | ||||||||||||||||
| Loss on sale of equipment | ( | ) | ( | ) | ||||||||||||
| Loss on change in fair value of derivative | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Interest expense - related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss from continuing operations, net of income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income (loss) from discontinued operations, net of income taxes | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: deemed dividend from the purchase of Series C preferred stock | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
KEYSTAR CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
(unaudited)
Preferred Shares Series A $0.0001 Par Value | Preferred Shares Series B $1.00 Par Value | Preferred Shares Series C $0.0001 Par Value | Common Shares $0.0001 Par Value | Additional Paid-In | Stock Subscriptions | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Receipt
of cash from issuance of preferred stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase
and redemption of preferred stock for cash | ( | ) | ( | ) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance
of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of Common stock for acquisition of certain assets of ZenSports | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of Common stock for acquisition of certain assets of Ultimate Gamer | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of preferred stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of preferred stock as compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Amortization
of preferred stock as compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Issuance
of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value
of warrant issued as part of amendment to related party demand line of credit | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Deemed
dividend on purchase of preferred stock | - | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Amortization
of preferred stock as compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
KEYSTAR CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT - continued
(unaudited)
Preferred Shares Series A $0.0001 Par Value | Preferred Shares Series B $1.00 Par Value | Common Shares $0.0001 Par Value | Additional Paid-In | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of preferred stock
for extinguishment of debt | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-5 |
KEYSTAR CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Loss on assignment of assets | ( | ) | ||||||
| Expenses paid on behalf of the company by a related party | ||||||||
| Depreciation and amortization | ||||||||
| Impairment of digital assets | ||||||||
| Issuance of Series C preferred stock for services | ||||||||
| Loss on sale of equipment | ||||||||
| Loss on extinguishment of debt | ||||||||
| Change in fair value of derivative liability | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses - related party | ( | ) | ||||||
| Players balances | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Net purchase of digital assets | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Proceeds from sale of changed | ||||||||
| Cash paid for capitalized software | ( | ) | ||||||
| Cash paid for capitalized gaming license | ( | ) | ||||||
| Cash paid in disposition of assets | ( | ) | ||||||
| Cash paid for acquisition of assets of ZenSports | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayments of amounts due to related party | ( | ) | ||||||
| Cash paid for repurchase of preferred stock | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of Series C convertible preferred stock | ||||||||
| Proceeds from line of credit, related party | ||||||||
| Cash received in satisfaction of stock subscriptions receivable | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Common stock issued for acquisition of assets of ZenSports Inc. | $ | $ | ||||||
| Common stock issued for acquisition of assets of Ultimate Gamer, LLC | $ | $ | ||||||
| Deemed dividends on purchase of Series C Convertible preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-6 |
KEYSTAR CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 1 - ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
KeyStar Corp. (the “Company,” “we”, “us” and “our”) was incorporated on April 16, 2020, under the laws of the State of Nevada, as KeyStar Corp. The company has two wholly owned subsidiaries, one was formed on December 21, 2021, under the State of Nevada, as UG Acquisition Sub, Inc., the second KeyStar TN LLC was formed on December 9, 2022.
Prior to September 15, 2022, our business consisted of the retail sale of masks and similar products, and convention services (together, the “Prior Business”). Through our e-commerce sales channel, we sold KN-95 facemasks, disposable facemasks, and disinfectant wipes through an online store in the United States of America. Through our convention sales channel, we offered convention services, which connect US buyers to Chinese manufacturers. Due to the COVID-19 pandemic, many traditional conventions were postponed in the United States. Accordingly, our convention services had been intended to offer online (or virtual) convention services to potential customers. However, as a result of the commencement of the lifting of many travel restrictions, we adjusted our convention services from coordinating virtual conventions to focusing on certain traditional on-site convention services. Through our KeyStarCorp.com website, we offered trade show booth staffing, trade show booth design, manufacturing, and turn-key trade show booths.
As of June 15, 2022, we hired a new Chief Executive Officer and Chief Financial Officer along with certain key employees of ZenSports, Inc. to explore business opportunities related to software and mobile application development and services related to such technology. On August 26, 2022, the Company entered into an Asset Purchase Agreement to purchase certain technological assets from ZenSports, Inc. The assets were purchased to allow us to offer gambling and entertainment opportunities through technology, principally the online gaming technology and use of the name ZenSports. We did not acquire all the assets of the Company, the assets we didn’t purchase include, among other assets, ZenSport’s legal entity name “ZenSports, Inc.” and those assets related to ZenSports’ physical casino called the Big Wheel Casino, located in Lovelock, Nevada. See Notes 3, 4, and 10.
