KEYR Keystar Corporation (PK)

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 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, 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 4, 5, 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 4, 5, 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 Company’s Chief Product Officer and was the founder and former Chief Executive Officer of ZenSports, Inc.

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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 six-month periods ended December 31, 2022, are not necessarily indicative of the results that may be expected for the year ending June 30, 2023. The condensed balance sheet at December 31, 2022, 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 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 $4,641,334 as of December 31, 2022. The Company had a net loss from continuing operations of $3,109,647 and negative cash flows of $2,171,262 from operations for the six months ended December 31, 2022. These conditions raise substantial doubt about the entity’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Our independent auditors, in their report on our audited financial statements for the year ended June 30, 2022, expressed substantial doubt about our ability to continue as a going concern.

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.

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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 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 December 31, 2022, the cash balance did not exceed the FDIC limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

Inventory

Historically inventory was carried at the lower of cost and estimated net realizable value, with cost being determined using the first-in, first-out (FIFO) method. The Company established reserves for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated net realizable value of the inventory based on the estimated reserve percentage, which considers historical usage, known trends, inventory age, and market conditions. When the Company disposed of excess and obsolete inventories, the related disposals were charged against the inventory reserve. On September 15, 2022, the remaining balance of inventory was assigned to TopSight, a company owned by Ms. Chen, the Company’s former Chief Financial Officer. See Note 2.

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. The capitalization policy for the company is to capitalize equipment purchases greater than $1,000. Expenditures for maintenance and repairs are expensed as incurred. 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:

Intangible Assets, internally developed capitalized software, and website development costs

Internally developed capitalized software, and website development costs 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 is 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:

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Business intellectual property

Business intellectual property is principally related to technological assets acquired through Asset Purchase Agreements and is 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 December 31, 2022, business intellectual property had not been placed in service and as such there was no depreciation during the period. See Note 4.

Estimated useful lives are as follows:

At December 31, 2022, 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 Cryptocurrencies 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 December 31, 2022, 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 September 30, 2023, and has a minimum monthly lease payment of $6,500.

The Company rented office space for its former corporate headquarters in Las Vegas Nevada on a month-to-month lease for $1,700 per month. The Las Vegas lease was terminated effective January 31, 2023. Prior to

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September 15, 2022, the company rented a storage facility for its inventory on a variable month-to-month lease agreement, rents ranged from $58 to $123 per month.

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;

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.

As of December 31, 2022, the balances reported for cash, prepaid expenses, accounts payable, accrued expenses, related party notes payable, and related party line of credit approximate the fair value because of their short maturities.

The Company has had no transfers between levels of its assets or liabilities as of December 31, 2022.

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 Cryptocurrencies 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: (i) 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 Busines 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 based as the Company did have significant returns.

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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 December 31, 2022, and 2021, the Company recognized e-commerce sales of products $-0- and, $2,400, and Convention services revenues of $-0- and $35,490 respectively. For the six months ended December 31, 2022, and 2021, the Company recognized e-commerce sales of products $-0- and, $9,542, and Convention services revenues of $-0- and $35,490 respectively. See note 14.

For the three and the six months that ended December 31, 2022, 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 costs of revenues s, 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.

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 less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.

Earnings per Share

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 December 31, 2022, there were 20,547,070 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.

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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.

NOTE 2 - INVENTORY

As of December 31, 2022, and June 30, 2022, the value of inventory was $0 and $992, respectively.

Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory on estimated reserve percentage, which considers historical usage, known trends, inventory age, and market conditions. All inventory is associated with discontinued operations. As of December 31, 2022, and June 30, 2022, the Inventory reserve was $0 and $175, respectively. See Note 14.

NOTE 3 - EQUIPMENT AND CAPITALIZED SOFTWARE

Equipment and Website development costs of $7,903 of $26,037, respectively, were acquired on September 12, 2022, as part of the acquisition of the assets of Ultimate Gamer, LLC in a related party transaction. The equipment and the Website development costs were recorded at the net book value of Ultimate Gamer, LLC on the date of close, and are included in the respective account balances below.  See note 4.

