KeyStar Corp. - Form 10-Q SEC filing

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our financial statements included in this Form 10-Q are as follows:

Consolidated Balance Sheets as of December 31, 2021 and June 30, 2021 (unaudited);

Consolidated Statements of Operations for the three and six months ended December 31, 2021 and 2020 (unaudited);

Consolidated Statement of Stockholders’ Equity (Deficit) for the three- and six-month periods ended December 31, 2021 and 2020 (unaudited);

Consolidated Statements of Cash Flow for the six months ended December 31, 2021 and 2020 (unaudited);

Notes to Consolidated Financial Statements.

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities Exchange Commission (“SEC”) instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended December 31, 2021 are not necessarily indicative of the results that can be expected for the full year.

KEYSTAR CORP.

CONSOLIDATED BALANCE SHEETS

	December 31, 2021		June 30, 2021
	(unaudited)
ASSETS

Current assets:
Cash	$	65,854	$	88,565
Inventory, net		1,823		8,341
Prepaid expenses		1,052		10,144
Total current assets		68,729		107,050

Other assets:
Security deposit		1,523		1,523
Total other assets		1,523		1,523

Total assets	$	70,252	$	108,573


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued expenses	$	6,117	$	$11,457
Accounts payable and accrued expenses - related party		26,462		24,870
Notes payable - related party		65,000		65,000
Convertible debt - related party		-		10,000
Total current liabilities		97,579		111,327

Total liabilities		97,579		111,327

Commitments and contingencies - See Note 6

Stockholders' equity (deficit):
Preferred stock - undesignated, $0.001 par value, 22,988,000 shares authorized		-		-
Preferred stock, series A, $0.0001 par value, 2,000,000 shares authorized; 2,000,000 issued and outstanding as of December 31, 2021 and June 30, 2021		200		200
Preferred stock, series B, $0.0001 par value, 12,000 shares authorized; 11,693 and 0 shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively		12		-
Common stock, $0.0001 par value, 475,000,000 shares authorized; 29,800,000 shares issued and outstanding as of December 31, 2021 and June 30, 2021		2,980		2,980
Additional paid-in capital		886,285		53,297
Accumulated deficit		(916,804)		(59,231)

Total stockholders' equity (deficit)		(27,327)		(2,754)

Total liabilities and stockholders' equity (deficit)	$	70,252	$	108,573

The accompanying notes are an integral part of these unaudited consolidated financial statements.

KEYSTAR CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the three months ended December 31,				For the six months ended December 31,
	2021		2020		2021		2020

Revenue	$	37,890	$	13,868	$	45,062	$	26,112

Cost of goods sold		31,671		7,043		37,640		28,098

Gross profit		6,219		6,825		7,422		(1,986)

Operating expenses:
General and administrative		16,923		19,248		49,911		27,300

Total operating expenses		16,923		19,248		49,911		27,300

Loss from operations		(10,704)		(12,423)		(42,489)		(29,286)

Other income (expense):
Gain on refund		-		-		10,000		-
Loss on extinguishment of debt		(821,307)		-		(821,307)		-
Interest expense - related party		(1,885)		(1,143)		(3,775)		(2,277)

Total other income (expense)		(823,192)		(1,143)		(815,082)		(2,277)

Net loss	$	(833,896)	$	(13,566)	$	(857,571)	$	(31,563)

Net loss per common share - basic and diluted	$	(0.03)	$	(0.00)	$	(0.03)	$	$(0.00)

Weighted average number of common shares outstanding - basic and diluted		29,800,000		29,000,000		29,800,000		29,000,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

KEYSTAR CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(unaudited)

	Preferred Shares Series A $0.0001 Par Value			Preferred Shares Series B $0.0001 Par Value			Common Shares $0.0001 Par Value
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)

Balance, June 30, 2021	2,000,000	$	200	-	$	-	29,800,000	$	2,980	$	53,297	$	(59,231)	$	(2,754)

Net loss for the period	-		-	-		-	-		-		-		(23,677)		(23,677)

Balance, September 30, 2021	2,000,000	$	200	-	$	-	29,800,000	$	2,980	$	53,297	$	(82,908)	$	(26,431)

Issuance of preferred stock for extinguishment of debt	-	$	-	11,693	$	12	-	$	-	$	832,988	$	-	$	833,000

Net loss for the period	-		-	-		-	-		-		-		(833,896)		(833,896)

Balance, December 31, 2021	2,000,000	$	200	11,693	$	12	29,800,000	$	2,980	$	886,285	$	(916,804)	$	(27,327)