On September 12, 2022, we entered into an Asset Purchase Agreement between the Company and Excel Members, LLC (“Excel”), a company controlled by Bruce Cassidy, the chairman of our board of directors, to acquire certain assets of Excel a company of which a Company controlled by Mr. Cassidy is the manager, and effectively has a controlling interest. Excel acquired certain assets of a company, Ultimate Gamer, LLC, which was formerly an Esports tournament company, through the assignment for the benefit of the creditor’s court process. See Notes 3, 4, and 10.
On September 15, 2022, we executed an assignment and assumption agreement whereby we assigned our e-commerce sales channel and the convention services operating assets to TopSight Corporation (“TopSight”), a company owned by our former Chief Financial Officer Zixiao Chen, effectively discontinuing our historical operations.
After the foregoing transactions, we have effectively ceased our Prior Business operations and assembled a comprehensive platform capability that enables both business-to-business and direct-to-consumer offerings within the online sports betting, eSports, and fintech/digital currency markets. The platform is targeted at global business opportunities and has been designed as a flexible foundation for corporate growth.
Effective January 10, 2023, Mr. John Linss (“Linss”) resigned as a member of the Company’s board of directors (“Board”) and as the Company’s Chief Executive Officer, Principal Executive Officer, President, and Chief Technology Officer pursuant to the terms of a Separation Agreement and Release dated the same date.
On January 10, 2023, the Board appointed Mark Thomas as the new Chief Executive Officer, Principal Executive Officer, President, and Chief Technology Officer of the Company. Prior to accepting the new position Mr. Thomas was the Company’s Chief Product Officer and was the founder and former Chief Executive Officer of ZenSports, Inc.
| F-7 |
As part of the change in Chief Executive Officers the Board and Mr. Thomas laid out a plan to change the Company’s business focus from the aforementioned comprehensive platform capability that enables both business-to-business and direct-to-consumer offerings within the online sports betting, eSports, and fintech/digital currency markets. To a singular focus on business-to-consumer (B2C) sports betting in one targeted jurisdiction, Tennessee, for up to a two-year period. Management is in the process of finalizing and executing the change in business focus. See note 15.
Basis of Presentation
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended June 30, 2022, filed on October 13, 2022. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
Operating results for the three and nine-month periods ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending June 30, 2023. The condensed balance sheet at March 31, 2023, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
Fiscal Year End
The Company’s fiscal year-end is June 30.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Going Concern
The
Company’s consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles
generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities in the normal course of business. The Company has an accumulated deficit of $
The Company is dependent upon, among other things, achieving a level of profitable operations and receiving additional cash infusions including securing additional lines of credit and raising additional capital through placement of preferred and/or common stock in order to implement its business plan. There can be no assurance that the Company will be successful in order to continue as a going concern. The Company is funding its initial operations by securing a related party line of credit, issuing preferred stock, and issuing common stock through private placements.
| F-8 |
We cannot be certain that capital will be provided when it is required or in amounts sufficient to meet our operating requirements. Management believes the existing shareholders, the prospective new investors, and future sales will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the development of its core business operations. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
Cash and Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash includes
amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout
the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of March 31, 2023, the Company’s
cash balance exceeded the FDIC limits by $
Equipment
Equipment
is stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the
asset’s estimated useful life.
| Equipment |
Intangible Assets, internally developed capitalized software, website development costs, and capitalized gaming licenses
Internally developed capitalized software, website development costs, and capitalized costs of gaming licenses are stated at cost, less accumulated amortization. Amortization is calculated using the straight-line method over the asset’s estimated useful life. The capitalization policy for the company is to capitalize intangible assets greater than $5,000. Expenditures for maintenance and repairs are expensed as incurred. Internally developed capitalized software and development and capitalized gaming license costs are included in intangible assets on the balance sheet. When retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from the disposition is reflected in earnings.
Estimated useful lives are as follows:
| Capitalized software, website development and capitalized gaming licenses |
Business intellectual property
Business intellectual property is principally related to technological assets acquired through Asset Purchase Agreements which are carried at cost, less accumulated amortization. Amortization is calculated using the straight-line method over the asset’s estimated useful life. Expenditures for maintenance and repairs are expensed as incurred. Business intellectual property is included in intangible assets on the balance sheet. When retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts, and the net difference less any amount realized from the disposition is reflected in earnings. As of March 31, 2023, the business intellectual property had not been placed in service and as such there was no depreciation during the period. See Note 3.
| F-9 |
Estimated useful lives are as follows:
| Business intellectual property |
At March 31, 2023, the Company acquired definite-lived intangible assets consisting of goodwill and trademarks.
