On January 29, 2019, the Company adopted ASC Topic 606 using the modified retrospective method with no impact
to the opening retained earnings and determined there were no changes required to its reported revenues as a result of the adoption.
An analysis of contracts with customers under the new revenue recognition standard was consistent with the Company’s current
revenue recognition model, whereby revenue is recognized primarily on the date products are delivered to the customer or services
are provided. Payments for products or services which have been received prior to the Company fulfilling its performance
obligations are deferred until those obligations are satisfied. Costs related to deferred revenue are included in other assets
until the revenue is recognized.
Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return, our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life of the option.
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. For the nine months ended March 31, 2019, the Company had a net loss of $306,517. As of March 31, 2019, the Company had negative working capital of $1,228,256. Management does not anticipate having positive cash flow from operations in the near future.
These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on increasing revenues and raising the funds necessary to fully implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raise doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company, which will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.
NOTE 2 – COMMITMENTS
The contract with Mainline includes a monthly charge for on-going service and maintenance of the website/gaming platform. The payments are $10,000 per month beginning in September 2018. The contract expires April 30, 2020. Future payments are as follows: $100,000 for the year ending June 30, 2019 and $100,000 for the year ending June 30, 2020.
From time to time, we may be involved in litigation in the ordinary course of business. We are currently involved
in litigation, however, we believe it will not have a material adverse effect on our financial condition or results of operations.
To our knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of our executive officers or any of our subsidiaries,
threatened against or affecting our Company, our common stock, any of our subsidiaries or any of our subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
NOTE 3 – EQUITY
On January 29, 2019, the holder of the Series A Convertible Preferred Stock returned 1,000,000 share to the Company, and the Company canceled those shares.
There are 8,000,000 shares of preferred stock authorized. The board of directors has designated two series of preferred stock as described below.
The Series A Convertible Preferred Stock has a par value of $0.001 and the number of shares constituting such class shall be unlimited. As of March 31, 2019, the Company has 6,000,000 shares of Series A Convertible Preferred Stock issued and outstanding. The Series A Convertible Preferred Stock has priority in liquidation and has a liquidation preference of $1 per share. The Series A Preferred Stock is convertible into shares of common stock at the option of the holder at a rate of three shares of common stock for each share of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock holders are not entitled to receive dividends and have no voting rights. The Series A Convertible Preferred Stock is redeemable by the Company at any time at $1 per share.
The Company has also authorized 1,000,000 shares of Series E Preferred Stock issued and outstanding. The Series E Preferred Stock has a par value of $0.000001 and ranks junior to all the Company’s common and other preferred stock. There are no dividends on the Series E Preferred Stock and there is no participation in liquidation, dissolution or winding-up distribution of the assets of the Company. The shares of outstanding Series E Preferred Stock shall have the right to vote based on the number of votes equal to twice the number of votes of all outstanding shares of capital stock.
The Company has authorized 1,000,000 shares of Series F Preferred Stock. The Series F Preferred Stock has
a par value of $0.000001 per share and ranks junior to all of the Company’s common and other preferred stock. There are no
dividends on the Series F Preferred Stock and there is no participation in liquidation, dissolution or winding-up distribution
of the assets of the Company. The shares of outstanding Series F Preferred Stock shall have the right to vote based on the number
of votes equal to twice the number of votes of all outstanding shares of capital stock such that the holders of the outstanding
shares of Series F Preferred Stock shall always constitute sixty-six and two thirds of the voting rights of the Company. The voting
rights of the Series F Preferred Stock are superior to the voting rights of the Series E Preferred Stock.
- 10 -
On January 29, 2019, the Company issued 1,000,000 shares of Series F Preferred Stock to the Company’s
CEO for services. The shares were valued at $1 based on the estimated market value of the shares.
During the nine months ended March 31, 2019, the Company issued 1,062,493 shares of common stock for legal and consulting services valued at $18,670.
During the nine months ended March 31, 2019, the Company issued 21,600 shares of common stock and received cash proceeds of $21,600.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following at March 31, 2019:
|
|
|
|
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Convertible note issued March 31, 2015, maturing March 31, 2017, bearing interest at 10% per year, until maturity, then 25%. Convertible into common stock at a rate of $0.05 per share. In default as of April 1, 2017.
|
|
$
|
36,340
|
|
Convertible note in the original principal amount of $85,465, issued June 30, 2015 and maturing June 30, 2017,
bearing interest at 10% per year until maturity and 25% thereafter, and convertible into common stock at a rate of $0.05 per share. In default as of July 1, 2017.