The Company’s equipment, capitalized software, and website development consisted of the following as of:

Capitalized Software is included in intangible assets on the balance sheet. Depreciation expense of equipment and amortization expense of capitalized software during the six months ended December 31, 2022, were $1,640 and $-0-, respectively.

NOTE 4 - 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. 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.

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On August 26, 2022, 6,500,000 shares of the Company’s common stock, valued at $1.00 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 750,000 shares of common stock in conjunction with a $750,000 private placement in a public company. In connection with the Transaction, on August 31, 2022, we paid an aggregate of $1,000,000 in bonuses to Key Persons (the “Bonuses”) as defined in the Asset Purchase Agreement (APA).

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, ZenSport’s 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 $481,194; cash in the amount of $1,030,593 for Bonuses including employer payroll taxes; 5,850,000 shares of our common stock, valued at $1.00 per share, which is the same consideration paid by unrelated and non-affiliated investors in our private offering of common shares which closed on August 26, 2022 (the “Stock Consideration”); and (iii) 650,000 additional shares of our common stock subject to set off or recoupment by us until August 25, 2023, in connection with any indemnified losses we may incur pursuant to the Purchase Agreement (the “Holdback Stock,” and together with the Stock Consideration, the “Transaction Shares”).

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.

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 $1,000,000 in bonuses to Key Persons (the “Bonuses”) as defined in the Asset Purchase Agreement (APA). To pay part of the Bonuses, we borrowed an additional $735,120 under the related party LOC and we used proceeds from the $750,000 Private Offering to pay the remaining amount of the Bonuses and the employer portion of payroll taxes owed as a result of the Bonuses.

On August 26, 2022, we closed on a private offering of our common stock where we sold an aggregate of 750,000 shares of our common stock to 11 third-party investors at a price of $1.00 per share for an aggregate purchase price of $750,000 (the “Private Offering”). Each of the investors had access to information concerning us and our business prospects and represented to us in connection with their purchase that they: (i) acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof; (ii) were accredited investors (iii) could bear the risks of the investment, and (iv) could hold the securities for an indefinite period of time. The offer, sale, and issuance of the shares were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering.  See Notes 9 and 10.

The provisional fair value of the purchase consideration issued to the ZenSports asset sellers was allocated to the net tangible assets acquitted. 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

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value of the assets acquired as approximately $6,756,000. The excess of the aggregate fair value of the net tangible assets has been allocated to goodwill. The Company is currently in the process of completing the preliminary purchase price allocation as an acquisition of certain assets.

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:

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.

The following shows the proforma results for the three and six months ended December 31, 2022, and 2021 as if the acquisition had occurred on July 1, 2021.

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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 1,500,000 shares of our common stock, valued at $56,436. We did not assume any liabilities or obligations of Excel or UG.

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 9 and 10.

A summary of the assets acquired at provisional net book value (NBV) allocated is as follows:

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 5 - LONG LIVED INTANGIBLE ASSETS

Digital assets are carried at cost and are principally comprised of our SPORTS utility token and various Cryptocurrencies including Bitcoin, Ethereum, ICX, and USDT, with indefinite useful lives. The impairments recorded in the statement of operations during the six months ended December 31, 2022, for the year ended June 30, 2022, were $16,976 and $0, respectively.

Digital assets are comprised of the following at:

Business intellectual property and Goodwill were recorded at estimated allocated acquired costs from ZenSports, Inc. on August 26, 2022, as part of an asset purchase agreement. Management used the sellers outside third-party valuation to value the Business intellectual property. The company’s proprietary SPORTS utility token and player balances were valued at fair market value on the date of acquisition using readily available Cryptocurrency market prices, net of impairment. The remaining value was allocated to Goodwill. Management is in the process of contracting with a third-party valuation firm to prepare a valuation and allocation analysis to be used in the final purchase accounting. There was no impairment recorded during the three months that ended December 31, 2022 or the year that ended June 30, 2022. See Notes 4 and 10.