Digital assets
Digital assets are carried at cost and are principally comprised of our SPORTS utility token and various digital assets including Bitcoin, Ethereum, ICX, and USDT, with indefinite useful lives. The Company identifies the lowest traded value per currency in a fiscal quarter and if the value is lower than the recorded value, we record a permanent impairment at that time. Intangible assets determined to have an indefinite useful life are not amortized.
Gaming licenses
Certain costs, generally legal and professional fees, are required to attain jurisdictional gaming licenses in order to legally operate our core sports betting business. Gaming licenses, with indefinite useful lives, are tested at least on an annual basis as to the assets that have been impaired. Intangible assets determined to have an indefinite useful life are not amortized. Annual gaming license fees and legal and professional fees required to maintain the licenses are recorded as period costs in the statement of operations.
Goodwill
Goodwill is carried at cost and is principally related to business intellectual assets acquired, with indefinite useful lives. The Company tests at least on an annual basis whether with indefinite useful lives is impaired. Intangible assets determined to have an indefinite useful life are not amortized.
Trademarks
Trademarks are carried at cost and are mainly related to branding and promotion, with indefinite useful lives. The Company tests at least on an annual basis whether trademarks with indefinite useful lives are impaired. Intangible assets determined to have an indefinite useful life are not amortized.
The Company conducts its annual impairment tests at June 30 of each year or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. At March 31, 2023, management determined there was no impairment identified for any trademarks with indefinite useful lives.
Lease Commitments
The
Company has no long-term lease commitments. Effective January 10, 2023, The Company moved its headquarters to Miami Florida. As part
of the move effective January 1, 2023, the Company assumed the office lease of a related party, ZenSports, Inc. The lease expires on
The
Company rented office space for its former corporate headquarters in Las Vegas Nevada on a month-to-month lease for $
Fair Value of Financial Instruments
The Company recognized the fair value of financial instruments in accordance with FASB ASC 820, Fair Value Measurements and Disclosures, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices for identical assets and liabilities in active markets;
| F-10 |
Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company’s derivative liabilities are carried at fair value and are classified as Level 3 liabilities.
The Company’s financial instruments consist principally of cash, prepaid expenses, accounts payable, accrued expenses, related party notes payable, related party line of credit, and notes payable approximate the fair value because of their short maturities.
The Company’s Derivative liabilities are determined based on “Level” 3 inputs, which are significant and unobservable and have the lowest priority. There were no transfers into our out of “Level 3” during the nine months ended March 31, 2023, or the year ended June 30, 2022.
| Description | Total fair value at March 31, 2023 | Quoted prices in Active markets (level 1) | Quoted prices in Active markets (level 2) | Quoted prices in Active markets (level 3) | ||||||||||||
| Derivative liability (1) | $ | $ | $ | $ | ||||||||||||
| Description | Total fair value at June 30, 2022 | Quoted prices in Active markets (level 1) | Quoted prices in Active markets (level 2) | Quoted prices in Active markets (level 3) | ||||||||||||
| Derivative liability (1) | $ | $ | $ | $ |
| (1) |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could transfer a liability in an orderly transaction between willing and able maker participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for the identical assets and liabilities in active markets, where available. When these are not available other inputs used to model fair value such as prices of similar instruments, yield curves, volatilities., prepayment speeds, default rates credit spreads, rely first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair value as discussed above.
Derivative Liabilities
he
Company accounts for derivative instruments in accordance with ASC 815, “Derivatives and Hedging” and all derivative
instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value
to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction
between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable
market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are
used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit
spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different
valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and
may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework
associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above.
As of March 31, 2023, and December 31, 2022, the Company had a derivative liability of $
| F-11 |
Players Balances
The player’s balances are comprised of sports betting deposits (when the company is operating its sports betting app) and eSports and other contest winnings. The balances are comprised of our SPORTS utility token and various digital assets including Bitcoin, Ethereum, ICX, USDT, and USD. We fair market value each currency to the closing market value on the last day of each fiscal quarter. Gains and losses are recorded in the statement of operations.
Revenue Recognition
The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which consists of five steps to evaluating contracts with customers for revenue recognition: (a) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
Revenue recognition for our Prior Business occurred at the time we satisfy a service performance obligation to our customers or when control of product transfers to customers upon shipment, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only recorded revenue when collectability was probable. All payments are received upon order of services and prior to delivery of the product, so we have no accounts receivable.
