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, 2021 on Form 10-K.
Results of Operations
Three months ended September 30, 2021 and 2020
Revenue
We recognized no revenue for the three months ended
September 30, 2021 compared to revenue of $24,000 for the three months ended September 30, 2020. We expect our revenue to intermittent
in the near term.
Cost of Revenue
We incurred cost of revenue of $24,675 for the three
months ended September 30, 2020 related to the revenue generated in the period. There was no cost of revenue for the three months ended
September 30, 2021.
Depreciation
We incurred depreciation expense of $18,133 and $13,837for
the three months ended September 30, 2021 and 2020, respectively. The increase in depreciation was related to the acquisition of the race
cars in the prior year.
General and Administrative Expenses
We recognized general and administrative expenses
in the amount of $76,964 for the three months ended September 30, 2021 compared to $31,232 for the comparable period of 2020, related
to higher professional and marketing expenses.
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Interest Expense
We incurred interest expense of $35,200 and $35,200
for the three months ended September 30, 2021 and 2020, respectively, related to statutory interest on convertible notes payable.
Loss on fair value of derivative
We recognized a loss on fair value of derivative of
$5,730 for the three months ended September 30, 2021 compared to a loss of $5,730 during the comparable period of 2020 based on the valuation
of the derivatives.
Net Loss
We incurred a net loss $136,027 for the three months
ended September 30, 2021 compared to a loss of $86,674 for the comparable period of 2020 related to the items discussed above.
Liquidity and Capital Resources
At September 30, 2021, we had cash on hand of $39,379
and negative working capital of $1,752,208. 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€ and 15d-15(e)) as of September 30, 2021. Based
upon that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 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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As of September 30, 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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2.
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As of September 30, 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.