|
|
|
85,465
|
|
Convertible note in the original principal amount of $277,208, issued September 30, 2015 and maturing September
30, 2018, bearing interest at 10% per year until maturity and 25% thereafter, and convertible into common stock at a rate of $0.05
per share
|
|
|
277,208
|
|
Convertible note in the original principal amount of $103,072, issued December 31, 2015 and maturing December
31, 2018, bearing simple interest at 10% per year until maturity and 25% thereafter, and convertible into common stock at a rate
of $0.40 per share.
|
|
|
103,072
|
|
Convertible note in the original principal amount of $61,118, issued March 31, 2016 and maturing March 31,
2019, bearing simple interest at 10% per year until maturity and 25% thereafter, and convertible into common stock at a rate of
a 60% discount to the volume weighted average price for the last five trading days prior to conversion.
|
|
|
61,118
|
|
|
|
|
|
|
Total convertible notes
|
|
$
|
563,203
|
|
All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company. The notes are unsecured and are in default.
NOTE 5 – DERIVATIVE LIABILITY
The conversion feature of certain convertible notes payable was accounted for as a derivative liability. The derivative liability at March 31, 2019, was calculated using the Black Scholes method over the expected terms of the convertible notes, with a risk free rate of 2.40% and volatility of 200%.
Included in the accompanying consolidated statements of operations is a loss arising from the change in fair value of the derivatives of $119,192 for the nine months ended March 31, 2019.
NOTE 6 – RELATED PARTY
The Company has been provided warehouse and office space by a shareholder for which $6,000 was paid during the nine months ended March 31, 2019.
The Company paid its chief executive officer, Simon Dawson, $10,000 during the nine months ended March 31, 2019 for compensation.
During the nine months ended March 31, 2019, the Company paid $10,000 to Dawson Racing, an entity owned by Simon and Ian Dawson, for sponsorship branding at Daytona Michelin Tire Test.
On January 29, 2019, the Company issued 1,000,000 shares of Series F Preferred Stock to the Simon Dawson in
exchange for services. The shares were valued at $1 based on the estimated market value of the shares.
As of March 31, 2019, the Company has $73,040 in advances from a shareholder. The advances bear no interest and have no repayment terms.
- 11 -
NOTE 7 – REVERSE ACQUISITION
On the Closing Date, we completed and closed the Acquisition under the Reorganization Agreement, entered into by and among by and among StemGen, D3esports and the Sellers pursuant to which D3esports became a wholly owned subsidiary of StemGen. 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”).
The unaudited pro forma condensed statements of operations give effect to the Merger as if it had occurred
on January 1, 2019 for the statement for the three months ended March 31, 2019 and as of July 1, 2018 for the statement for the
nine months ended March 31, 2019. The unaudited pro forma consolidated statements of operations should be read in conjunction with
(i) StemGen’s Annual Report on Form 10-K for the year ended June 30, 2018, as filed with the SEC on November 2,
2018, (ii) StemGen’s Quarterly Report on Form 10-Q for the three and nine months ended March 31, 2019, included
in this report, and (iii) D3’s audited financial statements for the period from inception (May 1, 2018) through June
30, 2018 included on StemGen’s Current Report on Form 8-K/A filed with the SEC on February 15, 2019.
The unaudited pro forma condensed financial statements are for illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the Merger had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of March 31, 2019.
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|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
StemGen
As Reported
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
for Merger
|
|
LOSS FROM OPERATIONS
|
|
$
|
(56,901
|
)
|
|
|
|
$
|
(56,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(19,820
|
)
|
(9,910
|
)
|
|
|
(29,730
|
)
|
Loss on fair value of derivative liability
|
|
|
(119,192
|
)
|
|
|
|
|
(119,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(195,913
|
)
|
$ (9,910
|
)
|
|
$
|
(205,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE – Basic and diluted
|
|
$
|
(0.01
|
)
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – Basic and diluted
|
|
|
32,644,328
|
|
|
|
|
|
45,414,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2019
|
|
|
|
StemGen
As Reported
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
for Merger
|
|
LOSS FROM OPERATIONS
|
|
$
|
(167,505
|
)
|
$ (17,750
|
)
|
|
$
|
(185,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(19,820
|
)
|
(59,946
|
)
|
|
|
(79,766
|
)
|
Loss on fair value of derivative liability
|
|
|
(119,192
|
)
|
|
|
|
|
(119,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(306,517
|
)
|
$ (77,696
|
)
|
|
$
|
(384,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE – Basic and diluted
|
|
$
|
(0.02
|
)
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – Basic and diluted
|
|
|
14,239,912
|
|
|
|
|
|
45,048,411
|
|
NOTE 8 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through June 5, 2019, the date the financial statements were available to be issued.
- 12 -