The trademarks were acquired on September 12, 2022, as part of the acquisition of the assets of Ultimate Gamer, LLC in a related party transaction.  The equipment and trademarks acquired were recorded at the net book value of Ultimate Gamer, LLC on the date of close, which included the depreciation for September

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2022. There was no impairment recorded during the six months that ended December 30, 2022, or the year ended

Gaming license costs are primarily comprised of legal and professional fees associated with our application for a gaming license in Tennessee. There was no impairment recorded during the six months that ended December 31, 2022 or the year that ended June 30, 2022. See Note 1.

At December 31, 2022, and June 30, 2022, digital assets, business intellectual property, gaming licenses, trademarks, and are included in Intangible assets, net on the balance sheet. See Notes 4, 11, and 15.

Long-lived intangible assets are comprised of the following at:

NOTE 6 - PLAYERS’ BALANCES

The player’s balances were comprised of sports betting deposits assumed and recorded at the fair market value acquired from ZenSports, Inc. on August 26, 2022, as part of an asset purchase agreement. The balances as of December 31, 2022, are comprised of players betting deposits and contestant prize winnings for eSports and other promotional events. The company is not currently licensed to operate its sports betting app and is in the process of obtaining a gaming license, as such there are no new sports betting deposits since the initial recording, only payouts. The Digital liabilities are valued at fair market value for each currency at the closing market value on the last day of each fiscal quarter. Fair market value gains and losses are recorded in the statement of operations. See Note 4.

Players’ balances are comprised of the following at:

NOTE 7 - NOTES PAYABLE - RELATED PARTY

On April 27, 2020, the Company executed a promissory note with Zixiao Chen, our former Chief Financial Officer for $35,000. The note bears interest at 10% per annum and is due in two business days after demand for payment. The note was repaid in full on July 25, 2022, with $7,853 of accrued interest waived by Ms. Chen. The interest expense for the six months ended December 31, 2022, and 2021 was $0 and $2,016 respectively. See Notes 4, 10, and 13.

On December 30, 2020, the Company executed a promissory note with TopSight, a company owned by Zixiao Chen, our former Chief Financial Officer for cash proceeds of $30,000. The note bears interest at 10%

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per annum and is due in two business days after the demand for payment. On December 17, 2021, TopSight entered into a note purchase and assignment agreement with Eagle Investment Group, LLC, a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our Board of Directors to assign the note to Eagle Investment Group, LLC. Concurrently, we entered into an Allonge agreement with TopSight to change the noteholder from TopSight to Eagle Investment Group, LLC.

As of December 31, 2022, and June 30, 2022, the principal balance is $30,000 and $30,000 and accrued interest is $5,996 and $4,496, respectively. The interest expense for the six months ended December 31, 2022, and 2021 was $1,500 and $1,500, respectively. See Note 13.

On December 28, 2021, in connection with the assignment of that certain Convertible Demand Promissory Note dated April 20, 2020, in the principal amount of $10,000 (the “Demand Note”) that was initially in favor of Zixiao Chen (our Chief Financial Officer at the time of the Demand Note’s issuance) was purchased from Ms. Chen by Eagle Investment Group, LLC, we amended and restated the demand note (the “Demand Note”) that is now in favor of Eagle Investment Group, LLC. a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our Board of Directors. As part of a related transaction, the note was converted into shares of Series B Convertible Preferred Stock. See Note 8.

NOTE 8 - CONVERTIBLE DEBT - RELATED PARTY

On April 20, 2020, the Company executed a convertible promissory note with Zixiao Chen, our former Chief Financial Officer for $10,000. The note bears interest at 10% per annum and is due in two business days after demand for payment. This note is convertible at $0.001 per common share and can be converted by Notice of Conversion at the option of the holder. See Note 11.

On December 28, 2021, the noteholder transferred the loan to another entity that is controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) and the Chairman of our Board of Directors. The Company and the new noteholder mutually agreed to allow the note to be converted into shares of Series B Convertible Preferred Stock at the conversion price of $1.00 per share. The principal balance and accrued interest were converted into 11,693 shares of Series B Convertible Preferred Stock. The fair value of the stock was $833,000 and the Company recorded a loss on extinguishment of debt of $821,307 during the year ended June 30, 2022. See Note 10.

