Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward- looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward- looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.





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 wholly-owned subsidiary was formed on December 21, 2021, under the State of Nevada, as UG Acquisition Sub, Inc.

Prior to September 15, 2022, our business consisted of the retail sale of masks and similar products, and convention services (together, "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.

On August 26, 2022, we 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.

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.

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On September 15, 2022, we entered into an agreement to assign all of the Prior Business' rights, including certain of its assets and liabilities, to TopSight Corporation ("TopSight"), a company owned by Zixiao Chen, our former Chief Financial Officer until her resignation effective December 17, 2021. TopSight's services terminated concurrently.

As a result of the foregoing transactions, we have effectively ceased operations relating to our Prior Business and commenced operations relating to both B2B and B2C offerings within online sports betting, eSports, and DeFi fintech (collectively, "New Business"). With our New Business, augmented by net new development of products and services, we intend to pursue global business opportunities through a platform we've designed to be a flexible foundation for corporate growth.

Through our ZenSports brand we will be offering a modern, full-featured, native mobile, and global online sports betting platform incorporating a sports book, peer-to-peer betting, fiat ($, €, £, ¥, etc.), and digital currency for betting, eSports wagering, loyalty, and player retention.

Through our Ultimate Gamer brand, we expect to offer a modern, full-featured mobile and PC-based eSports tournament management platform designed to improve the overall experience and reduce digital friction for the 3.24 billion gamers that seek the ability to curate their online gaming experience in a personalized manner.

Through our Burstive brand, we expect to offer comprehensive financial services utilizing a Decentralized Finance (DeFi) backbone that will incorporate a blockchain-based digital currency and marketplace infrastructure. Burstive is integrated with our ZenSports and Ultimate Gamer brands, and together they provide differentiation in their respective markets and a foundation for success for white-label partners in online sports betting, eSports, e-commerce, and financial services.

Being a start-up company, our Prior Business had limited revenues and limited operating history. Our New Business continues in a start-up mode as we aggregate our recent asset acquisitions and continue the development of our comprehensive platform capability. At present, we are pursuing both a global licensing strategy for obtaining online gaming licenses and a go-to-market strategy to monetize our assets. As part of our growth strategy, we expect to continue to raise funds from time to time to support our strategic organic and M&A activities.

The website for our Prior Business is https://www.keystarshop.com. Our Prior Business was an online-based company with no demand for a physical storefront location. Our New Business is a mobile app and online-based technology company with no demand for a physical storefront location. The website for our New Business is https://www.keystarcorp.com. The information on our website is not made a part of this Annual Report. Our headquarters address is 8400 W Sunset Rd Suite 300, Las Vegas, NV 89113. Our phone number is: (866) 783-9435.

Results of Operations for the Three Months Ended September 30, 2022 and 2021

During the three months ended September 30, 2022, and 2021, we incurred net losses from continuing operations of $1,401,675 and $24,503, respectively, and net income (loss) from discontinued operations of $(9,380) and $826, respectively. For the three months ended September 30, 2022, there were no revenues from our continuing operations. Revenues from continuing operations are not expected to commence until we have been approved for gaming licensing and have begun Sport Betting operations and/or we have paying customers from our eSports or fintech/digital currency programs. We are in the process of applying for gaming licenses in multiple jurisdictions, including international markets, and are building out our eSports platform offerings. We expect to generate revenues from one or both of our platform offerings within 3 to 6 months.

The significant driver to our losses is principally related to salary, wages, and consulting fees to ready our acquired technology for business and compliance activities expected to commence over the coming months and for professional fees associated with our acquisitions, financings, and licensing activities. During the three months ended September 30, 2022, we closed on two above-noted acquisitions and spun off our Prior Business. We funded these activities by securing funding of $650,000 for the issuance of 2,166,665 shares of our Preferred Series C preferred, an aggregate of $1,430,000 from the issuance of 1,430,000 of our

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common stock from private placements, and from an increase in our related party demand line of credit from $250,000 to $2,000,000 on which we drew down on $1,043,856.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts payable and accrued expenditures, and capital expenditures, including the costs associated with internally developed software and attaining Gaming licenses.

As of September 30, 2022, we had total current assets of $501,206 and total current liabilities of $1,850,069, and a total working capital deficit of $(1,348,863).

Net cash used in operating activities increased by $1,156,113 during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase is principally the result of the increase in net loss of $1,411,055 offset by a $208,599 increase in accounts payable and accrued expenses.

The increase in net loss is primarily due to an $833,050 increase in salaries and wages less $36,740 in non-cash compensation and $343,528 in legal and professional fees associated with our asset acquisitions, fundraising, licensing, and other legal and professional costs associated with our transition from our Prior Business to our New Business. Other significant factors are due to the increase in operating expenses of $112,359, for costs principally associated with SAAS and hosting costs, and a $77,720 increase in sales and marketing as we begin to promote our new operations, principally eSports at this time.

Net cash used in investing activities increased by $1,643,094 during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase is principally the result of the acquisition of certain assets of ZenSports and Ultimate Gamer and the costs associated with the disposition of our Prior Business.

Cash paid for the acquisitions of certain assets of ZenSports was $1,511,787. Cash associated with the disposition of our Prior Business was $77,000, principally related to the settlement of related a demand note payable to TopSight for $35,000, the accrued expenses payable to Ms. Chen of $20,000 and payment of $22,000 for 2,000,000 preferred shares of Series A stock owned by TopSight.

Net cash provided by financing activities increased by $3,227,608 during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase is principally from fundraising and financing used in our acquisitions and to support operations.

The increase in net cash provided by financing is comprised of proceeds of $650,000 for the issuance of 2,166,665 shares of our Preferred Series C preferred stock, the receipt of $102,760 from subscriptions receivable relating to a prior offering of our Series C preferred stock, an aggregate of $1,430,000 from the issuance of 1,430,000 of our common stock from private placements, and increase of $1,043,856 from a draw down on our related party demand line of credit.

We were incorporated on April 16, 2020. Our operations from our Prior Business, to date, our efforts have been devoted primarily to startup and development activities, resulting in negative cash flows and an accumulated deficit from inception through disposition on September 15, 2022. During the three months that ended September 30, 2022, we closed on acquisitions of certain assets of ZenSports and Ultimate Gamer and divested our Prior Business.

We purchased the assets of ZenSports and Ultimate Gamer so we could offer gambling, eSports entertainment, and Decentralized Finance (Defi) opportunities through the acquired technology we are currently enhancing.

As of the filing date of this Quarterly Report, we have ceased all operations relating to our Prior Business and commenced executing our business plan for our New Business. Since our New Business has no history of generating revenues or operating successfully, we will be dependent upon, among other things, achieving a level of profitable operations and receiving additional cash infusions including securing

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additional lines of credit and raising additional capital through the placement of preferred and/or common stock in order to implement our business plan. Because of our limited operating history, it is difficult to predict our capital needs on a monthly, quarterly, or annual basis. We will have limited capital available to us if we are unable to raise money through private equity offerings or find alternate forms of financing, which we do not have in place at this time.

We do not expect significant revenues in the short term as we transition from our Prior Business to our New Business until we secure jurisdictional gaming licenses allowing us to generate revenues from our Sports Betting capabilities or obtain sponsors or other customers from our eSports or Defi offerings.

We expect to incur significant increases in operating costs as we incur the costs of transitioning from our Prior Business to our New Business and begin to execute our New Business operating plan. The expected significant increases in costs will include, but not be limited to, costs relating to obtaining gaming licenses, technology development, sales and marketing, and legal and professional.

Off Balance Sheet Arrangements

As of September 30, 2022, we had no off balance sheet arrangements.





Going Concern

As of September 30, 2022, the Company has a working capital deficit of $1,348,863. The Company had a net loss from continuing operations of $1,401,675 for the three months ended September 30, 2022. We currently have no customers and will not generate revenues until We do not expect significant revenues in the short term as we transition from our Prior Business to our New Business until we secure jurisdictional gaming licenses allowing us to generate revenues from our Sports Betting capabilities or obtain sponsors or other customers from our eSports or Defi offerings. We expect to incur significant increases in operating costs as we incur the costs of transitioning from our Prior Business to our New Business and begin to execute our New Business operating plan. The expected significant increases in costs will include, but not be limited to, costs relating to obtaining gaming licenses, technology development, sales and marketing, and legal and professional.

These conditions raise substantial doubt about the Company's ability to continue as a going concern for a period of one year from the issuance of these financial statements. Because of these conditions, the Company will require additional working capital to develop business operations. Management's plans are to raise additional working capital through the sale of debt and/or equity instruments as well as to generate revenues for other services. There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company's working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.

The financial statements do not include any adjustments relating to the recoverability and classification of asset-carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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