	Preferred Shares $0.0001 Par Value			Common Shares $0.0001 Par Value
	Shares	Amount		Shares	Amount		Stock Subscriptions Receivable		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)

Balance, June 30, 2020	2,000,000	$	200	29,000,000	$	2,900	$	(1,500)	$	13,400	$	(7,593)	$	7,407

Cash received in satisfaction for stock subscriptions receivable	-		-	-		-		1,500		-		-		1,500

Net loss for the period	-		-	-		-		-		-		(17,997)		(17,997)

Balance, September 30, 2020	2,000,000	$	200	29,000,000	$	2,900	$	-	$	13,400	$	(25,590)	$	(9,090)

Net loss for the period	-		-	-		-		-		-		(13,566)		(13,566)

Balance, December 31, 2020	2,000,000	$	200	29,000,000	$	2,900	$	-	$	13,400	$	(39,156)	$	(22,656)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

KEYSTAR CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

	For the six months ended December 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(857,571)	$	(31,563)
Adjustments to reconcile to net loss to net cash used in operating activities:
Expenses paid on behalf of the company by related party		3,594		1,387
Loss on extinguishment of debt		821,307		-

Changes in operating assets and liabilities:
Inventory		6,518		26,016
Prepaid expenses		9,092		(1,055)
Accounts payable and accrued expenses		(5,342)		11,874
Accounts payable and accrued expenses - related party		3,775		2,278

Net cash used in operating activities		(18,627)		8,937

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash from investing activities		-		-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, related party		-		30,000
Repayment of amounts due to related party		(4,084)		(9,765)
Cash received in satisfaction of stock subscriptions receivable		-		1,500

Net cash provided by financing activities		(4,084)		21,735


NET CHANGE IN CASH		(22,711)		30,672

CASH AT BEGINNING OF PERIOD		88,565		37,918

CASH AT END OF PERIOD	$	65,854	$	68,590


SUPPLEMENTAL INFORMATION:
Interest paid	$	-	$	-
Income taxes paid	$	-	$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

KEYSTAR CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

NOTE 1 - ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

The Company 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.

Our business has two major segments: e-commerce and convention services.

We sell KN95 facemasks, disposable facemasks, and disinfectant wipes through an on line store in the United States of America.

We also offer 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 segment had been intended to offer online (or virtual) convention services to potential customers. However, as a result of the commencement of 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 now offer trade show booth staffing, trade show booth design and manufacturing, turn-key trade show booths.

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, 2021, filed on September 28, 2021. 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 six-month period ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year ending June 30, 2022. The condensed balance sheet at December 31, 2021 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.

The financial statements presented in this report are of KeyStar Corp. The Company maintains its accounting records on accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

The financial statement presents the Balance Sheet, Statement of Operations, Stockholders' Equity and Cash Flows of the Company. These financial statements are presented in United States dollars. The accompanying financial statements have been prepared in accordance with U.S. GAAP.

Organization

Principals of Consolidation

The consolidated financial statements represent the results of Keystar Corp. (“KEYR”) and UG Acquisition Sub, Inc.; its wholly owned subsidiary. All intercompany transactions and balances have been eliminated.

Nature of Operations

The Company sells KN95 facemasks, disposable facemasks and disinfectant wipes through an online store in the United States of America.

The Company is offering convention services, which connect US buyers to Chinese manufacturers. Due to the COVID-19 pandemic, the traditional conventions have been postponed in the United States of America. As such, the Company is trying to bridge the gap and introduce the online conventions to potential buyers. The company had intended, as a result of the pandemic, to focus on virtual convention services. However, as a result of lifted travel restrictions, we have adjusted our convention services from coordinating virtual convention to focus on on-site services. We have launched KeyStarCorp.com to offer booth rental service and are working on securing projects. We plan to continue widen our resources and expand into other aspects of convention and event services.

Year End

The Company’s year-end is June 30.

Use of Estimates

The preparation of the 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 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 $916,804 as of December 31, 2021. The Company had a net loss of $857,571 and negative cash flows of $18,627 from operations for the six months ended December 31, 2021. 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.

The Company will be dependent upon the raising of additional capital through placement of our 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 issuing notes and continuing to have related party pay for company expenses. We cannot be certain that capital will be provided when it is required.

Cash and Equivalents

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, are cash and cash equivalents. Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposits and all highly liquid debt instruments with original maturities of three months or less.

Inventory

Inventory is 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 establishes reserves for estimated excess and obsolete inventory equal to the difference between the cost of inventory and estimated net realizable value of the inventory based on estimated reserve percentage, which considers historical usage, known trends,

inventory age and market conditions. When the Company disposes excess and obsolete inventories, the related disposals are charged against the inventory reserve. See Note 2 for additional information.