NOTE 9 - LINE OF CREDIT - RELATED PARTY

On February 22, 2022, the Company executed a non-revolving line of credit demand note for $250,000 with Excel Family Partners, LLLP a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our board of directors. The note bears interest at 5% per annum.

On August 16, 2022, the non-revolving line of credit demand note was increased to $2,000,000 under the same terms and conditions. On August 24, 2022, we drew down a total of $1,037,430 on the line of credit of which $735,120 was used to pay net bonus payments made as part of cash payments made in association with the ZenSports asset purchase described below, the remainder was used to pay payroll taxes associated with the ZenSports asset purchase bonus and ongoing operating costs, principally compensation and recurring operating services. As of December 31, 2022, the balance of the line of credit is $2,026,999 including accrued interest. See Notes 4, 13, and 15.

NOTE 10 - STOCKHOLDERS’ DEFICIT

The Company is authorized to issue 475,000,000 shares of common stock, par value $0.0001 per share and 25,000,000 shares of preferred stock, par value $0.0001 per share; of which 1,000,000 shares have been designated as Series A Convertible Preferred Stock, 12,000 shares have been designated as Series B Convertible Preferred Stock and 6,700,000 shares have been designated as Series C Convertible Preferred Stock.

The Series A Convertible Preferred Stock has a liquidation preference of $0.10 per share, has super-voting rights of 100 votes per share, and each share of Series A may be converted into 100 shares of common stock. On August 30, 2022, the Series A shares owned by TopSight, a company owned by Ms. Chen, the Company’s

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former Chief Financial Officer, were redeemed and the Company retired all of the Series A shares. See Notes 4 and 13.

The Series B Convertible Preferred Stock has a liquidation preference of $1.00 per share, has super-voting rights, and votes are determined by multiplying (a) the number of Series B shares held by such holder and (b) the conversion ratio, and each Series B share may be converted into 100 shares of common stock. The authorized Series B shares were increased from 0 to 12,000 shares during the year ended June 30, 2022.

The Series C Convertible Preferred Stock has a liquidation preference of $0.30 per share, plus a 6% per annum liquidation coupon compounded annually since the date of issuance paid only upon a liquidation event, have the right to vote for all matters submitted, including the election of directors, and all other matters as required by law. The Series C shares shall automatically convert into common stock by multiplying the number of Series C shares to be converted by the quotient obtained by dividing (x) the liquidation value by (y) the conversion value upon the date that is the earlier of (a) the closing date of an underwritten, follow-on public offering of shares of the Company’s common stock with gross offering proceeds of not less than $6,000,000; (b) the date the Company receives written notice from a holder of Series C shares of such holder’s desire and intention to convert all or some of such holder’s Series C shares; and (c) June 15, 2024. The number of Series C shares the Company is authorized to issue was increased from 0 to 475,000,000 shares during the year ended June 30, 2022.

Series A Convertible Preferred Stock

On August 30, 2022, the Series A shares owned by TopSight, a company owned by Zixiao Chen, the Company’s former Chief Financial Officer, were redeemed and the Company retired all of the Series A shares. During the six months that ended December 31, 2022, there were no issuances of Series A shares. See Notes 4 and 13.

Series B Convertible Preferred Stock

During the six months that ended December 31, 2022, there were no issuances of Series B shares. See Notes 7 and 8.

Series C Convertible Preferred Stock

On July 11, 2022, the Company sold 2,166,666 shares of its Series C Convertible Preferred Stock at $0.30 per share for total proceeds of $650,000 to related parties. A company managed by a member of Excel Family Partners, LLLP a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our board of directors purchased 1,000,000 shares, Zen SRQ LLC a company associated with a former member of the board of directors purchased 833,332 and Core Speed, LLC a Company owned by John Linss our former Chief Executive Officer and former member of our board of directors purchased 333,333 shares. The proceeds were used to fund operations. See notes 1, 13, and 15.