The Company’s Prior Business was providing quality merchandise through its former online store in the United States of America. Due to the COVID-19 pandemic, the Company was focusing on providing disposable face masks and KN-95 face masks at affordable prices. Customers ordered and paid for the products through the online store, when the Company confirmed the order and payment, the Company delivered the product through common carriers, at which point the Company recognized revenue, as this is when our performance obligation is satisfied. The Company recorded actual sales returns when the customers return the products. The transaction price has not been affected by returns as the Company did have significant returns.
All
prior business operations, including sales and revenues, are included in the net income (loss) from discontinued operations, net of income
taxes in the statement of operations. For the three months ended March 31, 2023, and 2022, the Company recognized e-commerce sales of
products $-
For the three and the nine months that ended March 31, 2023, there were no revenues from our continuing operations. Revenues from operations are not expected to commence until we have been approved for a gaming license and have begun Sport Betting operations. During February 2023 we submitted our sports betting gaming application in Tennessee and are awaiting approval. We expect to generate revenues from our sports betting mobile app offerings within 1 to 2 months after we receive license approval. See note 15.
Cost of Revenues
Costs of revenues from our Prior Business primarily consisted of outsourced vendors for both types of revenues. The Company includes product costs (i.e., material, direct labor, and overhead costs) and shipping and handling expenses in cost of revenues. All prior business operations, including cost of revenues, are included in the net income (loss) from discontinued operations, net of income taxes in the statement of operations. See Note 14.
There are currently no costs of revenues associated with our continuing operations.
| F-12 |
The Company records stock-based compensation in accordance with ASC 718m “Compensation- Stock Compensation”, using the fair value method. All transactions in which services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for Stock-based compensation awards issued to non-employees for services as prescribed by ASC 718, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Updated (“ASE”) 2018-07.
The Company uses certain pricing models to calculate the fair value of stock-based awards. This model is affected the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
Income Taxes
The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s balance sheet in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income, and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the statements of operations.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return.
Under
ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is
more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized
if it has
Basic earnings per share (“EPS”) are determined by dividing the net earnings by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method. As of March 31, 2023 and 2022, there were and potentially dilutive shares that need to be considered as common share equivalents and because of the net loss, the effect of these potential common shares is anti-dilutive, respectively.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a potential impact on the Company’s results of operations, financial position, or cash flow.
| F-13 |
NOTE 2 - EQUIPMENT
Equipment
and Website development costs of $
The Company’s equipment consisted of the following as of:
| March 31, 2023 | June 30, 2022 | |||||||
| Equipment | $ | $ | ||||||
| Total | ||||||||
| Less: accumulated depreciation | ||||||||
| Equipment, net | $ | $ | ||||||
Depreciation
expense of equipment during the nine months ended March 31, 2023, and 2022 was $
NOTE 3 - STRATEGIC ASSET ACQUISITIONS
ZenSports, Inc.
Prior to entering the Transaction, on June 16, 2022, we hired certain employees “Key Persons” of ZenSports, Inc. including Mark Thomas as our Chief Product Officer and is our Chief Executive Officer. Mr. Thomas is still the Chief Executive Officer and sole member of the board of directors of ZenSports. The Key Persons, as a group, are collectively the record and beneficial owners of a majority of the issued and outstanding shares of capital stock of the surviving ZenSports, Inc.
On
August 26, 2022, shares of the Company’s common stock, valued at $ per share, which is the same consideration paid
by unrelated and non-affiliated investors in our current private offering of common shares, were issued in exchange for the purchase
of certain technological assets of ZenSports, Inc. Concurrently the Company issued shares of common stock in conjunction with
a $
ZenSports is in the business of offering gambling and entertainment opportunities through technology and a physical casino. The Company purchased a portion of ZenSports’ assets, principally the online gaming technology and use of the name ZenSports. The assets we didn’t purchase include, among other assets, ZenSports legal entity name “ZenSports, Inc.” and those assets related to ZenSports’ physical casino called the Big Wheel Casino, located in Lovelock, Nevada.
