ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OVERVIEW
We were incorporated under the laws of the State of Delaware, August 18, 1992. Prior to the
Acquisition (as defined below), we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended). As a result of the Acquisition, we have ceased to be a “shell company” and will continue as a publicly
traded company under the name StemGen, Inc. The existing business operations of D3esports, Inc. will continue as our wholly subsidiary.
On January 29, 2019 (the “Closing Date”), we completed and closed the acquisition
(the “Acquisition”) under an Agreement and Plan of Reorganization (the “Reorganization Agreement”), entered into
by and among (i) StemGen, Inc.(“StemGen”); (ii) D3esports, Inc., a Wyoming corporation (“D3esports”); and (iii)
the shareholders of D3esports (“Sellers”) pursuant to which D3esports became a wholly owned subsidiary of ours. Pursuant to
the Reorganization Agreement, we acquired from the Sellers all of the issued and outstanding equity interests of D3esports in exchange
for 39,631,587 shares of our common stock, par value $0.001 per share and 7,000,000 shares of Preferred Stock, par value $0.001 per share.
As a result of the Acquisition, the Sellers, as the former shareholders of D3esports, became the controlling shareholders of the Company.
The Acquisition was accounted for as a reverse merger notwithstanding it is legally a reverse acquisition. For accounting purposes, D3esports
is the acquiring entity. Current and comparative consolidated financial statements include the accounts of D3esports since inception (May
1, 2018) and StemGen from the date of acquisition (January 29, 2019) (collectively, the “Company”).
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP, which requires management
to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other
factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, we
review our accounting policies and how they are applied and disclosed in our consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered
support the preparation of our consolidated financial statements in conformity with GAAP, actual results could differ from our estimates
and such differences could be material.
For a full description of our critical accounting policies, please refer to Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended June 30, 2020
on Form 10-K.
Results of Operations
Nine months ended March 31, 2021 and 2020
Revenue
We recognized revenue of $39,000 for the nine months ended March 31, 2021 compared to revenue
of $1,750 during the comparable period of 2020. We expect our revenue to be intermittent in the near term.
Cost of Revenue
We incurred cost of revenue of $35,454 for the nine months ended March 31, 2021 compared to
costs of $3,725 during the comparable period of 2020.
Depreciation
We incurred depreciation expense of $51,527 and $4,843 for the nine months ended March 31,
2021 and 2020.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $103,481 for the nine months
ended March 31, 2021 compared to $38,922 for the comparable period of 2020, related to higher equipment, professional and marketing expenses.
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Interest Expense
We incurred interest expense of $105,600 for both the nine months ended March 31, 2021 and
2020 primarily related to statutory interest on convertible notes payable.
Loss on sale of property and equipment
We recognized a loss on sale of property and equipment of $25,500 for the nine months ended
March 31, 2021 related to the sale of one race car.
Loss on fair value of derivative
We recognized a loss on fair value of derivative of $17,189 for the nine months ended March
31, 2021 compared to a loss of $17,172 during the comparable period of 2020 based on the valuation of the derivatives.
Net Loss
We incurred a net loss $299,751 for the nine months ended March 31, 2021 compared to a loss
of $168,582 for the comparable period of 2020 related to the items discussed above.
Three months ended March 31, 2021 and 2020
Revenue
We recognized no revenue for the three months ended March 31, 2021 and 2020. We expect our
revenue to be intermittent in the near term.
Cost of Revenue
We incurred cost of revenue of $5,128 for the three months ended March 31, 2021, compared
to $3,725 for the comparable period of 2020 related to the revenue generated in the periods.
Depreciation
We incurred depreciation expense of $18,845 and $4,843 for the three months ended March 31,
2021 and 2020.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $33,335 for the three months
ended March 31, 2021 compared to $3,218 for the comparable period of 2020, related to higher equipment, professional and marketing expenses.
Interest Expense
We incurred interest expense of $35,200 for both the three months ended March 31, 2021 and
2020, primarily related to statutory interest on convertible notes payable.
Loss on fair value of derivative
We recognized a loss on fair value of derivative of $5,729 for the three months ended March
31, 2021 compared to a loss of $5,717 during the comparable period of 2020 based on the valuation of the derivatives.
Net Loss
We incurred a net loss $98,237 for the three months ended March 31, 2021 compared to a loss
of $52,703 for the comparable period of 2020 related to the items discussed above.
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Liquidity and Capital Resources
At March 31, 2021, we had cash on hand of $10,855 and negative working capital of $1,661,872.
We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order
to implement our business plan. There is no guarantee that we will be able to obtain funds when we need them or that funds will be available
on terms that are acceptable to the Company.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available
capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance
that such financing will be available.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have
a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Item 4. Controls and Procedures Management’s Report on Internal Control over Financial
Reporting
We carried out an evaluation, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2021. Based upon that evaluation, our principal executive officer
and principal financial officer concluded that, as of March 31, 2021, our disclosure controls and procedures were not effective to ensure
that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the required time periods and is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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1.
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As of March 31, 2021, we did not maintain effective controls over the control environment.
Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted
in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as
an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive
effect across the organization, management has determined that these circumstances constitute a material weakness.
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As of March 31, 2021, we did not maintain effective controls over financial statement disclosure.
Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial
statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
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Our management, including our principal executive officer and principal financial officer,
who are the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during
the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
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