On August 16, 2022, John Linss our former Chief Executive Officer and former member of our board of directors was issued 2,980,000 shares of our Series C Convertible Preferred Stock as part of an amendment to his employment agreement. The stock was valued at $0.30 per share, the cash price paid for all previous issuances of the stock, and vests over a 3-year period unless certain milestones are met in which case it will fully vest sooner. During the three and six months that ended December 31, 2022, we recorded a non-cash compensation expense of $74,500 and $111,240, respectively to Salaries and wages in the statement of operations. See notes 1, 13, and 15.

Effective January 10, 2023, John Linss our former Chief Executive Officer and former member of our board of directors resigned. As part of the separation agreement and release as of that date, the parties agreed that Mr. Linss through his ownership of CoreSpeed, LLC has rights set forth in the Award Agreement concerning the restricted Series C Convertible Preferred Stock that will be the same as though he did not resign but that his employment was involuntarily terminated by KeyStar without Cause. Accordingly, the parties will consider Linss’s resignation a Vesting Acceleration Event of the restricted Series C Convertible Preferred Stock.

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Linss and Corespeed, LLC, as part of the above-noted separation and release agreement, have agreed to sell and KeyStar has agreed to purchase all of their Series C shares for a total of $2,000,000 pursuant to the terms of definitive agreements which the Parties agree to promptly negotiate and cause to be prepared in good faith. See notes 1, 13 and 15.

Common Stock

During the six months that ended December 31, 2022, there were 6,500,000 shares of common stock issued for the Acquisition of certain assets of ZenSports Inc pursuant to an asset purchase agreement, 1,500,000 shares of common stock issued for the Acquisition of certain assets of Ultimate Gamer LLC pursuant to an asset purchase agreement, and an aggregate 1,430,000 shares of common stock were issued for proceeds of $1,430,000 from the company’s private offering to unaffiliated accredited investors our various dates during the period. See Notes 4, 5, and 13.

On August 26, 2022, we closed on a private offering of our common stock where we sold an aggregate of 750,000 shares of our common stock to 11 third-party investors at a price of $1.00 per share for an aggregate purchase price of $750,000 (the “Private Offering”). Each of the investors had access to information concerning us and our business prospects and represented to us in connection with their purchase that they: (i) acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof; (ii) were accredited investors (iii) could bear the risks of the investment, and (iv) could hold the securities for an indefinite period of time. The offer, sale, and issuance of the shares were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering.  See Note 4

From August 26 to September 26, 2022, we had multiple closings on our private offering whereby we issued a total of 430,000 shares of Common stock at $1.00 per share for proceeds of $250,000, $80,000, and $100,000 totaling $430,000 to unaffiliated accredited investors. The proceeds were used for operating capital.  See Note 12.

NOTE 11 - STOCK OPTIONS

The KeyStar Corp. 2021 Stock Plan (“2021 Stock Plan”) will provide eligible participants with benefits consisting of one or more of the following: Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), and bonuses in the form of common stock in the Company (“Stock Bonuses”). The Board of Directors of the Company or a committee of directors shall administer the 2021 Stock Plan. The Board or committee shall determine what employees or officers shall receive an award under the Plan. ISOs, which are intended to be compliant with Section 422 of the Internal Revenue Code, may be awarded only to employees of the Company. NSOs and Stock Bonuses are not subject to Section 422 of the Internal Revenue Code and can be awarded to employees and non-employee officers. The aggregate number of Shares of the Company that can be awarded under the Plan is 5,960,000 shares of Common Stock, whether in the form of ISOs, NSOs, or Stock Bonuses (or a combination thereof). Awards can be issued under the Plan for ten years from the effective date of the Plan. ISOs may be exercised during a period no longer than 10 years from the date of the award (5 years for individuals who own more than 10% of the combined voting power of the Company). NSOs may be exercised for a maximum period of 10 years from the date of the award. ISOs and NSOs may not be exercised after the earlier of the following: (a) in the event of termination for cause (as defined by the plan): the date of termination; (b) in the event of termination due to death or disability: the earlier of the ISO or NSO’s expiration or one year after the termination due to death or disability; (c) in the event of termination for any other reason: three months following the date of termination. No awards have yet been made under the Plan.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Commitments and Contingencies are as follows:

On June 14, 2022, the Company entered into an employment agreement with John Linss, as the Company’s Chief Executive Officer. The agreement was amended on August 16, 2022. The agreement and amended agreement work in tandem and provide for a 3-year term at an annual base salary of $500,000, a $112,000 signing bonus, a bonus of no less than $425,000 if Mr. Linss is still employed on December 31, 2022, to be

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paid in January 2023, a bonus of $300,000 should the Company achieve a stock listing up-list, a grant on August 16, 2022, of 2,980,000 restricted shares of Series C Convertible Preferred Stock, which includes voting rights upon execution of the employment agreement. The stock vests on June 13, 2025, or sooner upon the company meets certain milestones, as well as participation in any company benefits, stock option, or bonus plans, none of which have been formalized or entered into at this time. The $425,000 bonus was paid on January 31, 2023.

Effective January 10, 2023, John Linss, our former Chief Executive Officer and former member of our board of directors resigned.  As part of the separation agreement and release as of that date, the Parties agreed that Mr. Linss through his ownership of CoreSpeed, LLC has rights set forth in the Award Agreement concerning the restricted preferred series C convertible stock that will be the same as though he did not resign but that his employment was involuntarily terminated by KeyStar without Cause. Accordingly, the Parties will consider Linss’s resignation a Vesting Acceleration Event of the restricted series C convertible stock.

Linss and CoreSpeed, LLC, as part of the above-noted separation and release agreement, have agreed to sell and KeyStar has agreed to purchase all of the Subject Shares for a total of $2,000,000 pursuant to the terms of definitive agreements which the Parties agree to promptly negotiate and cause to be prepared in good faith. The Parties agree that the definitive agreements will include, amongst other things, the following terms: (i) CoreSpeed will sell 333,333 shares of the Subject Shares for $201,200, which purchase price will be paid in immediately available funds at the closing, (ii) Linss will sell 2,980,000 shares of the Subject Shares for $1,798,800, which purchase price will be paid with $98,800 in immediately available funds at the closing and a seller-financing promissory note with a principal amount of $1,700,000.00 (the “Note”). The Parties agree that the Note will be unsecured, will include an interest rate of 5% per annum, will not include early prepayment penalties, and will require the following payments: (A) no less than $850,000, in aggregate, of one or more payments, will be due by the 12-month anniversary of the Note, and (B) a balloon payment for the balance of Note will be due by the earlier of the 24-month anniversary of the Note or 5 days after an Uplist (as that term is defined in the Award Agreement).  See notes 1,12, 13, and 15.

On January 10, 2023, the Board appointed Mark Thomas (“Thomas”) as the new Chief Executive Officer appointment, Thomas has served as the Company’s Chief Marketing Officer and Chief Product Officer since June 2022. In lieu of an employment agreement, Thomas received a written offer letter (the “Offer”) that states he will receive an annual salary of $380,000, and he is eligible to participate in the Company’s benefit plans. Furthermore, by February 1, 2023, the Board will set milestones with incentive compensation (in either annual salary increases or bonuses) in such amounts that, if all of the milestones are met, Thomas’ total annual compensation will reach $500,000 or more.

On February 1, 2023, the Board of Directors approved certain incentives not previously specified in Mr. Thomas’ January 10, 2023 offer letter.  The incentives are as follows:

1.Within 60 calendar days after the Company has $1,000,000 or more in Gross Gaming Revenue, the Board will engage at least two executive compensation consultants to provide reports to the Board regarding the compensation of Chief Executive Officers of comparable companies. The Board will timely review and consider such reports in determining potential adjustments to your “Annual Salary.”  Any adjustments will be at the Board’s sole discretion. 

2.In the event that the Company receives a sports betting license (or equivalent) in the State of Tennessee, within 30 days after the issue date, Mr. Thomas will receive a cash bonus of $50,000. 