Lease Commitments

The Company has no lease commitments. The Company leases a storage facility with terms of month to month for its products.

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.

Cash reported on the balance sheet is estimated by management to approximate fair market value due to their short-term nature.

The Company has had no transfers between levels of its assets or liabilities as of December 31, 2021.

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 occurs at the time we satisfy a performance obligation to our customers, when control 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 record revenue when collectability is probable.

The Company provides quality merchandise through our online store in the United States of America. Due to COVID-19 pandemic, the Company is focusing on providing disposable face masks and KN-95 face masks at affordable price. The customers order and pay the products through our online store, when the Company confirms the order and payment, the Company delivers the product through common carriers, at which point the Company recognizes the revenue, as this is when our performance obligation is satisfied. The Company records actual sales returns when the customers return the products. The transaction price has not been affected by returns based on the Company not having significant returns.

As the date of filing, the Company has recognized convention services revenue $35,490.

For the three months ended December 31, 2021 and 2020, the Company recognized $37,890 and $13,868 in revenue, respectively. For the six months ended December 31, 2021 and 2020, the Company recognized $45,062 and $26,112 in revenue, respectively.

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, 2021, there were 200,000,000 potentially dilutive shares that needed to be considered as common share equivalents and because of the net loss, the effect of these potential common shares is anti-dilutive.

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, 2021 and June 30, 2021, the value of inventory was $1,823 and $8,341, 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 consider historical usage, known trends, inventory age and market conditions. As of December 31, 2021 and June 30, 2021, Inventory reserve was $322 and $1,472, respectively.

	December 31, 2021		June 30, 2021
Disinfectant Wipes	$	-	$	-
Disposable Face Masks		-		3,179
KN-95 Face Masks		2,145		6,634
Total inventory		2,145		9,813
Less: inventory reserve		(322)		(1,472)
Inventory, net	$	1,823	$	8,341

NOTE 3 - NOTES PAYABLE - RELATED PARTY

On April 27, 2020, the Company executed a promissory note with a related party for $35,000. The note bears interest at 10% per annum and is due in two business days after demand for payment. As of December 31, 2021, the principal balance is $35,000 and accrued interest is $5,878. The interest expense for the six months ended December 31, 2021 was $1,750.

On December 30, 2020, the Company executed a promissory note with a related party for cash proceeds of $30,000. The note bears interest at 10% per annum and is due in two business days after demand for payment. As of December 31, 2021, the principal balance is $30,000 and accrued interest is $3,008. The interest expense for the six months ended December 31, 2021 was $1,500.

On December 28, 2021, in connection with the assignment of that certain 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) to Eagle Investment Group, LLC, we amended and restated the demand note (the “Amended Demand Note”) that is now in favor of Eagle Investment Group, LLC. Mr. Bruce Cassidy Sr., our Chief Executive Officer, is the Manager of Eagle Investment Group, LLC. (See Note 4 - Convertible Debt - Related Party

NOTE 4 - CONVERTIBLE DEBT - RELATED PARTY

On April 20, 2020, the Company executed Demand Note with a related party for $10,000. The Demand Note bears interest at 10% per annum and is due in two business days after demand for payment. This Note is convertible into shares of common stock at $0.001 per common share and can be converted by a Notice of Conversion at the option of the holder.

On December 28, 2021, Ms. Chen sold the demand note to Eagle Investment Group, LLC. The Company and the new noteholder mutually agreed to allow the Amended Demand Note to be converted into Series B Convertible Preferred Stock and 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 loss on extinguishment of debt of $821,307.

As of December 31, 2021, the principal balance of the Amended Demand Note was $0 and accrued interest is $0. The interest expense for the six months ended December 31, 2021 was $499.

NOTE 5 - STOCKHOLDERS’ EQUITY (DEFICIT)

The Company is authorized to issue 475,000,000 shares of its $0.0001 par value common stock, 2,000,000 shares of its $0.0001 par value Series A preferred stock, and 12,000 shares of its $0.0001 par value Series B preferred stock.

The Series A convertible preferred stock has a liquidation preference of $0.10 per share, have super voting rights of 100 votes per share, and each share of Series A may be converted into 100 shares of common stock.

The Series B convertible preferred stock has a liquidation preference of $1.00 per share, have super voting rights of and votes are determined by multiplying (a) the number of shares of Series B Convertible Preferred Stock held by such holder and (b) the Conversion Ratio, and each share of Series B may be converted into 100 shares of common stock. The Series B preferred shares authorized were increased from 0 to 2,000,000 shares during the year.

Series A Preferred Stock

During the three months ended December 31, 2021, there were no issuances of Series A Preferred Stock.