Pursuant
to the terms and conditions of the APA, the aggregate purchase price paid to ZenSports consisted of cash in the amount of $
In connection with the Transaction and issuance of the Transaction Shares, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with ZenSports (together with any other party that may become a party to the Registration Rights Agreement, “Holders”). Pursuant to the Registration Rights Agreement, subject to the terms and conditions set forth therein, we are obligated, among other things, to use our reasonable best efforts to prepare and file on the six-month anniversary of our common stock becoming listed on the New York Stock Exchange, The NYSE American, The Nasdaq Global Market, The Nasdaq Global Select Market, The Nasdaq Capital Market or any successor or substantially equivalent national securities exchange a registration statement covering the sale or distribution from time to time of our common stock held by Holders. We are also obligated to provide for the registration of such registrable securities for resale by Holders in accordance with any reasonable method of distribution elected by Holders, and to use our reasonable best efforts to cause such registration statement to be declared effective by the Securities and Exchange Commission as promptly as is reasonably practicable.
| F-14 |
Cash payments for ZenSports, Inc. pursuant to the APA and related financings:
In
connection with the Transaction, on August 31, 2022, we paid an aggregate of $
On
August 26, 2022, we closed on a private offering of our common stock where we sold an aggregate of shares of our common stock
to 11 third-party investors at a price of $ per share for an aggregate purchase price of $
The
provisional fair value of the purchase consideration issued to the ZenSports asset sellers was allocated to the net tangible assets acquired.
The Company accounted for the ZenSports asset acquisition as the purchase of a business under the acquisition method of accounting, and
the assets and liabilities we recorded as of the acquisition date, at their respective fair values and consolidated with those of the
Company. The fair value of the assets acquired as approximately $
The fair value of the assets acquired, liabilities assumed, and consideration transferred denoted below are provisional in nature and based on management’s best estimates using information that has been obtained as of the reporting date. The Company is awaiting additional valuation information and expects to finalize the purchase price purchase allocation before the end of the fiscal year.
The table below shows a preliminary analysis for the ZenSports asset acquisition:
| Purchase consideration at preliminary fair value: | ||||
| Common Stock | $ | |||
| Cash | ||||
| Amount of consideration | $ | |||
| Assets acquired and liabilities assumed at preliminary estimated fair market value: | ||||
| Digital assets | $ | |||
| Prepaid expenses | ||||
| Players liability | ( | ) | ||
| Intellectual property | ||||
| Net assets acquired | $ | |||
| Total net assets acquired | $ | |||
| Provisional goodwill | ||||
| Total assets acquired and liabilities assumed at preliminary fair market value | $ | |||
| F-15 |
Proforma
The following unaudited proforma results of operations are presented for information purposes only. The unaudited proforma results of operations are not intended to present actual results that would have been attained had the ZenSports asset acquisition been completed on July 1, 2021, or to project potential operating results as of any future date for any future periods.
For the nine months ended March 31, 2023, ZenSports contributed revenue
and net loss of $
For the three months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||
For the Nine months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||
Ultimate Gamer
On September 12, 2022, we entered into an Asset Purchase Agreement with Excel Members, LLC, a company controlled by Bruce Cassidy, our Chairman and a member of our Board of Directors, to acquire certain assets of a company acquired previously by Excel through an assignment for the benefit of creditors. Ultimate Gamer, LLC (“UG”), which was formerly in the business of organizing and operating in-person and online video game competitions tournaments, originally owned these assets. The purchased assets included the brand name Ultimate Gamer.
We
purchased a portion of the UG assets, consisting primarily of intellectual property, including trademarks, domain name registrations,
and UG’s database(s) of users and gamers for shares of our common stock, valued at $
The transaction is a related party transaction and as such the acquired assets were valued at net book value on the date of the acquisition and the remaining amounts paid in excess of the net book value were recorded directly to equity and are included in additional paid-in capital on the balance sheet. See Notes 8 and 10.
A summary of the assets acquired at provisional net book value (NBV) allocated is as follows:
| Website | $ | |||
| Trademarks | ||||
| Equipment | ||||
| Total assets acquired at provisional net book value | $ |
After the foregoing transactions and the disposition of our prior business, we have effectively ceased our Prior Business operations. See Notes 1 and 12.
NOTE 4 - LONG LIVED INTANGIBLE ASSETS
Digital
assets are carried at cost and are principally comprised of our SPORTS utility token and various digital assets including Bitcoin, Ethereum,
ICX, and USDT, with indefinite useful lives. The impairments recorded in the statement of operations during the nine months ended March
31, 2023, for the year ended June 30, 2022, were $
| F-16 |
Digital assets are comprised of the following at:
| March 31, 2023 | June 30, 2022 | |||||||
| SPORTS utility token | $ | $ | ||||||
| Ethereum | ||||||||
| ICX | ||||||||
| USDT | ||||||||