3.For the next 24 months, in each event that the Company receives a sports betting license (or equivalent) in a new jurisdiction (other than the State of Tennessee), within 30 days after the issue date, Mr. Thomas will receive a cash bonus in an amount equal to the lesser of (a) $100,000, or (b) the product of 0.01% multiplied by the subject jurisdiction’s trailing 12-month sports betting handle (using the most recent 12 months reported by Legal Sports Report (“LSR”) which currently posts such data at www.legalsportsreport.com/sports-betting/revenue/). After the 24-month period, the Board (or its Compensation Committee, if any) will review and consider an extension or adjustment to this bonus structure.  Any extensions or adjustments will be at the Board’s sole discretion. 

4.If the net loss of the Company for its 2022-2023 fiscal year, as determined by the Company’s Chief Financial Officer, is less than $6,197,719 (the “Benchmark”), Mr. Thomas will be eligible for a cash  

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bonus in an amount equal to 8% of the difference of the actual net loss minus the Benchmark. The cash bonus will be due within 30 days after the determination of the 2022-2023 fiscal year net loss.

Mr. Thomas’ employment with the Company will continue to be “at will.”. If said employment with Company is terminated without “Cause,” he will be entitled to a severance through continued payments of his current annual base salary of $380,000 for 6 months. See notes 1 and 15.

Legal matter contingencies

The Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company. Provisions for losses are established in accordance with ASC 450, “Contingencies” when warranted. Once established, such provisions are adjusted when there is more information available about an event that occurs requiring a change.

NOTE 13 - RELATED PARTY TRANSACTIONS

Transactions with our former and current Chief Executive Officers:

On June 14, 2022, the Company entered into an employment agreement with John Linss, as the Company’s Chief Executive Officer. The agreement was amended on August 16, 2022. The agreement and amended agreement work in tandem and provide for a 3-year term at an annual base salary of $500,000, a $112,000 signing bonus, and certain other bonuses and stock grants. See Note 12.

On July 11, 2022, the company sold 333,333 shares of its convertible preferred series C stock at $0.30 per share for total proceeds of $100,000 to Core Speed, LLC a Company owned by our Chief Executive officer. See Note 12.

Effective January 10, 2023, John Linss, our former Chief Executive Officer and former member of our board of directors resigned. As part of the separation agreement and release as of that date, the Parties agreed that Mr. Linss through his ownership of CoreSpeed, LLC has rights set forth in the Award Agreement concerning the restricted preferred series C convertible stock that the Parties will consider Linss’s resignation a Vesting Acceleration Event of the restricted series C convertible stock.

Linss and CoreSpeed, LLC, as part of the above-noted separation and release agreement, have agreed to sell and KeyStar has agreed to purchase all of the Subject Shares for a total of $2,000,000 pursuant to the terms of definitive agreements which the Parties agree to promptly negotiate and cause to be prepared in good faith. See notes 1,12, 13 and 15.

On January 10, 2023, the Board appointed Mark Thomas (“Thomas”) as the new Chief Executive Officer appointment. In lieu of an employment agreement, Thomas received a written offer letter (the “Offer”) that states he will receive an annual salary of $380,000, and he is eligible to participate in the Company’s benefit plans. Furthermore, by February 1, 2023, the Board will set milestones with incentive compensation (in either annual salary increases or bonuses) in such amounts that, if all of the milestones are met, Thomas’ total annual compensation will reach $500,000 or more.

On February 1, 2023, the Board of Directors approved certain incentives not previously specified in Mr. Thomas’ January 10, 2023 offer letter. See notes 1 and 15.

Transactions with our former Chief Financial Officer:

During the six months ended December 31, 2022, and 2021, the Company’s former Chief Financial Officer, Zixiao Chen paid $3,576 and $3,594 of expenses on behalf of the Company and was repaid $1,424 and $4,084, respectively. In addition, during July 2022, Ms. Chen was paid $20,000 as part of the Assignment and Assumption agreement described below. The balance owing Zixiao Chen recorded in due to a related party in the balance sheet of $0 and $17,576 as of December 31, 2022, and 2021, respectively.