Series B Preferred Stock

On December 28, 2021, the Company issued 11,693 shares of Series B Convertible Preferred Stock in exchange for extinguishment of debt.

Common Stock

During the three months ended December 31, 2021, there were no issuances of common stock.

NOTE 6 - OPTIONS

During December 2021, the Company created a 2021 stock option plan and reserved 5,960,000 shares of common stock for the stock option plan. As of December 31, 2021, no stock options have been issued.

NOTE 7 - SEGMENT REPORTING

The Company’s reportable segment is based on the two different revenue streams.

	Three Months Ended December 31,		Six Months Ended December 31,
	2021	2020	2021	2020
Revenue
Online Sales - KN95 Masks	$2,400	$13,868	$9,542	$26,112
Convention Services	35,490	-	35,490	-

NOTE 8 - COMMITMENTS AND CONTINGENCIES

As of December 31, 2021 and 2020, the Company did not have any known commitments or contingencies.

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 occurs requiring a change.

NOTE 9 - RELATED PARTY TRANSACTIONS

During the three months ended December 31, 2021, the Company officer paid $3,594 of expenses on behalf of the Company and demanded repayment of $4,084 leaving a balance due to related party of $26,462 as of December 31, 2021.

As of December 31, 2021, the balance of accounts payable and accrued expenses due to a related party was $26,462.

The Company has a note payable and convertible note payable with a related party, see Notes 3 and 4 for further discussion.

NOTE 10 - SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2021 to the date these financial statements were issued, and as of February 21, 2022, there were no other material subsequent events to disclose in these financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

Keystar Corp. is a start-up company that was formed on April 16, 2020. Our business has two segments: e-commerce and convention services.

We sell KN95 facemasks, disposable facemasks, and disinfectant wipes through an on line store in the United States of America.

On December 17, 2021, Mr. Steven Lane resigned as our Chief Executive Officer and Secretary, effective immediately. He also resigned as our sole director, which resignation became effective on December 27, 2021, following the mailing of our Schedule 14F-1 to the stockholders of our company. In connection with those resignations, we appointed Bruce A. Cassidy Sr. as our Chief Executive Officer, Chief Financial Officer, and Secretary and our sole director is Roger Tichenor.

On December 28, 2021, in connection with the assignment of that certain 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) to Eagle Investment Group, LLC, we amended and restated the demand (the “Amended Demand Note”) that is now in favor of Eagle Investment Group, LLC. Mr. Bruce Cassidy Sr., our Chief Executive Officer, is the Manager of Eagle Investment Group, LLC.

The Amended Demand Note matures on two (2) days’ notice (“Maturity”) from the holder to our Company. All $10,000 in principal and all unpaid and accrued interest shall be due at Maturity. The holder may convert all or a portion of the accrued interest and unpaid principle balance of the Amended Demand

Note into shares of our newly created Series B Convertible Preferred Stock at the conversion price of $1.00 per share. The Amended Demand Note contains the customary provisions for events of default and rights and remedies of the holder.

On December 28, 2021, pursuant to the terms of the Amended Demand Note and a Notice of Conversion dated December 28, 2021 from the holder requesting that we convert the entirety of principal and all unpaid and accrued interest on the Amended Demand Note, we issued a total of 11,693 shares of our newly created Series B Convertible Preferred Stock at a conversion price of $1.00 per share to Eagle Investment Group, LLC.

Also on December 28, 2021, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series B Convertible Preferred Stock, consisting of up to twelve thousand (12,000) shares with a Stated Value of $1.00 per share.

The rights of the holders of Series B Convertible Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on December 29, 2021, which was filed as Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on January 12, 2022 and incorporated herein by reference.

Results of Operations for the Three and Six Months Ended December 31, 2021 and 2020

We generated $37,890 and $13,868 in revenues for the three months ended December 31, 2021 and 2020, respectively of which $2,400 and $13,868 was from merchandise for the three months ended December 31, 2021 and 2020, respectively and $35,490 and $0 was from convention services for the three months ended December 31, 2021 and 2020, respectively. We generated $45,062 and $26,112 in revenues for the six months ended December 31, 2021 and 2020, respectively of which $9,542 and $26,112 was from merchandise for the six months ended December 31, 2021 and 2020, respectively and $35,490 and $0 was from convention services for the six months ended December 31, 2021 and 2020, respectively. The significant increase of the revenue for the three months ended December 31, 2021 was from convention services.

Our gross profit (loss) after payment for cost of goods and inventory reserve was $6,219 and $6,825 for the three months ended December 31, 2021 and 2020, respectively. Our gross profit (loss) after payment for cost of goods and inventory reserve was $7,422 and ($1,986) for the six months ended December 31, 2021 and 2020, respectively.

Our gross profit was small and negative for each period discussed above as a result of the high cost of PPE products and courier pricing, as well as inventory reserve per U.S. GAAP guidance, due to our promoting products at significantly discounted prices. Pricing for masks and courier services has since improved, and we have ended our aggressive promotions in 2020.

Our PPE sales have not been significant enough to achieve a steady level of increased revenues and profitability. In addition, the global pandemic has impacted international trade in both goods and services. The disturbance in supply chain logistics and labor market have increased the cost of goods and freight. More recently, with a partial recovery in international trade, increases in costs of goods and freight are beginning to abate, which should have a positive effect on our restocking of inventory.

We incurred operating expenses of $16,923 and $19,248 for the three months ended December 31, 2021 and 2020, respectively. We incurred operating expenses of $49,911 and $27,300 for the six months ended December 31, 2021 and 2020, respectively. The increase of operating expense for the six months ended December 31, 2021 is due to the conventions services expense. Our operating expenses for both periods consisted of general and administrative expenses.

We incurred other expense of $823,192 and $1,143 for the three months ended December 31, 2021 and 2020, respectively. The increased expense is from the loss of extinguishment of convertible notes converted to Series B preferred stock.

We had a net loss of $833,896 and $13,566 for the three months ended December 31, 2021 and 2020, respectively. We had a net loss of $857,571 and $31,563 for the six months ended December 31, 2021 and 2020, respectively.

Liquidity and Capital Resources

As of December 31, 2021, we had total current assets of $68,729 and total current liabilities of $97,579. We had a working capital deficit of $28,850 as of December 31, 2021.

Operating activities used $18,627 in cash for the six months ended December 31, 2021, as compared with $8,937 provided for the same period ended 2020. Our negative operating cash flow in 2021 is largely the result of an $821,307 increase in loss on extinguishment of debt and $5,342 change in accounts payable and accrued expenses, offset by our net loss for the period. Our positive operating cash flow in 2020 is largely the result of a $26,016 increase in inventory and $11,874 change in accounts payable and accrued expenses, offset by our net loss for the period.

Financing activities used $4,804 in cash for the six months ended December 31, 2021, as compared with $21,735 for the same period ended 2020. Our negative financing cash flow in 2021 is the result of $4,084 in repayments to amounts due to related parties. Our positive financing cash flow in 2020 is the result of $30,000 in proceeds from notes payable and cash for stock subscriptions, offset by $9,765 in repayments to amounts due to related parties.

Off Balance Sheet Arrangements

As of December 31, 2021, we had no off balance sheet arrangements.

Going Concern

As of December 31, 2021, the Company has a cumulative deficit of $916,804 and a working capital deficit of $28,850. The Company had a net loss of $857,571 for the six months ended December 31, 2021. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Because of these conditions, the Company will require additional working capital to develop business operations. Management’s plans are to raise additional working capital through the sale of debt and/or equity instruments as well as to generate revenues for other services. There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.

The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

As of the filing date, the Coronavirus has caused significant volatility in global markets, including the market price of our inventory. The demand for our products and services has fluctuated and the ability of our customers to make payments for the products and services they purchased has been impacted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2021. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer

and our Chief Financial Officer and our former executive officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of December 31, 2021, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending June 30, 2022: (i) appoint additional qualified personnel, as needed, to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three and six months ended December 31, 2021 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

ITEM 1A. RISK FACTORS

A smaller reporting company is not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

These securities were issued pursuant to Section 4(a)(2) of the Securities Act. The holde4r represented its intention to acquire the securities for investment only and not with a view towards distribution. The holder is controlled by an executive officer of the Company and, accordingly, has adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificate with the appropriate restrictive legend affixed to the certificate representing the restricted Series B Convertible Preferred Stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Index to Exhibits.

Exhibit No.		Description

31.1**		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101**		XBRL Instance Document

** Provided herewith.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 22nd day of February, 2022.

	KeyStar Corp.

Date:	February 22, 2022

	By: /s/ Bruce A. Cassidy Sr. Bruce A. Cassidy Sr. Title: Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer

Nevada		85-0738656
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

PART I - FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS	17
ITEM 4. CONTROLS AND PROCEDURES	17
PART II – OTHER INFORMATION	18
ITEM 1. LEGAL PROCEEDINGS	18
ITEM 1A. RISK FACTORS	18
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	18
ITEM 4. MINE SAFETY DISCLOSURES	18
ITEM 5. OTHER INFORMATION	18
ITEM 6. EXHIBITS	19
SIGNATURES	20