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.
KeyStar Corp., through its Zensports branded offerings is a Sports wagering
operator that offers traditional sports book plus peer-to-peer wagering through
its ZenSports mobile platform. The Zensports platform offers a traditional
sports book where customers can bet against the house, as well as a peer-to-peer
sports betting marketplace. With ZenSports' peer-to-peer marketplace, customers
can create their own bets with their own odds and terms. Peer-to-peer bets can
be shared with friends or via the app's mobile two-sided marketplace, right from
their phone.
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. The above is collectively described as our
historical operations.
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. These technological assets now comprise the
underlying technology in our Sports wagering operator business through ZenSports
mobile platform.
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On September 12, 2022, we entered into an Asset Purchase Agreement with 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.
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 were 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 Decentralized Finance
(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 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.
Effective January 10, 2023, Mr. John Linss ("Linss") resigned as a member of the
Company's board of directors (the "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 Company's Chief
Product Officer and was the founder and former Chief Executive Officer of
ZenSports, Inc.
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. Currently, we are not pursuing a global
licensing strategy for obtaining online gaming licenses and a go-to-market
strategy to monetize our assets. As a result of the above change in leadership
and per communications with the Board, we have repositioned our business model
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.
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 have submitted the full application for
approval to the Tennessee Sports Wagering Advisory Counsel (SWAC) for approval.
We believe we can be licensed in as quickly as three months and continue to work
directly with SWAC, legal counsel and internally to build out our platform's
capabilities in order to facilitate and expedite the licensing process in order
to monetize our assets. As part of our growth strategy, we expect to continue to
raise funds in order to support our strategic organic growth.
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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 78 SW 7th Street,
Suite 800 Miami, FL 33130. Our phone number is: (866) 783-9435.
Results of Operations for the Three and Six Months Ended December 31, 2022, and
2021
During the three months ended December 31, 2022, and 2021, we incurred net
losses from continuing operations of $1,707,972 and $839,780, respectively, and
net income (loss) from discontinued operations of $0 and $5,884, respectively.
During the six months ended December 31, 2022, and 2021, we incurred net losses
from continuing operations of $3,109,647 and $864,347, respectively, and net
income (loss) from discontinued operations of $(9,380) and $6,776, respectively.
For the three and six months that ended December 31, 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 Sports Betting operations. In February 2023, we applied for a gaming
license in Tennessee. We expect the license to be approved and to commence
generating revenues in Tennessee within three to six months.
The significant driver to our losses is principally related to salary, wages,
and contracting fees to ready our acquired technology for operating in
Tennessee. In addition, legal, professional and jurisdictional licensing fees
associated with our licensing activities in Tennessee and legal fees associated
with fundraising. Licensing costs all contribute to our losses and are expected
to increase over the coming months as we get closer to securing a gaming license
and launching our sports betting operations.
During the three and six months that ended December 31, 2022, we closed on the
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 Series C Convertible Preferred Stock, an aggregate of $1,430,000 from the
issuance of 1,430,000 of our 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 $1,749,126 in principal borrowings.
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 December 31, 2022, we had total current assets of $132,245 and total
current liabilities of $3,309,374, and a total working capital deficit of
$(3,177,429). Net cash used in operating activities increased by $2,135,959
during the six months ended December 31, 2022, compared to the six months ended
December 31, 2021. The increase is principally the result of the increase in a
net loss of $2,261,456, a $824,968 increase in operating assets and liabilities
offset by a one-time reduction of $821,307 non-cash loss on extinguisment of
debt and an increase in non-cash related party compensation of $111,240.
The increase in net loss is primarily a result of our transitioning from our
Prior Business to our New Business which resulted in a $3,3037,623 increase in
operating expenses, offset by a reduction in other expenses of $729,324. The
increase in operating expenses is principally comprised of an increase in
salaries and wages of $2,051,908, operating expenses of $293,939, sales and
marketing expenses of $130,277 and an increase in general and administrative
expenses of $559,859. The increase in general and administrative is principally
comprised of 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.
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The reduction in operating expenses is principally the result of a one-time
non-cash loss on extinguishment of debt of $821,307 for the comparable prior
reporting period compared to $0 in the current reporting period.
Net cash used in investing activities increased by $1,856,806 during the six
months that ended December 31, 2022, compared to the six months ended December
31, 2021. The increase is principally the result of the acquisition of certain
assets of ZenSports and Ultimate Gamer, the costs associated with the
disposition of our Prior Business, and the costs of readying our New Business
for gaming licensing and technical operations.
Cash paid for the acquisitions of certain assets of ZenSports was $1,511,647.
Cash associated with the disposition of our Prior Business was $77,000,
principally related to the settlement of a related demand note payable to
TopSight for $35,000, the accrued expenses payable to Ms. Chen of $20,000, and
the payment of $22,000 for 2,000,000 shares of our Series A Convertible
Preferred Stock owned by TopSight, a company owned by our former Chief Financial
Officer. In addition, we capitalized $222,824 for software principally for our
gaming app, and capitalized $39,041 for legal and professional costs for our
Tennesee gaming license.
Net cash provided by financing activities increased by $4,017,189 during the six
months that ended December 31, 2022, compared to the six months that ended
December 31, 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 Series C Convertible
Preferred Stock, the receipt of $102,760 from subscriptions receivable relating
to a prior offering of our Series C Convertible Preferred Stock, an aggregate of
$1,430,000 from the issuance of 1,430,000 of our common stock from private
placements, and an increase of $1,834,430 from draw downs on our related party
demand line of credit.
We were incorporated on April 16, 2020. Since inception, our efforts and
operations from our Prior Business to the date of disposition 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 six months that ended December 31, 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 DeFi opportunities through the acquired
technology we are currently enhancing. In January 2023, John Linss our former
Chief Executive Officer (CEO) resigned and was replaced by our new CEO Mark
Thomas. Mr. Thomas was the founder and remains the CEO of ZenSports, Inc., the
company we acquired our sports betting technology from. As a result of this
change in leadership and consultation with the Board, we have adjusted our
business plan to solely focus on sports betting in one jurisdiction, Tennessee,
for the foreseeable future. Our current management team believes this new focus
will facilitate the revenue generation process more quickly and cost-effectively
by focusing on our limited resources.
As of the filing date of this Quarterly Report, we have ceased all operations
relating to our Prior Business and commenced executing our adjusted 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 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 and until we secure jurisdictional gaming
licenses allowing us to generate revenues from our Sports Betting capabilities.
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 adjusted 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 fees.
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Off Balance Sheet Arrangements
As of December 31, 2022, we had no off-balancesheet arrangements.
Going Concern
As of December 31, 2022, we have a working capital deficit of $3,177,429. We had
a net loss from continuing operations of $3,109,647 for the six months ended
December 31, 2022. We currently have no customers and we do not expect to
generate significant revenues in the short term as we transition from our Prior
Business to our New Business. We cannot generate sports betting revenues until
we secure a jurisdictional gaming license.
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 adjusted 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 fees.
These conditions raise substantial doubt about our ability to continue as a
going concern for a period of one year from the issuance of these financial
statements. Because of these conditions, we 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 once we attain a gaming license . There are no
assurances that we will be able to achieve the level of revenues adequate to
generate sufficient cash flow from operations to support our working capital
requirements. To the extent that funds generated are insufficient, we 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 us.
If adequate working capital is not available, we may not be able to continue our
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 we be unable to
continue as a going concern.
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KEYSTAR CORP. 