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As of December 31, 2022, and 2021, the balance of accrued Interest due to the Company’s former Chief Financial officer was $0 and $8,859, respectively. The amounts are included in accrued expenses on the balance sheet.

On April 27, 2020, the Company executed a promissory note with our former Chief Financial Officer for $35,000. The note bears interest at 10% per annum and is due in two business days after the demand for payment. As of December 31, 2022, and 2021, the principal balance is $0 and $35,000 and accrued interest is $0 and $5,864. The interest expense for the six months ended December 31, 2022, and 2021 was $2,016 and $0 respectively. The note was repaid in full on July 25, 2022. See Note 7.

On July 26, 2022, the Company made 3 payments to the Company’s former Chief Financial Officer totaling $77,000 for the settlement of the three above-noted liabilities, to redeem and retire the 2,000,000 shares of Series A Convertible Preferred Stock owned by her and outstanding at June 30, 2022, and in anticipation of the execution of assignment and assumption agreement to assume agreed upon assets and liabilities of the Prior Business. The Series A shares were redeemed and retired on July 26, 2022. The assignment and assumption agreement was executed on September 15, 2022. The payments were made as follows. See Notes 4 and 10.

On July 26, 2022, the Company paid off $17,837 in accrued expenses owing to the Company’s former Chief Financial Officer for $20,000, the excess payment of $2,163 was recorded against the gain on assignment in the statement of operations.

On July 26, 2022, the Company paid off the promissory note held by the Company’s former Chief Financial Officer for $35,000. The accrued interest was waived. See Note 7.

On July 26, 2022, the company redeemed and retired the 2,000,000 shares of Series A Convertible Preferred Stock owned by Ms. Chen for $22,000. See Note 10.

Transactions with our former Chief Executive Officer and current Chairman of our Board of Directors:

On July 11, 2022, the company sold 1,000,000 shares of its convertible preferred series C stock at $0.30 per share for total proceeds of $300,000 to a company managed by a member of Excel Family Partners, LLLP a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) and the Chairman of our board of directors. See Note 8.

On August 16, 2022, the non-revolving line of credit demand note with Excel Family Partners, LLLP a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our board of directors was increased to $2,000,000 under the same terms and conditions. Subsequent to December 31, 2022, the Company exceeded the $2,000,000 principal borrowing limit by an aggregate additional borrowing total of $1,037,624. See Notes 4, 10, and 15.

On September 12, 2022, we entered into an Asset Purchase Agreement between the Company and Excel Members, LLC, to acquire certain assets of Excel. Mr. Cassidy, a member of our board of directors, our corporate secretary, and the holder of a majority of our issued and outstanding common stock prior to the Transaction, is a member, manager, and controlling owner of Excel.

We purchased a portion of UG assets, consisting primarily of intellectual property, including trademarks, domain name registrations, and UG’s database(s) of users and gamers for 1,500,000 shares of our common stock, See Notes 4, and 10.

Other related party transactions:

On July 11, 2022, the company sold 833,332 shares of its convertible preferred series C stock at $0.30 per share for total proceeds of $250,000 to Zen SRQ LLC a company where a former member of the board of directors owns a 25% non-controlling interest. See Note12.

Effective January 1, 2023, the Company assumed the office lease of a related party, ZenSports, Inc.  The lease expires on September 30, 2023, and has a monthly lease payment of $7,083. See note 1.

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NOTE 14 - DISCONTINUED OPERATIONS

On September 15, 2022, we entered into an agreement to assign all of the Prior Business’ (discontinued operations) rights including certain of its assets and liabilities to TopSight, a company owned by Zixiao Chen the Company’s former Chief Financial Offer.  See Note 13.

The assets and liabilities of our discontinued operations as of June 30, 2022, are included in the balance sheet for comparative purposes as the assets and liabilities for the three months ended have been adjusted to reflect the assignment to TopSight and are included in Gain on assignment of assets in the statement of operations.

The following table shows the balance sheet of discontinued operations as of:

The following table shows the state of the unaudited discontinued operations: