BLACKSTAR ENTERPRISE GROUP, INC S-1/A, filed Aug 1, 2022
BLACKSTAR ENTERPRISE GROUP, INC. (BEGI)
As filed with the U.S. Securities and Exchange Commission on July 29, 2022
Registration No. 333-257978
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BLACKSTAR ENTERPRISE GROUP, INC.
(Exact name of registrant as specified in its charter)
|
DELAWARE (State or jurisdiction of incorporation or organization) |
6799 (Primary Standard Industrial Classification Code Number) |
27-1120628 (I.R.S. Employer Identification No.) |
4450 Arapahoe Ave., Suite 100, Boulder, CO 80303/ Phone (303) 500-3210
(Address and telephone number of principal executive offices)
John Noble Harris, Chief Executive Officer
4450 Arapahoe Ave., Suite 100, Boulder, CO 80303/ Phone (303) 500-3210
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Christen Lambert, Attorney at Law
2920 Forestville Rd. Ste. 100 PMB 1155, Raleigh, NC 27616 / Phone (919) 473-9130
Approximate date of commencement of proposed sale to the public: As soon as possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [___] | Accelerated filer | [___] | |
| Non-accelerated filer | [_X_] | Smaller reporting company | [_X_] | |
| Emerging growth company | [_X_] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [___]
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities To Be Registered | Amount To Be Registered(1) | Proposed Maximum Offering Price Per Share(2) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee(3) |
| Shares of Common Stock Underlying Convertible Notes, $0.001 par value | 46,000,000 | $0.0344 | $1,582,400 | $172.64 (4) |
| (1) | In accordance with Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), this registration statement shall be deemed to cover an indeterminate number of additional shares to be offered or issued from stock splits, stock dividends or similar transactions with respect to the shares being registered. This amount represents a good faith estimate of the shares of common stock underlying convertible notes issued by the registrant in private placements, with such amount equal to the maximum number of shares issuable upon conversion of such notes, assuming for purposes hereof that (x) such notes are convertible at $0.02 per share, and (y) interest on such note accrues at 10% per annum until the maturity dates of the convertible notes, without taking into account the limitations on the conversion of such notes (as provided for therein). | |
| (2) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 ("the Securities Act") based on the average of the 5-day average of the high and low prices of the common stock on July 12, 2021 as reported on the OTCQB. | |
| (3) | Based on the average price per share of $0.0344 for BlackStar Enterprise Group, Inc.’s common stock on July 12, 2021 as reported by the OTC Markets Group. The fee is calculated by multiplying the aggregate offering amount by .0001091, pursuant to Section 6(b) of the Securities Act of 1933. | |
| (4) | $172.64 previously paid, based on the 5-day average of the high and low prices of the common stock on July 12, 2021 ($0.0344), which was higher than the 5-day average of the high and low prices of the common stock on May 31, 2022 ($0.0033). |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JULY 29, 2022
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
BLACKSTAR ENTERPRISE GROUP, INC.
46,000,000 Shares of Common Stock Underlying Convertible Notes
This Prospectus relates to the resale from time to time of an aggregate of up to 46,000,000 shares of common stock par value $0.001 per share, (the “Common Shares”) of BlackStar Enterprise Group, Inc., a Delaware corporation, by the Selling Shareholders (each a “Selling Shareholder”, and collectively, the “Selling Shareholders”), underlying, and pursuant to the conversion of convertible notes (the “Notes”) which were acquired from the Company pursuant to subscription agreements for an aggregate purchase price of $803,275. This amount represents a good faith estimate of the shares of common stock underlying convertible notes issued by the registrant in private placements, with such amount equal to the maximum number of shares issuable upon conversion of such notes, assuming for purposes hereof that (x) such notes are convertible at $0.02 per share, and (y) interest on such note accrues at 10% per annum until the maturity dates of the convertible notes, without taking into account the limitations on the conversion of such notes (as provided for therein). The 46,000,000 shares being registered includes 1,386,459, 9,016,394, and 27,500,000 shares, respectively, that may be issued pursuant to the conversion of the principal amount of the Notes, as well as 110,917, 1,100,000, and 2,750,000 additional shares that may be issued pursuant to the conversion of accrued interest over the term of the Notes, assuming a conversion price of $0.024, $0.0244, and $0.02 per share, respectively, 300,000 shares issued to cure a default, and 3,836,230 additional shares to cover any differences in conversion price. The Selling Shareholders have informed us that they are not “underwriters” within the meaning of the Securities Act. The Securities and Exchange Commission (“SEC”) may take the view that, under certain circumstances, any broker-dealers or agents that participate with the Selling Shareholders in the distribution of the Common Shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). Commissions, discounts or concessions received by any such broker-dealer or agent may be deemed to be underwriting commissions under the Securities Act. The Selling Shareholders may sell Common Shares underlying the Notes from time to time in the principal market on which the Registrant’s Common Stock is quoted and traded at the prevailing market price or in negotiated transactions. We will not receive any of the proceeds from the sale of those Common Shares being sold by the Selling Shareholders. We did, however, receive net proceeds of approximately $803,275 pursuant to the sale of the Notes to the Selling Shareholders. We will pay the expenses of registering these Common Shares underlying the Notes.
Pursuant to registration rights granted to the Selling Shareholders, we are obligated to register the Common Shares underlying the Notes. We will not receive any proceeds from the sale of the Common Shares by the Selling Shareholders.
Our selling shareholders plan to sell common shares at market prices for so long as our Company is quoted on OTCQB and as the market may dictate from time to time. There is a limited market for the common stock, which has been trading on the OTCQB (“BEGI”) at an average of $ 0.0033 in the past 5 days as of May 31, 2022.
| Title | Price Per Share |
| Common Stock | $ 0.0344 * |
*Five-day average market sale price at July 12, 2021. The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c). The average trading price in the 5 days prior to this amended registration statement on May 31, 2022 was $0.0033 (less than the original calculation), so no additional fee was required.
The Selling Shareholders are offering the Common Shares underlying the Notes. The Selling Shareholders may sell all or a portion of these Common Shares from time to time in market transactions through any market on which the Common Stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who
may act as agent or as principal or by a combination of such methods of sale. The Selling Shareholders will receive all proceeds from such sales of the Common Shares. For additional information on the methods of sale, you should refer to the section entitled “Plan of Distribution.”
In aggregate, the Selling Shareholders may sell up to 46,000,000 Common Shares under this Prospectus, which includes 37,902,853 shares to be issued upon conversion of the principal amount of convertible notes, as well as 3,960,917 additional shares that may be issued based on 10% interest per annum until the maturity date of the convertible notes, assuming a conversion price of $0.02 per share, 300,000 shares issued to cure a default, and 3,836,230 additional shares to cover any differences in conversion price. We are obligated to file a supplemental registration statement or registration statements in order to register all of the Common Shares, in the event that the conversion price is lower than $0.02 per share due to adjustments as is further described in this Registration Statement, resulting in additional shares being issued that have not been registered pursuant to this Registration Statement.
We have one class of authorized common stock and the Company has also issued warrants for common stock. Outstanding shares of common stock represent approximately 40% of the voting power of our outstanding capital stock at the time of this registration, and outstanding shares of Class A Super Majority Voting Preferred Stock held by, or subject to voting control by, our parent company, International Hedge Group, Inc., our CEO, John Noble Harris, and our CFO, Joseph Kurczodyna, represent approximately 60% of the voting power of our outstanding capital stock at the time of this registration statement.
This offering involves a high degree of risk; see “RISK FACTORS” beginning on page 8 to read about factors you should consider before buying shares of the common stock.
These securities have not been approved or disapproved by the Securities and Exchange Commission (the “SEC”) or any state or provincial securities commission, nor has the SEC or any state or provincial securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
This offering will be on a delayed and continuous basis for sales of selling shareholders’ shares. The selling shareholders are not paying any of the offering expenses and we will not receive any of the proceeds from the sale of the shares by the selling shareholders. (See “Description of Securities – Shares”).
The information in this prospectus is not complete and may be changed. These securities may not be sold until the date that the registration statement relating to these securities, which has been filed with the Securities and Exchange Commission, becomes effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The date of this Prospectus is July 29, 2022.
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TABLE OF CONTENTS
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ITEM 3. PROSPECTUS SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO FIXED CHARGES
Please read this prospectus carefully. It describes our business, our financial condition and results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision.
You should rely only on information contained in this prospectus. We have not authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Financial Statements, before making an investment decision. In this Prospectus, the terms “BlackStar,” “Company,” “we,” “us,” and “our,” refer to BlackStar Enterprise Group, Inc.
COMPANY OVERVIEW
GENERAL
BlackStar Enterprise Group, Inc. is incorporated in the State of Delaware with operations located in Boulder, Colorado. We are engaged in Merchant Banking and Finance and intend to expand our services into the blockchain industry.
International Hedge Group, Inc. (“IHG”), our parent company, owns 4,792,702 shares of common stock (3.01%) and 1,000,000 of Class A Supermajority Voting Preferred Stock (100%); Class A Preferred has that number of votes equal to that number of common shares which is not less than 60% of the vote required to approve any action and has the right to convert all of the Class A Preferred Convertible Stock (1,000,000 shares) into shares of Common Stock of the Company, on the basis of 100 common shares for each share of Class A Preferred Stock. IHG is our controlling shareholder and is engaged in providing management services to companies, and, on occasion, capital consulting. IHG’s strategy in investing in BlackStar Enterprise Group, Inc. is to own a controlling interest in a publicly quoted company which has the mission to engage in funding of start-up and developed business ventures using its stock for private placement or public offerings. IHG and BlackStar are currently managed and controlled by the same individuals, but IHG and BlackStar may each seek its funding from different and as yet, undetermined sources, with funding structures of different natures.
Our corporate structure is as follows:
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INTERNATIONAL HEDGE GROUP, INC. (Parent Company – a Colorado corporation) | |||||
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BLACKSTAR ENTERPRISE GROUP, INC. (a Delaware corporation)
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| Crypto Equity Management Corp. (a Colorado corporation) |
Crypto Industry SRO Inc. (a Colorado non-profit corporation) | ||||
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HISTORY
Our Company, BlackStar Enterprise Group, Inc., was originally formed on December 17, 2007 as NPI08, Inc. in the State of Delaware. Our name was changed in 2010 to BlackStar Energy Group, Inc. In August of 2016, our name was changed to BlackStar Enterprise Group, Inc.
Our Company was divested from Kingsley Capital, Inc. in a bankruptcy proceeding in 2008, in which Kingsley was the debtor. Our Company attempted to start up in the energy business in 2010 without success, resulting in losses totaling $1,819,530 over a three-year period. Our Company was inactive until 2016 when new management and capital were introduced.
DESCRIPTION OF BUSINESS
Current Business
We are based in Boulder, Colorado and are engaged in Merchant Banking and Finance in the United States. BlackStar’s venue is private early-stage companies throughout various industries that, in our judgement, exhibit a potential for sustained growth. We are a publicly traded specialized merchant banking firm, facilitating joint venture capital to early stage revenue companies. We are actively seeking opportunities for discussion with revenue generating enterprises and emerging companies for financing.
We have recognized net losses of ($2,183,567) in the year ended December 31, 2021. We have relied solely on sales of our securities, convertible note financing, and private loans to fund our operations.
Our principal executive offices are located at 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303 and our office telephone number is (303) 500-3210. We maintain a website at www.blackstarenterprisegroup.com, and such website is not incorporated into or a part of this filing.
Proposed New Line of Business
Since 2018 , we have also been developing a blockchain-based software platform to trade electronic fungible shares of our common stock. Once completed, the platform design might enable us to license the technology as a Platform as a Service (“PaaS”) for other publicly traded companies, providing revenue to finance our merchant banking. The completion of our software platform depends on our ability to license it to an existing Alternative Trading System (“ATS”) or for us to possibly register as an ATS , which we do not intend to do at this time as we would prefer to license our platform to an existing ATS.
The software platform is in the final stages of software development and is working to initiate platform operations but will need further funding to fund operations of the merchant bank and to expand its services to licensees. To fund ongoing operations, we may raise funds in the future, which are not yet committed.
BlackStar also intends to offer consulting and regulatory compliance services to companies desiring to issue digital shares and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in digital share related ventures though our wholly-owned subsidiary, Crypto Equity Management Corp. (“CEMC”) formed in September 2017. CEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTP TM. CEMC has not established any anticipated time frames or key milestones for CEMC business. In addition to the services described above, on December 31, 2017, BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc., a self-regulatory membership organization for the digital share industry. Further details about the business plan for CEMC, the operating subsidiary of BlackStar, and Crypto Industry SRO can be found in the “Current Business” section below.
As to the CEMC business model, the primary factor for its development is dependent upon whether the BDTP TM achieves regulatory approval by the SEC for the platform and an ATS arrangement has been achieved and approved as necessary by the SEC.
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Reports to Security Holders
We are subject to the reporting requirements of Section 12(g) of the Exchange Act, and as such, we intend to file all required disclosures.
You may read and copy any materials we file with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov .
Jumpstart Our Business Startups Act
We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we did not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2021, our last fiscal year.
We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,000,000,000 or (ii) we issue more than $1,000,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.
As an emerging growth company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable to generally reporting companies. These provisions include:
| - | A requirement to have only two years of audited financial statement and only two years of related Management Discussion and Analysis Disclosures: |
| - | Reduced disclosure about the emerging growth company’s executive compensation arrangements; and |
| - | No non-binding advisory votes on executive compensation or golden parachute arrangements. |
As an emerging growth company, we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Such sections are provided below:
Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.
Sections 14A(a) and (b) of the Securities and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
We have already taken advantage of these reduced reporting burdens in our Form 10-K, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As long as we qualify as an emerging growth company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. We are choosing to irrevocably opt out of the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act.
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Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion of revenue during our last fiscal year, we qualify as an emerging growth company as defined in the JOBS Act, and we may remain an emerging growth company for up to five years from the date of the first sale in this offering. However, if certain events occur prior to the end of such five-year period, including if we become a large accelerated filer, our annual gross revenue exceeds $1.0 billion, or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity interests. However, we have irrevocably elected not to avail ourselves of the extended transition period for complying with new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Summary of Financial Information
The following tables set forth, for the periods and as of the dates indicated, our summary financial data. The statements of operations for the three months ended March 31, 2022, and the balance sheet data as of March 31, 2022 are derived from our unaudited condensed financial statements. The unaudited financial statements include, in the opinion of management, all adjustments consisting of only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. You should read the following information together with the more detailed information contained in “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. Our historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year. The statements of operations for the years ended December 31, 2021 and 2020, and balance sheet data as of December 31, 2021, are derived from our audited financial statements included elsewhere in this prospectus. You should read the following information together with the more detailed information contained in “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. Our historical results are not indicative of the results to be expected in the future.
| March 31, | December 31, | |||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Total Assets | $ | 588,811 | $ | 683,339 | $ | 94,211 | ||||||
| Current Liabilities | $ | 933,006 | $ | 806,953 | $ | 129,062 | ||||||
| Long-term Liabilities | $ | — | $ | — | $ | — | ||||||
| Stockholders’ Equity (Deficit) | $ | (344,195 | ) | $ | (123,614 | ) | $ | (34,851 | ) | |||
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Three Months Ended March 31, 2022 (Unaudited) |
December 31, 2021 (Audited) |
December 31, 2020 (Audited) | |||||||||||
| Revenues | $ | 0 | $ | 0 | $ | 0 | |||||||
| Net Loss | $ | (516,902 | ) | $ | (2,183,567 | ) | $ | (1,565,591 | ) | ||||
At March 31, 2022, the accumulated deficit was $(8,666,662). At December 31, 2021, the accumulated deficit was $(8,149,760). We anticipate that we will operate in a deficit position and continue to sustain net losses for the foreseeable future.
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PRIVATE PLACEMENT OF CONVERTIBLE NOTES WITH REGISTRATION RIGHTS
The following convertible promissory notes and corresponding securities purchase agreements are those that contain registration rights and those which underlying shares are being registered for resale in this registration statement.
On November 20, 2020, BlackStar Enterprise Group, Inc. and Quick Capital, LLC. entered into a convertible promissory note totaling $33,275 and a securities purchase agreement. The note bears interest at 10%, with a default rate of 24%, and is convertible into shares of the Company’s common stock. The conversion price is to be calculated at 60% of the 2 lowest trading prices of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 12,000,000 shares for conversion. Net proceeds from the loan were $25,000, after legal fees and offering costs of $8,275. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on November 27, 2020. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The company filed a Form D with the Securities and Exchange Commission on November 27, 2020.
On January 28, 2021 BlackStar Enterprise Group, Inc. and SE Holdings, LLC entered into a convertible promissory note totaling $220,000 and a securities purchase agreement. The note bears interest at 10%, with a default rate of 24%, and is convertible, at any time after the date of issuance. The conversion price is to be calculated at 50% of the average of the three lowest trading price of the Company’s common stock for the previous twenty trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 44,000,000 shares for conversion. Net proceeds from the loan were $177,500, after original issue discount of $20,000 and legal fees and offering costs of $22,500. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on February 4, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The company filed a Form D with the Securities and Exchange Commission on February 4, 2021.
On April 29, 2021 BlackStar Enterprise Group, Inc. and Adar Alef, LLC entered into a convertible promissory note totaling $550,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 86,105,000 shares of Common Stock for conversion pursuant to the note. The note bears interest at 10%, with a default rate of 24%, and is convertible at the option of the holder, at any time after the date of issuance. The conversion price is to be calculated at 50% of the average of the three lowest closing bid prices of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. The Company received the net proceeds from the loan of $462,000, after original issue discount, legal fees and offering costs of $88,000. Copies of the promissory note, securities purchase agreement, and transfer agent letter can be found in the Form 10-Q and exhibits filed on May 17, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The company filed a Form D with the Securities and Exchange Commission on June 1, 2021.
The Lender or Investor will instruct the Borrower through instruction to the Transfer Agent to either:
| A. | Electronically transmit the Common Stock pursuant to the Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC”). Lender or Investor will supply.1) Name of Prime Broker and 2) Account Number. |
| B. | The Lender or Investor hereby request that the Borrower issue a certificate or certificates for the number of shares of Common Stock which numbers are based on the Holders calculation attached hereto in the name ( s) specified . |
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The Company has entered into several other convertible note and promissory note financing arrangements over the past several years and all arrangements are discussed further in Item 11 herein.
The Offering
We are registering 46,000,000 shares of common stock underlying convertible notes for sale on behalf of selling shareholders (the “Resale Shares”). The shares registered herein are common shares and if placed in a Broker Dealer account by the shareholder, they will be DWAC by DTCC (electronic fungible form); otherwise, the shareholder may hold the shares upon conversion in certificated form.
Our common stock will be transferable immediately upon the effectiveness of the Registration Statement. (See “Description of Securities”)
| Common shares outstanding before this registration statement1 | 209,818,602 |
| Maximum common shares being offered by our existing selling shareholders | 46,000,000 |
| Maximum common shares outstanding after this offering | 255,818,602 |
| 1) | There are additionally warrants outstanding for the purchase of 540,000 shares of common stock, not included in this figure. |
We will not receive any proceeds from the sale of our securities offered by the selling stockholders under this prospectus. All the shares sold under this prospectus will be sold or otherwise disposed of for the account of the selling stockholders, or their pledgees, assignees or successors-in-interest. See “Use of Proceeds” beginning on page 19 of this prospectus.
We are authorized to issue 700,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock. Our current shareholders, officers and directors collectively own 209,818,602 shares of common stock and 1,000,000 shares of preferred stock as of this date, with warrants outstanding for 540,000 shares of common stock.
Currently there is a limited public trading market for our stock on OTCQB under the symbol “BEGI.”
Forward Looking Statements
This prospectus contains various forward-looking statements that are based on our beliefs as well as assumptions made by and information currently available to us. When used in this prospectus, “believe,” “expect,” “anticipate,” “estimate,” and similar expressions are intended to identify forward-looking statements. These statements may include statements regarding seeking business opportunities, payment of operating expenses, and the like, and are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from projections or estimates. Factors which could cause actual results to differ materially are discussed at length under the heading “Risk Factors”. Should one or more of the enumerated risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Investors should not place undue reliance on forward-looking statements, all of which speak only as of the date made.
RISK FACTORS
RISK FACTORS RELATED TO OUR BUSINESS
OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE, ON THE EXPERTISE AND EXPERIENCE OF THE MEMBERS OF OUR MANAGEMENT TEAM.
We will rely exclusively on the skills and expertise of our management team in conducting our business. Our management team has experience in identifying, evaluating and acquiring prospective businesses for which we may ultimately provide loans, but there is no assurance our managements assessments will be successful in placing loans
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which are repaid with interest. Accordingly, there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives.
We will be wholly dependent for the selection, structuring, closing and monitoring of all of our investments on the diligence and skill of our management team, under the supervision of our Board of Directors. There can be no assurance that we will attain our investment objective. The management team will have primary responsibility for the selection of companies to which we will loan or finance, the terms of such loans and the monitoring of such investments after they are made. However, not all of the management team will devote all of their time to managing us. These factors may affect our returns.
We have limited resources and limited operating history.
OUR OPERATIONS AS A MERCHANT BANK MAY AFFECT OUR ABILITY TO, AND THE MANNER IN WHICH, WE RAISE ADDITIONAL CAPITAL, WHICH MAY EXPOSE US TO RISKS.
Our business will require a substantial amount of capital. We may acquire additional capital from the issuance of senior securities, including borrowings or other indebtedness, or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital in the future on favorable terms or at all. We may issue debt securities, other evidences of indebtedness or preferred stock, and we may borrow money from banks or other financial institutions, which we refer to collectively as “senior securities”. If the value of our businesses declines, we may be unable to satisfy loan requirements. If that happens, we may be required to liquidate a portion of our ventures and repay a portion of our indebtedness at a time when such sales may be disadvantageous. As a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights and might have rights, preferences, or privileges more favorable than those of our common stockholders. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease.
WE MAY ENGAGE IN BUSINESS ACTIVITIES THAT COULD RESULT IN US HOLDING INVESTMENT INTERESTS IN A NUMBER OF ENTITIES WHICH COULD SUBJECT US TO REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940.
Although we will be subject to regulation under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, we believe we will not be subject to regulation under the Investment Company Act of 1940 (the “1940 Act”) insofar as we will not be engaged in the business of investing or trading in securities within the definitions and parameters which would make us subject to the “1940 Act,” or holding unconsolidated minority interests in multiple companies and cash which might fall within the “holding company” definitions. In the event we engage in business activities that result in us holding investment interests in a number of nonconsolidated entities, we might become subject to regulation under the 1940 Act. In such event, we would be required to register as an Investment Company and incur significant registration and compliance costs. Additionally, the 1940 Act requires that a number of structural safeguards, such as an independent board of directors and a separate investment adviser whose contract must be approved by a majority of the company’s shareholders, be put in place within such companies. The 1940 Act also imposes significant disclosure and reporting requirements beyond those found in the Securities Act and the Exchange Act of 1934, as amended (the Exchange Act). Likewise, the 1940 Act contains its own anti-fraud provisions and private remedies, and it strictly limits investments made by one investment company in another to prevent pyramiding of investment companies, leading to consolidated investment companies acting in the interest of other investment companies rather than in the interest of securities holders. The labeling of the Company as an investment company could significantly impair our business plan and operations and have a material adverse effect on our financial condition. Compliance with the 1940 Act is prohibitively expensive for small companies, in our estimation, and even if it meant divestiture of assets, we would intend to avoid being classified as an Investment Company.
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WE ARE DEPENDENT UPON OUR PART-TIME MANAGEMENT FOR OUR SUCCESS WHICH IS A RISK TO OUR INVESTORS.
Our lack of full-time management may be an impediment to our business achievement. Without full-time officers, we may not have sufficient devoted time and effort to find successful loan prospects, additional capital, or manage our loan portfolio, which could impair our ability to succeed in our business plan and could cause investment in our Company to lose value.
WE HAVE A LIMITED AMOUNT OF FUNDS AVAILABLE FOR INVESTMENT IN VENTURES AND AS A RESULT OUR VENTURES MAY LACK DIVERSIFICATION.
Based on the amount of our existing available funds, it is unlikely that we will be able to commit our funds to loans to large number of ventures. We intend to operate as a diversified merchant bank. Prospective investors should understand that our venture investments are not, and in the future may not be, substantially diversified. We may not achieve the same level of diversification as larger entities engaged in similar activities. Therefore, our assets may be subject to greater risk of loss than if they were more widely diversified. The loss of one or more of our limited number of investments could have a material adverse effect on our financial condition.
WE HAVE A LACK OF REVENUE HISTORY AND STOCKHOLDERS CANNOT VIEW OUR PAST PERFORMANCE SINCE WE HAVE A LIMITED OPERATING HISTORY.
We were incorporated on December 17, 2007 for the purpose of engaging in any lawful business and have adopted a plan as a small and micro-cap market merchant banking company. During the period of inception through March 31, 2022, we have not recognized revenues. We are not profitable. We must be regarded as a new venture with all of the unforeseen costs, expenses, problems, risks and difficulties to which such ventures are subject.
WE ARE NOT DIVERSIFIED, AND WE WILL BE DEPENDENT ON ONLY ONE BUSINESS, MERCHANT BANKING.
Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one area will subject us to economic fluctuations within the merchant banking industry and therefore increase the risks associated with our operations due to lack of diversification.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY TO OUR STOCKHOLDERS.
There is no assurance that we will ever operate profitably. There is no assurance that we will generate revenues or profits, or that the market price of our common stock will be increased thereby.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN THE FUTURE WHICH COULD JEOPARDIZE OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of expenses related to general and administrative, legal and accounting, and software development and could exceed $500,000 in the next twelve months. Such funds are not currently committed, and we have cash of approximately $ 426,916 as of March 31, 2022.
WE WILL NEED ADDITIONAL FINANCING FOR WHICH WE HAVE NO COMMITMENTS, AND THIS MAY JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not be adequate to carry out our business plan in the small and micro-cap market merchant banking industry. Our ultimate success depends upon our ability to raise additional capital. We are investigating the availability, sources, and terms that might govern the acquisition of additional capital.
We have no commitment at this time for additional capital. If we need additional capital, we have no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to us. If not available, our operations will be limited to those that can be financed with our modest capital.
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WE MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF CONTROL BY OUR PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
We may issue further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of our Company. The result of such an issuance would be those new stockholders and management would control our Company, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of our Company by our current stockholders, which could present significant risks to stockholders.
WE HAVE AUTHORIZED AND DESIGNATED A CLASS A PREFERRED SUPER MAJORITY VOTING CONVERTIBLE STOCK, WHICH HAVE VOTING RIGHTS OF 60% OF OUR COMMON STOCK AT ALL TIMES.
Class A Preferred Super Majority Voting Convertible Stock (the “Class A Preferred Stock”), of which 1,000,000 shares of preferred stock have been authorized for the Class A out of 10,000,000 total preferred shares authorized, and which have super majority voting rights (60%) over common stock voting at all times. At this time, all shares of the Class A Preferred Stock have been issued to International Hedge Group, Inc. which is controlled by Mr. Harris and Mr. Kurczodyna, our officers and directors.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO CORPORATE OPPORTUNITIES WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN AND MAY RECEIVE COMPENSATION FROM OUR PARENT COMPANY.
Presently there is no requirement contained in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our business to disclose to us business opportunities which come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to us to disclose to us any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. We have no intention of merging with or acquiring a business opportunity from any affiliate or officer or director. Our current officers and directors also currently serve our parent company, International Hedge Group, Inc., which may have consulting agreements with some of our venture companies and as such is a direct conflict and such officers and directors may be paid by such parent. We intend to diversify and/or expand our Board of Directors in the future.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY DELAWARE STATUTES.
Delaware General Corporation Laws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
OUR DIRECTORS’ LIABILITY TO US AND STOCKHOLDERS IS LIMITED
Delaware General Corporation Laws exclude personal liability of our directors and our stockholders for monetary damages for breach of fiduciary duty except in certain specified circumstances. Accordingly, we will have a much more limited right of action against our directors that otherwise would be the case. This provision does not affect the liability of any director under federal or applicable state securities laws.
We have no full-time employees which may impede our ability to carry on our business. Our officers are independent consultants who devote up to 40 hours per week to Company business. The lack of full-time employees may very well prevent the Company’s operations from being efficient, and may impair the business progress and growth, which is a risk to any investor.
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RISK FACTORS OF THE COMPANY
THERE CAN BE NO CERTAINTY AS TO MARKET ACCEPTANCE OF THE PROPOSED BDTP TM.
The Company has no certainty as to whether the market will accept and use the idea of the BDTP TM, should it become operational, nor is there any certainty as to how the BDTP TM translates to profits for the Company. There is no assurance of market acceptance or profitability of the concept or Company. The BDTP TM is not yet functional and may never be functional.
THERE ARE ADDITIONAL RISKS TO INVESTORS HOLDING BLACKSTAR DIGITAL SHARES DUE TO THE LACK OF MARKET.
Investors holding electronic fungible shares may never be able to transfer them on the platform, however they will be able to transfer them through traditional avenues such as Market Makers. Electronic fungible shares are not currently traded on the BDTP TM and may never be. The warrants for the legacy “ BlackStar Digital Equity ” outstanding are exercisable for shares of common stock.
WE MAY NOT REALIZE RETURNS ON OUR INVESTMENTS IN VENTURES FOR SEVERAL YEARS. THUS, AN INVESTMENT IN SHARES OF OUR COMMON STOCK IS ONLY APPROPRIATE FOR INVESTORS WHO DO NOT NEED SHORT TERM LIQUIDITY IN THEIR MONEY.
We intend to make loans as quickly as possible consistent with our business objectives in those investments that meet our criteria. However, it is likely that a significant period of time will be required before we are able to achieve repayment and any additional value from warrants or stock conversions that we hold in an eligible venture company.
COMPETITION FOR LOANS AND INVESTMENTS.
We expect to encounter competition from other entities having similar business objectives, some of whom may have greater resources than us. Historically, the primary competition for venture capital investments has been from venture capital funds and corporations, venture capital affiliates of large industrial and financial companies, small business investment companies, and wealthy individuals. Additional competition is anticipated from foreign investors and from large industrial and financial companies investing directly rather than through venture capital affiliates. Virtually all of our competitors will have a competitive advantage and are much larger. The need to compete for loans or investment opportunities may make it necessary for us to offer venture companies more attractive transaction terms than otherwise might be the case. We anticipate being a co-investor with other venture capital groups, and these relationships with other groups may expand our access to business opportunities.
RISKS OF COMPETITION FOR OUR VENTURE COMPANIES.
Most emerging markets are highly competitive. We anticipate that nearly all our venture companies will compete against firms with greater financial resources, more extensive development, manufacturing, marketing, and service capabilities, and a larger number of qualified managerial and technical personnel.
ILLIQUID NATURE OF OUR INVESTMENTS.
We anticipate that substantially all of our ventures (other than short-term investments) will consist of controlling interests in ventures that at the time of acquisition are unmarketable, illiquid and for which no ready market will exist, if such a market does in fact exist. Our venture investments are intended to be in companies in which we will have controlling interest and will be privately negotiated transactions. There is not anticipated to be any market for the ventures until such until such have developed successful businesses.
Because of the illiquid nature of our venture investments, a substantial portion of our assets will be carried on our books adjusted for accrued losses, depreciation and impairment which could in some cases result in a write off. This value will not necessarily reflect the amount which could be realized upon a sale, or payoff in the future.
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RISKS OF OUR NEED FOR ADDITIONAL CAPITAL TO FUND OUR VENTURE COMPANIES.
We expect that most venture companies will require additional financing to satisfy their working capital requirements. The amount of additional financing needed will depend upon the maturity and objectives of the particular opportunity. Each round of venture financing (whether from us or other investors) is typically intended to provide a venture company with enough capital to reach the next major valuation milestone. If the funds provided are not sufficient, a company may have to raise additional capital at a price or at terms unfavorable to the existing investors, including our Company. This additional financing or the availability of any form of equity or debt capital is generally a function of capital market conditions that are beyond our control or any venture company. Our management team may not be able to predict accurately the future capital requirements necessary for success of our Company or venture companies. Additional funds may not be available from any source.
OUR VENTURE PORTFOLIO IS AND MAY CONTINUE TO BE CONCENTRATED IN A LIMITED NUMBER OF VENTURE COMPANIES AND INDUSTRIES, WHICH WILL SUBJECT US TO A RISK OF SIGNIFICANT LOSS IF ANY OF THESE COMPANIES FAIL OR BY A DOWNTURN IN THE PARTICULAR INDUSTRY.
Our venture is and may continue to be concentrated in a limited number of venture companies and industries. We do not have fixed guidelines for diversification, and since we are targeting some specific industries, our venture investments could continue to be, concentrated in relatively few industries. As a result, the aggregate returns we realize may be significantly adversely affected if our venture investments perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize.
WE INTEND TO CONTROL ALL OF OUR VENTURES.
We will control all of our venture companies, and we will maintain financial supervision until divestiture, spin-off or liquidation.
WE MAY NOT REALIZE GAINS FROM OUR VENTURES.
Our goal is ultimately to dispose of our control interests we receive from our venture companies to attempt to realize gains upon our disposition of such interests by sale, for cash spin-off, or liquidation. However, any interests we hold may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from any venture interests, and any gains that we do realize on the disposition of any venture interests may not be sufficient to offset any other losses we experience.
THE INABILITY OF OUR VENTURE COMPANIES TO COMMERCIALIZE THEIR TECHNOLOGIES OR CREATE OR DEVELOP COMMERCIALLY VIABLE PRODUCTS OR BUSINESSES WOULD HAVE A NEGATIVE IMPACT ON OUR INVESTMENT RETURNS.
The possibility that our venture companies will not be able to commercialize their technology, products or business concepts presents significant risks to the value of our ventures. Additionally, although some of our venture companies may already have a commercially successful product or product line when we invest, technology related products and services often have a more limited market or life span than have products in other industries. Thus, the ultimate success of these venture companies often depends on their ability to continually innovate in increasingly competitive markets. Their inability to do so could affect our investment return. We cannot assure you that any of our venture companies will successfully acquire or develop any new technologies, or that the intellectual property the companies currently hold will remain viable. Even if our venture companies are able to develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Neither our venture companies nor we have any control over the pace of technology development. Commercial success is difficult to predict, and the marketing efforts of our venture companies may not be successful.
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RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES.
As of March 31, 2022, we had an accumulated deficit of $(8,666,662).
Future losses are likely to occur until we are able to receive returns on our loans and investments since we have no other sources of income to meet our operating expenses. As a result of these, among other factors, we received from our registered independent public accountants in their report for the financial statements for the years ended December 31, 2014 through 2021, an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT TO MEET OUR ONGOING OPERATING EXPENSES.
We have no sources of income at this time and insufficient assets to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt and, or, equity we shall be unable to meet our ongoing operating expenses. On a longer-term basis, we intend to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders. There can be no assurance that these events will be successfully completed.
UNFAVORABLE CONDITIONS IN OUR INDUSTRY OR THE GLOBAL ECONOMY OR REDUCED ACCESS TO LENDING MARKETS COULD HARM OUR BUSINESS.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our potential customers. Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political turmoil, natural catastrophes, warfare, public health issues, such as the recent outbreak of coronavirus (COVID-19), and terrorist attacks on the United States, Europe, the Asia Pacific region, or elsewhere, could cause a decrease in business investments or decrease access to financing which would harm our business. To the extent that our platform is perceived by potential customers as too costly, or difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in general technology spending. Also, we may have competitors, many of whom may be larger and have greater financial resources than we do and may respond to market conditions by attempting to lure away our customers. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry.
BECAUSE INSIDERS CONTROL OUR ACTIVITIES, THAT MAY CAUSE US TO ACT IN A MANNER THAT IS MOST BENEFICIAL TO THEM AND NOT TO OUTSIDE SHAREHOLDERS WHICH COULD CAUSE US NOT TO TAKE ACTIONS THAT OUTSIDE INVESTORS MIGHT VIEW FAVORABLY
Our executive officers, directors, and holders of 5% or more of our issued and outstanding common stock, including International Hedge Group, Inc., beneficially own approximately 11.65% of our issued and outstanding common stock, in addition to the Super Majority Voting Class A Preferred Stock. As a result, they effectively control all matters requiring director and stockholder approval, including the election of directors, the approval of significant corporate transactions, such as mergers and related party transaction. These insiders also have the ability to delay or perhaps even block, by their ownership of our stock, an unsolicited tender offer. This concentration of ownership could have the effect of delaying, deterring or preventing a change in control of our company that you might view favorably.
OUR OFFICERS AND DIRECTORS HAVE THE ABILITY TO EFFECTIVELY CONTROL SUBSTANTIALLY ALL ACTIONS TAKEN BY STOCKHOLDERS.
Mr. Harris and Mr. Kurczodyna, the officers and directors of the Company and of our parent, International Hedge Group, Inc. (“IHG”), control approximately 4.34% of our issued and outstanding common stock and 100% of our issued and outstanding preferred shares through IHG plus their own holdings; they have significant influence over all actions taken by our stockholders, including the election of directors, based on the BlackStar Super Majority Voting
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Class A Preferred Stock held by IHG. On December 18, 2020, the IHG shareholders voted to issue 1,000,000 IHG Class A Preferred shares to Mr. Kurczodyna as compensation for services provided to IHG, giving Mr. Kurczodyna supermajority voting rights over IHG and the ability to convert the IHG Class A Preferred Stock into shares of IHG common stock at the rate of one (1) IHG Class A Preferred for two-hundred ten (210) IHG common shares. This is a significant increase to the control of IHG by Mr. Kurczodyna, which effectively means that Mr. Kurczodyna has control of BlackStar through IHG’s ownership of BlackStar Super Majority Voting Class A Preferred Stock.
Such concentration of ownership could also have the effect of delaying, deterring, or preventing a change in control that might otherwise be beneficial to stockholders and may also discourage the market for our stock due to the concentration.
WE MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY NOT BE AVAILABLE ON REASONABLE TERMS AND AS NEEDED.
To supplement the business experience of our officers and directors, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Our Board without any input from stockholders will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to us. In the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able to provide the required services.
RISKS RELATING TO OUR VENTURE INVESTMENTS
THE INABILITY OF OUR VENTURE COMPANIES TO ADEQUATELY EXECUTE THEIR GROWTH OR EXPANSION STRATEGIES WOULD HAVE A NEGATIVE IMPACT ON OUR LOAN OR INVESTMENT RETURNS.
The possibility that our venture companies will not be able to fully carry out or execute on their expansion or growth plans presents significant risk. Our venture investments success in our subsidiary companies will ultimately depend on the success of our ventures. If the intended expansion or growth plan that was one of the main reasons we had originally formed the venture does not come to fruition or is otherwise impeded, the value of the venture may negatively reflect this information, making our investment not profitable or may subject us to a substantial loss. In such case, we may incur an entire loss of our investment.
OUR VENTURE COMPANIES WILL LIKELY HAVE SIGNIFICANT COMPETITION FROM MORE ESTABLISHED COMPANIES AS WELL AS INNOVATIVE EARLY-STAGE COMPANIES.
Emerging growth companies often face significant competition, both from early-stage companies and from more established companies. Early-stage competitors may have strategic capabilities such as an innovative management team or an ability to react quickly to changing market conditions, while more established companies may possess significantly more experience and greater financial resources than our venture companies. These factors could affect our investment returns.
OUR INVESTMENT RETURNS WILL DEPEND ON THE SUCCESS OF OUR VENTURES AND, ULTIMATELY, THE ABILITIES OF THEIR KEY PERSONNEL.
Our success will depend upon the success of our ventures. Their success, in turn, will depend in large part upon the abilities of their key personnel. The day-to-day operations of our ventures will remain the responsibility of their key personnel. The loss of one or a few key managers can hinder or delay a company’s implementation of its business plan. Our ventures may not be able to attract qualified managers and personnel. Any inability to do so may negatively impact our financial picture.
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SOME OF OUR VENTURE COMPANIES MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE READILY AVAILABLE.
Ventures in which we may make investments will often require substantial additional financing to fully execute their growth strategies. Each round of venture financing is typically intended to provide a company with only enough capital to reach the next stage of development, or in the case of our financings, the turn-around stage or offering stage which might provide us with a liquidity event. We cannot predict the circumstances or market conditions under which our ventures may seek additional capital. It is possible that one or more of our ventures will not be able to raise additional financing or may be able to do so at a price or on terms which are unfavorable to us, either of which could negatively impact our success. A likely economic downturn due to the recent pandemic known as coronavirus (COVID-19) may also cause lasting damage to the markets and potential ventures, from capital access and lack of investment issues to staffing and supply chain issues.
RISKS RELATING TO OWNERSHIP OF OUR COMMON
STOCK
A LIMITED PUBLIC MARKET EXISTS FOR OUR COMMON STOCK AT THIS TIME, AND THERE IS NO ASSURANCE OF A FUTURE MARKET.
There is a limited public market for our common stock, and no assurance can be given that a market will continue or that a shareholder ever will be able to liquidate his investment without considerable delay, if at all. If a market should continue, the price may be highly volatile. Factors such as those discussed in the “Risk Factors” section may have a significant impact upon the market price of the shares offered hereby. Due to the low price of our securities, many brokerage firms may not be willing to effect transactions in our securities. Even if a purchaser finds a broker willing to effect a transaction in our shares, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of our shares as collateral for any loans.
OUR STOCK WILL, IN ALL LIKELIHOOD, BE THINLY TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
The shares of our common stock may be thinly traded. We are a small company which is relatively unknown to stock analysts, stock brokers, institutional stockholders and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early-stage company such as ours or purchase or recommend the purchase of any of our securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price. We cannot give you any assurance that a broader or more active public trading market for our common securities will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we can give stockholders no assurance that they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their securities.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. The inability to sell your securities in a rapidly declining market may substantially increase your risk of loss because of such illiquidity and because the price for our securities may suffer greater declines because of our price volatility.
The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you may pay. Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:
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- Variations in our quarterly operating results;
- Loss of a key relationship or failure to complete significant transactions;
- Additions or departures of key personnel;
- Fluctuations in stock market price and volume;
- Changes to the Distributed Ledger Technology industry; and
- Regulatory developments, particularly those affecting digital shares.
Additionally, in recent years the stock market in general, has experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those company’s common stock. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.
THE REGULATION OF PENNY STOCKS BY THE SEC AND FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES.
We are a “penny stock” company, as our stock price is less than $5.00 per share. If we are able to obtain an exchange listing for our stock, we cannot make an assurance that we will be able to maintain a stock price greater than $5.00 per share and if the share price was to fall to such prices, that we wouldn’t be subject to the Penny Stocks rules. None of our securities currently trade in any market and, if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited stockholders. For purposes of the rule, the phrase “accredited stockholders” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers in this offering to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks”. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.
Stockholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Inventory in penny stocks have limited remedies in the event of violations of penny stock rules. While the courts are always available to seek remedies for fraud against us, most, if not all, brokerages require their customers to sign
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mandatory arbitration agreements in conjunctions with opening trading accounts. Such arbitration may be through an independent arbiter. Stockholders may file a complaint with FINRA against the broker allegedly at fault, and FINRA may be the arbiter, under FINRA rules. Arbitration rules generally limit discovery and provide more expedient adjudication, but also provide limited remedies in damages usually only the actual economic loss in the account. Stockholders should understand that if a fraud case is filed an against a company in the courts it may be vigorously defended and may take years and great legal expenses and costs to pursue, which may not be economically feasible for small stockholders.
That absent arbitration agreements, specific legal remedies available to stockholders of penny stocks include the following:
| · | If a penny stock is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. |
| · | If a penny stock is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
The fact that we are a penny stock company will cause many brokers to refuse to handle transactions in the stocks, and may discourage trading activity and volume, or result in wide disparities between bid and ask prices. These may cause stockholders significant illiquidity of the stock at a price at which they may wish to sell or in the opportunity to complete a sale. Stockholders will have no effective legal remedies for these illiquidity issues.
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE.
We have not paid dividends on our common stock and do not ever anticipate paying such dividends in the foreseeable future. Stockholders whose investment criteria are dependent on dividends should not invest in our common stock.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock are held by our present officers, directors, and affiliate stockholders as “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock or the average weekly trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of two years. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
OUR STOCKHOLDERS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to BlackStar Enterprise Group, Inc. stockholders as a result of future decisions of the Board to issue shares without shareholder approval for cash, services, or acquisitions.
WE ARE A REPORTING COMPANY
We are subject to the reporting requirements under the Securities and Exchange Act of 1934, Section 13a, due to the effectiveness of our Registration Statement on Form 10 under Section 12(g) which became effective on or about February 27, 2017. As a result, stockholders will have access to the information required to be reported by publicly held companies under the Exchange Act and the regulations thereunder. As a result, we will be subject to legal and accounting expenses that private companies are not subject to and this could affect our ability to generate operating income.
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WE HAVE NOT IDENTIFIED ANY OTHER VENTURES IN WHICH WE MAY INVEST IN A VENTURE.
We have only loaned money to one company, Meshworks Media Corporation, (and that loan has been assigned) and it may take time to find other ventures, none of which are identified as of the date of this filing.
OUR OTC MARKET STATUS HAS BEEN LOWERED FROM OTCQB TO OTC PINK.
Due to the low trading price of the common stock of the Company, we have been demoted from the OTCQB to OTCPINK for not maintaining the $0.01 bid test. The Company has sought financing through convertible promissory notes in order to develop the BDTP TM app; some of the notes have in turn been converted to common stock and then traded on the market in large quantities, lowering the bid prices. The change in status from OTCQB to Pink may make it harder to access investors and financing to continue to fund our operations.
Additionally, OTC Markets has removed the “Shell Risk” label on the Company’s profile, indicating that they believe we now meet certain criteria . We believe that we are not a shell company based on our history of operations and specific software development, the label has been removed from the BEGI profile on OTC Markets. OTC Markets may choose to downgrade our profile if we do not maintain adequate proof that we are not, in fact, a shell company.
BLACKSTAR DIGITAL FUNGIBLE SHARES AND DIGITAL SHARES IN GENERAL MAY BE SUBJECT TO UNIQUE RISKS NOT ASSOCIATED WITH PAPER CERTIFICATED SHARES.
The digital form of BlackStar common stock (BlackStar Electronic Fungible Shares when traded on BDTP TM) and digital or electronic shares in general may be subject to timing delays, electronic transfer errors, electronic systems outages, and cybersecurity threats. BlackStar Electronic Fungible Shares carry the same risks as electronic fungible shares from DTCC that have been DWAC and placed in Broker Dealers accounts for customers. The intended functionality of the BlackStar Digital Trading Platform TM is to encrypt the buy/sell orders (including all transaction and customer information) placed by broker dealers and customers, in order to provide additional security and ease of access over the existing systems, but not all risks can be mitigated due to unforeseen future threats and/or disruptions, transmission errors, and electronic systems issues. Electronic fungible shares of common stock, including BlackStar Electronic Fungible Shares , hold the same rights as paper certificated shares of common stock and are fungible. Digital equity would be the electronic fungible shares on account. The difference in the two is the mode of sale or transfer; however, the transfer agent maintains records of all shareholder activity, regardless of the form. While electronic fungible shares are now commonplace, there is still risk involved with electronic transmission of information and that transmission may be compromised. The record-keeping requirements of transfer agents, broker dealers, and issuers remain unchanged with electronic fungible shares, however, the risk of error or omission cannot be ruled out.
INSURANCE WILL NOT BE OBTAINED FOR OUR ELECTRONIC FUNGIBLE SHARES WHICH POSES RISKS.
We do not intend to attempt to obtain any insurance at this time for shares in electronic fungible form, so there will be no insurance for covering liability in the event of losses from the form or mode of transfer of Electronic Fungible Shares .
RISK FACTORS RELATED TO
OUR PLATFORM AND BLOCKCHAIN/DISTRIBUTED LEDGER TECHNOLOGY
THE OPERABILITY OF OUR PLATFORM DEPENDS ON OUR ABILITY TO ENTER INTO A LICENSE AGREEMENT WITH A BROKER DEALER OR AN ALTERNATIVE TRADING SYSTEM.
Our plan to operate the BlackStar Digital Trading Platform TM relies on our ability to enter into a license agreement with a broker dealer or an alternative trading system (“ATS”). The BDTP TM operates as an encrypted platform for the transmission of customer information, dollar amount, number of shares, and account number to be sent over a secured network to/from the broker dealer and/or customer. Whether we license the platform to a broker dealer or an ATS, we
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will rely on the licensee to comply with all relevant laws, rules and regulations including, but not limited to, FINRA and/or SEC registration, the Customer Protection Rule (Rule 15c3-3 of the Securities Exchange Act of 1934, as amended), the Exchange Act requirements for books, records and financial reporting, and the Securities Investor Protection Act of 1970 (“SIPA”), as applicable. The duties of settlement, safekeeping, and reporting of customers’ assets will remain with the traditional custodians – the Broker Dealers retained by customers for their own account. The BDTP TM will provide encrypted transmission of order information, as discussed above. Once established, any disruption in our relationship with a broker dealer or ATS may cause a temporary or permanent service disruption of BDTP TM, unless and until we are able to reestablish a new licensee . If we are unable at any time to establish the necessary relationship, BDTP TM may never become functional. If we are unable to license BDTP TM to an ATS in this way, we may reevaluate whether we may apply for ATS status .
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.
We plan to rely upon trademarks, copyright and trade secret protection (and possibly also patents in the future), as well as non-disclosure agreements and invention assignment agreements with employees, consultants and third parties, to protect all confidential and proprietary information. Significant elements of our intended products and services are based on unpatented trade secrets and know-how that are not publicly disclosed. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. The security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and the recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.
INTELLECTUAL PROPERTY RIGHTS CLAIMS MAY ADVERSELY AFFECT THE DISTRIBUTE LEDGER TECHNOLOGY.
Third parties may assert intellectual property claims relating to their source code, including Distributed Ledger Technology. Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in distributed ledger technology’s long-term viability may adversely affect an investment in us. Additionally, a meritorious intellectual property claim could prevent us, our ventures, and other end-users from accessing the distributed ledger technology. As a result, an intellectual property claim against us could adversely affect an investment in us.
WE MAY DEPEND ON THIRD PARTIES TO PROVIDE EXECUTION OF OUR TRADING PLATFORM, INTERNET, TELECOMMUNICATION AND FIBER OPTIC NETWORK CONNECTIVITY TO OUR DATA CENTER, AND ANY DELAYS OR DISRUPTIONS IN SERVICE COULD ADVERSELY AFFECT AN INVESTMENT IN US.
We may rely on third-party service providers. In particular, we will depend on third parties to provide real time quotation and trading execution with our trading platform, Internet, telecommunication, and fiber optic network connectivity to our servers in our data center, and we have no control over the reliability of the services provided by these suppliers. We may in the future experience difficulties due to service failures unrelated to our systems and services.
OUR INTERACTIONS WITH A BLOCKCHAIN MAY EXPOSE US TO SDN OR BLOCKED PERSONS OR CAUSE US TO VIOLATE PROVISIONS OF LAW THAT DID NOT CONTEMPLATE DISTRIBUTE LEDGER TECHNOLOGY.
If our BDTP TM becomes operational, we may be required to comply with the Office of Financial Assets Control (“OFAC”) of the U.S. Department of Treasury’s sanction program and not conduct business with persons named on
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its specially designated nationals (“SDN”) list. We anticipate that we will not to our knowledge engage in transactions with persons named on OFAC’s SDN list, as the sales of shares occurring with the use of the platform will be required to comply with existing rules and regulations applicable to the information required to transfer securities. Moreover, federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction commonly known as child pornography. Recent media reports have suggested that persons have imbedded such depictions on one or more blockchains. Because our business requires us to download and retain one or more blockchains to effectuate our ongoing business, it is possible that such digital ledgers contain prohibited depictions without our knowledge or consent. To the extent government enforcement authorities literally enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm our reputation and affect the value of our common stock.
This prospectus relates to the resale of up to 46,000,000 common shares underlying the Notes purchased by the Selling Shareholders, including 1,386,459, 9,016,394, and 27,500,000 shares, respectively, that may be issued pursuant to the conversion of the principal amount of the Notes, as well as 110,917, 1,100,000, and 2,750,000 additional shares that may be issued pursuant to the conversion of accrued interest over the term of the Notes, assuming a conversion price of $0.024, $0.0244, and $0.02 per share, respectively, 300,000 shares issued to cure a default, and 3,836,230 additional shares to cover any differences in conversion price. The Company received approximately $664,500 in net proceeds pursuant to the sale of the Notes. We will not receive any proceeds from the sales of Common Shares underlying the Notes by the Selling Shareholders. We will pay the cost of registering the shares offered by this Prospectus. The proceeds from the sale of the Notes will be used for working capital and general corporate expenses.
We may seek additional financing from other sources to support our ongoing operations. If we secure additional equity funding, future investors in our common stock may be diluted. No plans for additional financing are currently being contemplated by the company, and in all events, there can be no assurance that additional financing would be available to use when wanted or needed and, if available, on terms acceptable to us.
The monies we have raised thus far from private placements and/or convertible note financing is anticipated to be sufficient to pay all expenses of this registration statement, which is estimated to be $47,000.
ITEM 5. DETERMINATION OF OFFERING PRICE
We have a limited established market for our common stock as quoted on the OTCQB under the symbol “BEGI.”
Our selling shareholders plan to sell shares at such market prices as the market may dictate from time to time or in private transactions.
| Title | Per Share |
| Common Stock | $0.00684 * |
* 5-day average closing price preceding filing of this Registration Statement.
As of May 2, 2022 and December 31, 2021, there were 209,818,602 and 128,689,319 shares of common stock issued and outstanding, respectively.
The market share price likely bears no relationship to any criteria of goodwill value, asset value, market price or any other measure of value.
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DILUTION OF OWNERSHIP INTERESTS WILL OCCUR BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.
We are registering an aggregate of 46,000,000 shares of common stock to be issued in connection with Securities Purchase Agreements and the conversion of certain of our outstanding convertible notes. The sale of such shares could depress the market price of our common stock. The sale of these shares into the public market by the selling shareholders could depress the market price of our common stock. If we raise additional capital subsequent to this registration statement through the issuance of equity or convertible debt securities, the percentage ownership of our Company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, we may also have to issue securities that may have rights, preferences and privileges senior to our common stock. In the event we seek to raise additional capital through the issuance of debt or its equivalents, this will result in increased interest expense.
Assuming the Noteholders convert the maximum amount of principal and interest under the convertible notes, existing stockholders could experience substantial dilution upon the issuance of common stock. The following table is an example of the number of shares that could be issued at various prices assuming the Noteholders convert the maximum amount of principal and interest under each convertible note. These examples assume issuances at market prices of $0.04, the closing price of our shares on July 8, 2021, and at a percentage discount per share as listed.
| Market Price | Discount to Market Price | Price per Share(1) | Number of Shares Issuable(2) | Shares Outstanding(3) | Percent of Outstanding Shares(4) | ||||||||
| $ | 0.04 | 40% | $ | 0.024 | 1,797,376 | 159,074,757 | 1.4% | ||||||
| $ | 0.04 | 39% | $ | 0.0244 | 10,116,394 | 159,074,757 | 7.86% | ||||||
| $ | 0.04 | 50% | $ | 0.02 | 30,250,000 | 159,074,757 | 23.51% | ||||||
| (1) | Represents discounted purchase prices of the July 8, 2021, closing price of $0.04. |
| (2) | Represents the number of shares issuable under the convertible notes if the conversion price on the date of conversion was the indicated price per share. |
| (3) | Based on 209,818,602 shares of common stock outstanding as of May 2, 2022. |
| (4) | Percentage of the number of shares issuable under the convertible notes out of the total current outstanding shares of common stock (not including those in the conversions), without considering any contractual restriction on the number of shares the selling stockholder may own at any point in time or other restrictions on the number of shares we may issue. |
ITEM 7. SELLING SECURITY HOLDERS
The Common Shares being offered by the Selling Shareholders are those underlying the Notes previously issued to the Selling Shareholders. For additional information regarding the issuances of those Notes and the underlying Common Shares, see “Private Placement of Convertible Notes” above. We are registering the Common Shares underlying the Notes in order to permit the Selling Shareholders to offer the Common Shares for resale from time to time. Except for the ownership of the Notes and therefore the underlying Common Shares, the Selling Shareholders have not had any material relationship with us within the past three years.
The table below lists the Selling Shareholders and other information regarding the beneficial ownership of the Notes held by each of the Selling Shareholders. The second column lists the number of Common Shares beneficially owned by each Selling Stockholder, based on Common Shares underlying the Notes, as of July 8, 2021, assuming conversion of the Notes held by the Selling Shareholders on that date, at a price per share of $0.024. $0.0244, and $0.02, respectively, without regard to any limitations on exercises.
The third column lists the Common Shares being offered by this prospectus by the Selling Shareholders, based on a conversion of the Notes, assuming a conversion price of $0.024. $0.0244, and $0.02, respectively, per share.
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In accordance with the terms of the registration rights within the convertible notes with the Selling Shareholders, this prospectus generally covers the resale of the sum of the maximum number of shares of common stock issuable upon conversion of the Notes, assuming a conversion price of $0.024, $0.0244, and $0.02, respectively, per share, determined as if the outstanding Notes were converted in full as of the trading day immediately preceding the date this Registration Statement was initially filed with the SEC, without regard to any limitations on the conversion of the Notes.
The Notes do not allow for any conversion that would result in the beneficial ownership of greater than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such conversion. The Selling Shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
| (a) | All of the securities listed below are being registered in this Registration Statement. |
| Name |
Number of shares of Common Stock Underlying Notes(1) |
Common Shares to be Registered(2) | Principal Dollar Value of Convertible Notes | Percent of Shares Outstanding(3) | ||||||||||||
| Quick Capital LLC | 1,797,376 | 2,000,000 | $ | 33,275 | 1.44 | % | ||||||||||
| SE Holdings, LLC | 10,116,394 | 13,000,000 | $ | 220,000 | 8.13 | % | ||||||||||
| Adar Alef, LLC | 30,250,000 | 31,000,000 | $ | 550,000 | 24.3 | % | ||||||||||
| TOTAL REGISTERED | 46,000,000 | |||||||||||||||
_________
| (1) | The Notes accrue interest at a rate of ten percent (10%) per annum. The amount of shares listed above being registered as part of this Prospectus includes shares that may be issued upon the conversion of the principal amount of the Notes, as well as additional shares that may be issued pursuant to the conversion of accrued interest over the term of the Notes, assuming a conversion price of $0.024, $0.0244, and $0.02, respectively, per share. The Notes are convertible at the option of each respective Selling Shareholder at a variable conversion price and are subject to various price adjustments based on Company activity and market events. The Notes also contain a beneficial ownership limitation, whereby each Selling Stockholder may not convert any amount of his, her, or its respective Note, if such conversion would result in the beneficial ownership of greater than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of the conversion shares. The conversion price of the Notes is also subject to adjustment in the event of a stock dividend or a stock split on the Company’s common stock. |
| (2) | Additional shares registered to account for variability of market prices. |
| (3) | Based upon 209,818,602 shares of common stock issued and outstanding as of the May 2, 2022, not including reserve shares, warrants outstanding, or convertible preferred shares. |
Other than the material relationships, discussed above, the listed selling security holders have not had a material relationship with the registrant.
(b) The table below shows the person with voting control for the entities that are greater than 1% shareholders listed in (a) above.
| NAME OF THE ENTITY | PERSON(S) WITH VOTING CONTROL | NUMBER OF COMMON SHARES BEING REGISTERED | AFFILIATE OF COMPANY? |
| Quick Capital LLC | Eilon Natan, Managing Director | 2,000,000 | No |
| SE Holdings, LLC | Aryeh Goldstein, Manager | 13,000,000 | No |
| Adar Alef, LLC | Aryeh Goldstein, Manager | 31,000,000 | No |
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Upon effectiveness of this registration statement, of which this prospectus is a part, our existing selling shareholders may sell their securities at market prices or at any price in privately negotiated transactions.
Our selling shareholders may be deemed underwriters in this offering.
The selling shareholders are not paying any of the offering expenses and we, the Company, will not receive any of the proceeds from the sale of the shares by the selling shareholders.
ITEM 9. DESCRIPTION OF SECURITIES
The securities being registered by this Prospectus are shares of common stock.
Common Stock
The total number of common shares authorized to be issued by the Company as of May 31, 2022 was 700,000,000 shares with a par value of $0.001 per share. The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share. A total of Two Hundred Nine Million, Eight Hundred Eighteen Thousand, Six Hundred Two (209,818,602) common shares are issued and outstanding as of May 2, 2022. There are warrants to purchase 540,000 shares of common stock outstanding as of May 2, 2022.
Common Shares
All common shares are equal to each other with respect to voting, liquidation, and dividend rights. Special shareholders’ meetings may be called by the officers or director, or upon the request of holders of at least one-tenth (1/10th) of the outstanding shares. Holders of shares are entitled to one vote at any shareholders’ meeting for each share they own as of the record date fixed by the board of directors. There is a quorum requirement for shareholders’ meetings of one-third of the votes entitled to be cast on the matter by the voting group. Holders of shares are entitled to receive such dividends as may be declared by the board of directors out of funds legally available therefore, and upon liquidation are entitled to participate pro rata in a distribution of assets available for such a distribution to shareholders. Other than as described in the ‘Preferred shares’ section below, there are no conversion, pre-emptive or other subscription rights or privileges with respect to any shares. Reference is made to our Certificate of Incorporation, as amended, and our Bylaws, both as filed with the Form 10 on December 29, 2016 and incorporated herein by reference, as well as to the applicable statutes of the State of Delaware for a more complete description of the rights and liabilities of holders of shares. It should be noted that the board of directors without notice to the shareholders may amend the Bylaws. Our shares do not have cumulative voting rights, which means that the holders of more than fifty percent (50%) of the shares voting for election of directors may elect all the directors if they choose to do so. In such event, the holders of the remaining shares aggregating less than fifty percent (50%) of the shares voting for election of directors may not be able to elect any director.
Our common stock is currently quoted on the OTCQB under the symbol “BEGI”. Because we are quoted on the OTCQB, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.
The common shares underlying conversion of the notes that are the subject of this registration statement will only be converted into certificated shares or uncertificated, book-entry shares at the investor’s election. The share being registering in this offering may use the existing DWAC process and receive electronic book entry shares to be traded through existing methods.
Preferred shares
As of May 31, 2022, we had authorized ten million (10,000,000) shares of Preferred Stock, of which certain shares had been designated as Class A Preferred Stock.
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Class A Convertible Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of up to ten million (10,000,000) shares of Preferred Stock, $0.001 par value per share (herein, “Preferred Stock” or “Preferred Shares”), and expressly vests in the Board of Directors of the Company the authority provided therein to issue any or all of the Preferred Shares in one (1) or more Class or classes and by resolution or resolutions to establish the designation and number and to fix the relative rights and preferences of each Class to be issued. The Board authorized One Million (1,000,000) of the Ten Million (10,000,000) authorized shares of Preferred Stock of the Company to be designated Class A Preferred Convertible Stock, $0.001 par value per share, and shall possess the rights and preferences set forth below:
Rank. The Class A Preferred Convertible Stock shall rank: (i) senior to any other class or Class of outstanding Preferred Shares or Class of capital stock of the Company; (ii) prior to all of the Company’s Common Stock, (“Common Stock”); and (iii) prior to any other class or Class of capital stock of the Company hereafter created “Junior Securities”); and in each case as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (all such distributions being referred to collectively as “Distributions”).
Dividends. The Class A Preferred Convertible Stock shall bear no dividends, except that in the event dividends are declared for common stock, the same rate of dividend per share shall be due and payable to the Class A Preferred shareholders on the same terms.
Liquidation / Merger Preference.
(a) So long as a majority of the shares of Class A Preferred authorized are outstanding, the Company will not, without the written consent of the holders of at least 51% of the Company’s outstanding Class A Preferred, either directly or by amendment, merger, consolidation, or otherwise: (i) liquidate, dissolve or wind-up the affairs of the Company, or effect any Liquidation Event; (ii) amend, alter, or repeal any provision of the Certificate of Incorporation or Bylaws in a manner adverse to the Class A Preferred (iii) create or authorize the creation of, or issue any other security convertible into or exercisable for, any equity security, having rights, preferences or privileges senior to the Class A Preferred, or (iv) purchase or redeem or pay any dividend on any capital stock prior to the Class A Preferred, other than stock repurchased from former employees or consultants in connection with the cessation of their employment/services.
(b) In the event of any liquidation, merger, dissolution or winding up of the Company, either voluntary or involuntary, the holders of shares of Class A Preferred Convertible Stock (each a “Holder” and collectively the “Holders”) shall be entitled to receive, prior in preference to any distribution to Junior Securities, an amount per share equal to $.01 plus any allocable and due dividends per share.
(c) Upon the completion of the distribution required to Class A holders, if assets remain in the Company, they shall be distributed to holders of Junior Securities in accordance with the Company’s Certificate of Incorporation including any duly adopted Certificate(s) of Designation.
Conversion Rights:
The Holders of the Class A Preferred Convertible Stock shall, individually and collectively, have the right to convert all of their Class A Preferred Convertible Stock, in one transaction, by electing, in writing, to convert the 1,000,000 shares of Class A Preferred Stock into shares of Common Stock of the Company, on the basis of 100 common shares for each share of Class A Preferred Stock, subject to adjustment.
Adjustment to Conversion Rate. The conversion price will be subject to adjustments for stock dividends, splits, combinations and similar events and to Adjustment Due to Merger, Consolidation, Etc. If, prior to the conversion of all Class A Preferred Convertible Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity or there is a sale of all or substantially all the Company’s assets, then the Holders of Class A Preferred Convertible Stock shall thereafter have the right to receive upon conversion of Class A Preferred Convertible Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of
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Common Stock immediately theretofore issuable upon conversion, such stock, securities and/or other assets (“New Assets”) which the Holder would have been entitled to receive in such transaction had the Class A Preferred Convertible Stock been convertible into New Assets from the date hereof, at the market price of such New Assets on the date of conversion, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holders of the Class A Preferred Convertible Stock to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the conversion price and of the number of shares of Common Stock issuable or New Assets deliverable upon conversion of the Class A Preferred Convertible Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise here.
Redemption by Company. The Company may, at its sole discretion redeem all or any portion of the Class A Preferred Convertible Stock by paying in cash by wire transfer the stated value of US $50.00 per share, plus all accrued and unpaid dividends on the Class A Preferred Convertible Stock to be redeemed, to the Holder pursuant to the Holder’s written instructions. The Holders may convert Class A Preferred Convertible Stock into Common Stock of the Company until such cash has been transmitted to the Holder, at which time conversion rights shall cease and the Holder shall surrender all redeemed Class A Preferred Certificates to the Company for cancellation.
Super Majority Voting Rights. The record Holders of the Class A Preferred Convertible Stock shall have the right to vote on any matter with holders of Common Stock and may vote as required on any action, which Delaware law provides may or must be approved by vote or consent of the holders of the specific Class of voting preferred shares and the holders of common shares. The Record Holders of the Class A Preferred Shares shall have the right to vote on any matter with holders of common stock voting together as one (1) class. The Record Holders of the Class A Preferred Shares shall have that number of votes (identical in every other respect to the voting rights of the holders of other Class of voting preferred shares and the holders of common stock entitled to vote at any Regular or Special Meeting of the Shareholders) equal to that number of common shares which is not less than 60% of the vote required to approve any action, which Delaware law provides may or must be approved by vote or consent of the holders of other Class of voting preferred shares and the holders of common shares or the holders of other securities entitled to vote, if any.
In 2016, BlackStar entered into an agreement whereby BlackStar’s parent, International Hedge Group, Inc., acquired 44,400,000 shares of common stock, 1,000,000 shares of our Class A Preferred Super Majority Voting Convertible Stock, and 34,000,000 warrants to purchase common stock @ $0.05 per share expiring in 3 years (cashless) for capital infusion of $200,000. John Noble Harris, Joseph E. Kurczodyna and Todd H. Lahr own the control of International Hedge Group, Inc., which in turn controls the voting stock of BlackStar.
Messrs. Harris and Kurczodyna exercised 1,500,000 warrants each in a cashless exercise @ $.05 per share on June 14, 2017, resulting in 1,440,000 shares of common stock each, thereby changing their shareholdings reflected in this amendment. In addition, Rare Green, Inc., of which Mr. Harris is an officer, exercised 750,000 warrants in a cashless exercise @ $.05 per share on June 14, 2017, resulting in 720,000 shares of common stock. At the same time, Patriot Mtg. Acceptance Corp., of which Mr. Kurczodyna is an officer, exercised 750,000 warrants in a cashless exercise @ $.05 per share on June 14, 2017, resulting in 720,000 shares of common stock. IHG exercised 1,350,000 warrants in a cashless exercise @ $.05 per share on June 14, 2017, resulting in 1,296,000 shares of common stock, which were assigned in part to THL Holdings, LLC (960,000), with the remainder being assigned to three other non-affiliate shareholders. Mr. Lahr individually exercised 3,250,000 warrants in a cashless exercise @ $.05 per share on June 14, 2017, resulting in 3,120,000 shares of common stock, thereby changing his shareholdings reflected in this amendment. Finally, THL Holdings, LLC, of which Mr. Lahr is Managing Member, exercised 2,000,000 warrants in a cashless exercise @ $.05 per share on June 14, 2017, resulting in 1,920,000 shares of common stock. On September 29, 2017, International Hedge Group, Inc. retired 16,420,000 shares to treasury and exercised warrants.
On April 29, 2018, International Hedge Group Inc. retired 330,000 shares to treasury simultaneously to the issuance of 330,000 shares purchased in a private placement offering. Messrs. Harris and Kurczodyna exercised 1,500,000 warrants each in a cashless exercise @ $.05 per share on June 14, 2018 resulting in 1,444,445 shares of common stock, thereby changing their shareholdings reflected in this amendment. In addition, Rare Green, Inc., of which Mr. Harris is an officer, exercised 750,000 warrants in a cashless exercise @ $0.05 per share on June 14, 2018, resulting in 722,222 shares of common stock. At the same time, Patriot Mtg. Acceptance Corp., of which Mr. Kurczodyna is an officer, exercised 750,000 warrants in a cashless exercise @ $.05 per share on June 14, 2018, resulting in 722,222 shares of common stock. IHG exercised 1,350,000 warrants on June 14, 2018 resulting in 1,300,000 shares of common
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stock, which were assigned to non-affiliated individual advisors to the Company. Mr. Lahr individually exercised 3,250,000 warrants in a cashless exercise @ $0.05 per share on June 14, 2018 resulting in 3,129,630 shares of common stock. THL Holdings, LLC, of which Mr. Lahr is Managing Member, exercised 2,000,000 warrants in a cashless exercise @ $0.05 per share on June 14, 2018, resulting in 1,925,926 shares of common stock. On June 18, 2018, International Hedge Group, Inc. retired 16,370,370 shares to treasury.
On June 26, 2019, International Hedge Group, Inc. retired 139,831 shares (certificate listed as IHG, Inc.) to treasury simultaneously to the issuance of 139,831 shares issued under the Power Up Lending convertible promissory note.
There were 209,818,602 shares of common stock outstanding, 540,000 warrants issued for common stock, and 1,000,000 Class A Preferred Shares outstanding (owned by International Hedge Group, Inc.) as of May 2, 2022.
The following tables set forth the high and low bid quotations for our common stock as reported on the OTCQB for the periods indicated.
| Fiscal 2022 | Low | High | ||||||
| First Quarter – ended March 31, 2022 | $ | 0.004 | $ | 0.022 | ||||
| Fiscal 2021 | Low | High | ||||||
| First Quarter – ended March 31, 2021 | $ | 0.025 | $ | 0.15 | ||||
| Second Quarter – ended June 30, 2021 | $ | 0.024 | $ | 0.095 | ||||
| Third Quarter – ended September 30, 2021 | $ | 0.02 | $ | 0.048 | ||||
| Fourth Quarter – ended December 31, 2021 | $ | 0.01 | $ | 0.039 | ||||
| Fiscal 2020 | Low | High | ||||||
| First Quarter – ended March 31, 2020 | $ | 0.01 | $ | 0.02 | ||||
| Second Quarter – ended June 30, 2020 | $ | 0.01 | $ | 0.13 | ||||
| Third Quarter – ended September 30, 2020 | $ | 0.01 | $ | 0.08 | ||||
| Fourth Quarter – ended December 31, 2020 | $ | 0.02 | $ | 0.06 | ||||
| Fiscal 2019 | Low | High | ||||||
| First Quarter – ended March 31, 2019 | $ | 0.35 | $ | 0.90 | ||||
| Second Quarter – ended June 30, 2019 | $ | 0.15 | $ | 0.70 | ||||
| Third Quarter – ended September 30, 2019 | $ | 0.07 | $ | 0.18 | ||||
| Fourth Quarter – ended December 31, 2019 | $ | 0.02 | $ | 0.40 | ||||
Holders.
As of May 2, 2022, there are approximately 362 record holders of 209,818,602 shares of our common stock. The Company has also reserved out of its authorized common stock approximately 455,337,648 shares of common stock as of June 2, 2022 for conversion pursuant to the convertible promissory notes.
Dividends.
As of the filing of this Registration Statement, we have not paid any dividends to stockholders. There are no restrictions which would limit our ability to pay dividends on common equity or that are likely to do so in the future. The Delaware General Corporation Laws, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend; we would not be able to pay our debts as they become due in the usual course of business; or our total assets would be less than the sum of the total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Options & Warrants
Effective December 1, 2016, our Stock Option and Award Plan (the “Stock Incentive Plan”) was approved by our Board of Directors. Under the Stock Incentive Plan, the Board of Directors may grant options or purchase rights to purchase common stock to officers, employees, and other persons who provide services to us or any related company.
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The participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase or exercise price, conditions and other terms of each award are determined by the Board of Directors, except that the term of the options shall not exceed 10 years. A total of 10 million shares of our common stock are subject to the Stock Incentive Plan and maybe either a qualified or non-qualified stock option. The shares issued for the Stock Incentive Plan may be either treasury or authorized and unissued shares. As of May 31, 2022, we have granted no stock options to purchase any shares of our common stock under the Plan.
As of May 31, 2022, there are warrants outstanding to purchase 540,000 shares of common stock of the Company as follows:
| Grant Purpose | Grant Date | Number | Exercise Price | Expiration Date | Vesting |
| Private placement (common stock) | 7-05-2017 | 100,000 | $0.60 | 7-05-2022 | 100% |
| Private placement (common stock) | 4-26-2019 | 440,000 | $0.25 | 4-26-2024 | 100% |
Transfer Agent
The transfer agent for our securities is EQ Shareowner Services, formerly known as Corporate Stock Transfer, with offices at 3200 Cherry Creek South Drive, Suite 430, Denver, Colorado 80209, Phone (303) 282-4800.
ITEM 10. INTEREST OF NAMED EXPERTS AND COUNSEL
We have not hired or retained any experts or counsel on a contingent basis, who would receive a direct or indirect interest in us, or who is, or was, our promoter, underwriter, voting trustee, director, officer or employee.
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT
BUSINESS SUMMARY
This prospectus contains various forward-looking statements that are based on our beliefs as well as assumptions made by and information currently available to us. When used in this prospectus, the words “believe,” “expect,” “anticipate,” “estimate,” and similar expressions are intended to identify forward-looking statements. These statements may include statements regarding seeking business opportunities, payment of operating expenses, and the like, and are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from projections or estimates. Factors which could cause actual results to differ materially are discussed at length under the heading “Risk Factors”. Should one or more of the enumerated risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Investors should not place undue reliance on forward-looking statements, all of which speak only as of the date made.
In this prospectus, unless the context requires otherwise, references to “BlackStar,” “Company,” “we,” “our,” or “us,” refer to BlackStar Enterprise Group, Inc. and our consolidated subsidiaries.
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Company Overview
We are based in Boulder, Colorado and are engaged in Merchant Banking and Finance in the United States. BlackStar’s venue is private early-stage companies throughout various industries that, in our judgement, exhibit a potential for sustained growth. We are a publicly traded specialized merchant banking firm, facilitating joint venture capital to early-stage revenue companies. We are actively seeking opportunity for discussion with revenue generating enterprises and emerging companies for financing.
Since 2018 we have also been developing a blockchain-based software platform to trade electronic fungible shares of our common stock. Once completed, the platform should enable us to become a Platform as a Service (“PaaS”) provider for other publicly traded companies, providing revenue to finance our merchant banking. We have recognized net losses of ($2,183,567) in the year ended December 31, 2021. We have relied solely on sales of our securities, convertible note financing, and private loans to fund our operations. The completion of our software platform depends on our ability to license it to an existing Alternative Trading System (“ATS”) or registration as an ATS.
The Company has designed and is finalizing development of a BlackStar Digital Trading Platform TM (“BDTP TM”) referenced above and anticipates completion of the platform in the next several months. The Company has designed the BDTP TM to trade electronic fungible shares of BEGI (or any other company), and intends to use the BDTP TM as proof-of-concept to other companies looking for a similar market solution. The platform can be adapted and customized to meet the needs of the particular registered issuer and a yearly subscription fee will be charged for the design and monitoring of the digital platform technology and execution; the issuer would decide who would quote and host their particular platform. This subscription income will then become the basis of our revenues. We have completed a working demonstration on Amazon Web Services Quantum Ledger Database (“QLDB”) designed to facilitate shareholder trading activity. We are in the process of finalizing the software design and are now trying to organize an arrangement with a broker-dealer, clearing firm, existing ATS, or other trading system in order to begin trading electronic fungible BEGI shares over the BDTP TM subject to approval by the SEC .
BlackStar intends to offer consulting and regulatory compliance services to companies desiring to issue electronic fungible shares and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in electronic fungible share-related ventures though our wholly-owned subsidiary, Crypto Equity Management Corp. (“CEMC”) formed in September 2017. BlackStar Enterprise Group, Inc. is traded on the OTC QB under the symbol “BEGI.” CEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTP TM. CEMC has not established any anticipated time frames or key milestones for CEMC business.
As to the CEMC business model, the primary factor for its development is dependent upon whether the BDTP TM achieves regulatory approval by the SEC for the platform and an ATS arrangement has been achieved and approved as necessary by the SEC.
In addition to the services described above, on December 31, 2017, BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc., a self-regulatory membership organization for the digital share industry. Further details about the business plan for CEMC, the operating subsidiary of BlackStar, and Crypto Industry SRO can be found in the “Current Business” section below.
The Company intends to raise additional funds in order to fund operations of the merchant bank, and to expand its services into the blockchain industry. To fund ongoing operations, we may raise funds in the future, which are not yet committed.
International Hedge Group, Inc. (“IHG”), our parent company, contracted to acquire 95% of our outstanding stock in January 2016 and closed on the purchase in summer of 2016. In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares of common stock and 1,000,000 of Class A Preferred Stock. IHG is our controlling shareholder and is engaged in providing management services to companies, and, on occasion, capital consulting. IHG’s strategy in investing in BlackStar Enterprise Group, Inc. is to own a controlling interest in a publicly quoted company which has the mission to engage in funding of start-up and developed business ventures using its stock for private placement or public offerings. IHG and BlackStar are currently managed and controlled by the same
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individuals, but IHG and BlackStar may each seek its funding from different and as yet, undetermined sources, with funding structures of different natures.
Our principal executive offices are located at 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303 and our office telephone number is (303) 500-3210. We maintain a website at www.blackstarenterprisegroup.com, and such website is not incorporated into or a part of this filing.
HISTORY
Our Company, BlackStar Enterprise Group, Inc., was originally formed on December 17, 2007 as NPI08, Inc. in the State of Delaware. Our name was changed in 2010 to BlackStar Energy Group, Inc. In August of 2016, our name was changed to BlackStar Enterprise Group, Inc.
Our Company was divested from Kingsley Capital, Inc. in a bankruptcy proceeding in 2008, in which Kingsley was the debtor. Our Company attempted to start up in the energy business in 2010 without success, resulting in losses totaling $1,819,530 over a three-year period. Our Company was inactive until 2016 when new management and capital were introduced.
Definitions
As used throughout this Registration Statement, capitalized terms used but not defined herein shall have the meanings assigned to such terms in the filing. The following terms shall have the meanings set forth below, unless the context clearly indicates otherwise:
BlackStar Digital Trading Platform TM (“BDTP TM”): a digital Electronic Fungible Shares trading platform enabling the trading of BlackStar common shares in electronic fungible form. (Platform not currently approved by any regulatory agency or Broker Dealer.)
BlackStar Digital Equity Blackstar Electronic Fungible Shares : a digitally evidenced share, also known as an electronic share, (see “ Digital Share” – see below) of BlackStar common stock holding the same characteristics as securities evidenced by a paper certificate which has been transmitted electronically and protected by cryptographic protocols. Digital Equity shares are the “ electronic fungible shares ” on account.
Blockchain: a disintermediating technology, where each transaction is cryptographically signed, and always appended to an immutable ledger, visible to all participants, and distributed across boundaries of trust. Once a ledger transaction has received a sufficient level of validation, cryptography ensures that it can never be replaced or reversed. Transactions are secure, authenticated, and verifiable.
Blockchain Equity Trading TM (“BET TM”): computer software platforms, including the BDTP TM, for the trading of only one SEC regulated security on an immutable blockchain, and for the analysis, monitoring, storing, and tracking of financial investments on an immutable blockchain. The Company will subscribe the platform to individual public companies for the exclusive exchange of cash for free-trading shares of one public company, creating an individual spot market.
Blockchain First TM: financial services software for managing the trading of stocks or equities on an immutable blockchain that prevents the disruption of order flow of customer trades.
Digital Shares: common shares holding the same characteristics as securities evidenced by a paper certificate but are recorded via electronic book-entry through the Deposit and Withdrawal at Custodian (“DWAC”) system in digital form and are protected by cryptographic protocols, sometimes also referred to as an electronic share , an electronic fungible share, or an electronic fungible common share in this document. Any reference to “crypto equity” is equivalent to “electronic fungible shares.”
Internet Digital Offering TM (“IDO TM”): financial services software for managing and hosting indications of interest for potential initial or secondary future offerings on an immutable blockchain.
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CURRENT BUSINESS – MERCHANT BANKING
Our Company, BlackStar Enterprise Group, Inc. (OTCQB: BEGI) is a publicly traded merchant banking firm seeking to facilitate venture capital to early-stage revenue companies. BlackStar intends to serve businesses in their early corporate lifecycles and may provide funding in the forms of ventures in which we control the venture until divestiture or spin-off by developing the businesses with capital. We have only engaged in one transaction as a merchant bank form to date and we did not control that venture.
Our investment strategy focuses primarily on ventures with companies that we believe are poised to grow at above-average rates relative to other sectors of the U.S. economy, which we refer to as “emerging growth companies.” Under no circumstances does the company intend to become an investment company and its activities and its financial statement ratios of assets and cash will be carefully monitored and other activities reviewed by the Board to prevent being classified or inadvertently becoming an investment company which would be subject to regulation under the Investment Company Act of 1940.
Services
As BlackStar focuses its merchant banking efforts on the DLT industry, BlackStar intends to seek investments through joint ventures in private or public emerging commercial-stage businesses within the blockchain ecosystem. BlackStar also intends to offer consulting and compliance services to member companies and blockchain entrepreneurs on securities and commodity futures.
The Company will seek targeted joint ventures in the sector, primarily focusing on distributed ledger security features and technology, and the global equity trading arena. BlackStar, through CEMC, will seek to initially control and manage each venture into which it enters. While remaining compliant with current SEC disclosure and reporting guidelines, BlackStar is conducting an in-depth analysis into the Company’s involvement in DLT related ventures.
BlackStar Enterprise Group intends to leverage its experience in the traditional world of public finance, including experience with securities, options, and SEC registration and compliance, into working with select organizations supporting the development and implementation of new technologies in the electronic share and DLT world. To facilitate this process, BlackStar plans to establish an advisory board in its subsidiary, Crypto Industry SRO Inc., with applicable technical and practical experience.
The Company’s success will be dependent upon the Company’s ability to analyze and manage the opportunities presented.
BlackStar’s Operating Principles:
| · | Provide alternative joint venture funding for entrepreneurs; |
| · | Require GAAP and SEC accounting compliance for portfolio ventures; |
| · | Require competent and efficient legal representation; |
| · | Require qualified managers for portfolio ventures, and in some cases, help staff the client company while avoiding recruiting costs or attempts to bring in high-price executives. |
We seek venture investments in private, or public emerging commercial-stage businesses with perceived strong growth prospects within certain industry sectors. Companies that we work with may engage in consulting agreements with our parent company, International Hedge Group, Inc. (“IHG”), to add additional monitoring as to their financial situations. We seek to invest up to $1 million per company in business ventures. We may provide off-balance sheet financing to venture companies, through joint ventures or limited liability companies under structures we cannot now predict.
Our success will be dependent upon are our abilities to analyze and manage the lending opportunities presented to us.
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Our management may earn shares of our Company under our Stock Option and Award Plan as incentives on the basis of achievement. All are accountable to each other, as well as the shareholders, and bonus awards are intended based upon individual performance, as well as team cooperation, and enterprise building.
INVESTMENT OBJECTIVES
CAPITAL APPRECIATION. Our primary investment objective is to provide our shareholders with long term capital appreciation by investing primarily in business ventures in which we maintain majority control with selective private companies. We believe that a typical new business venture will have a five-year window. Our investment objective is to restrict our investments to emerging growth companies we believe offer special opportunities and meet our growth criteria, and we intend to reduce the risks associated with investments in startups. Our goal is to provide mezzanine and expansion capital to companies through legally formed joint venture entities through which we control in order to develop a comprehensive growth strategy, possibly involving a consolidation of similarly situated businesses or a geographic expansion of existing product or service offerings. We are currently exploring options for investments in companies involved in the electronic share and blockchain (DLT) technology industry.
CAPITAL PRESERVATION. A second investment objective is to preserve investor capital through risk management and monitoring the management of our loan portfolio. Among the risk management techniques which we expect to employ are: (i) limiting our investments in very early-stage companies, (ii) holding majority ventures interests in venture companies that have a positive cash flow; (iii) co-investing in venture companies with other professional venture capital. Many ventures will not provide any gain, and some will be complete losses. BlackStar, through CEMC, will initially control and manage each venture it enters into in the electronic share and blockchain technology industry.
OUR APPROACH COMPARED TO TRADITIONAL SOURCES OF VENTURE FINANCING
Emerging companies traditionally seek financing for growth from three primary sources: small private placements, independent private venture capital funds and corporate strategic investors. Each of these sources has advantages but also notable disadvantages for the emerging company. Small Private Placements are often underfunded and untimely. Venture capital funds generally are established for a limited term and their primary goal is to maximize their financial return within a short time frame, often two years or less with severe terms for extensions or additional funding. A venture capital fund often seeks to liquidate its investment in the emerging company by encouraging either an early initial public offering or a sale. This often can jeopardize an emerging company’s chances for success especially if its business has not been fully developed or its intellectual property fully safeguarded prior to its debut into the market.
Corporate strategic investors are typically large corporations that invest in emerging companies to gain access to a promising product or technology without incurring the initial cost of development or the diversion of managerial time and attention necessary to develop new products or technologies. Often these investments involve both financing support to the emerging company and an arrangement under which the strategic investor obtains the right to use, and intellectual property ownership of, the products or technology of the emerging company. While strategic investors are generally able to provide business development support, the rationale behind the investment of a strategic investor may be incompatible with the development of the emerging company. Strategic investors often discourage the emerging company from becoming a public company, selling to competitors of the strategic investor or from retaining the intellectual property rights to products developed jointly with the strategic investor.
We may be limited in our ability to fund ventures because we may not be successful in raising additional funds to fund ventures or growth. Through the public market for our common stock, we hope to have access to additional equity capital that may be needed for growing our ventures. We hope to offer to fill this opportunity on selected ventures.
We believe that our advantage over a strategic investor is that our interests are more closely aligned with those of the emerging company. An initial public offering of the emerging company, our venture, often required to raise the additional capital investment necessary to fully develop a venture company’s product or technology, would also benefit us by creating repayment of our loan, and possibly in certain instances, an equity position.
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OUR VENTURE POLICIES
We may invest in ventures which do not have any annual revenue, if we have determined that an investment may make of such company have growth capital.
Although we may seek to venture into companies with existing positive EBITDA (earnings before interest, income taxes, depreciation and amortization), we may also consider turnaround situations where we can clearly identify the source(s) of financial distress and see a possible solution. Through our investment, or through co-investment with other private equity funding sources we will seek to achieve performance improvements.
In the shorter term, we do not anticipate paying any dividends or making other distributions, but this may change in the future. We may not always achieve a return on our venture investment.
In selecting venture investments for our venture, we will endeavor to meet our guidelines, as established by our Board which include the following concepts. We may, however, make investments that do not conform to one or more of these guidelines when deemed appropriate by our Board of Directors. Such investments might be made if we believe that a failure to conform in one area is offset by exceptional strength in another or is compensated for by a higher yield, favorable warrant issuance or other attractive terms or features.
VENTURE CRITERIA
STAGE OF DEVELOPMENT CRITERIA. We are a special situations Company. We will primarily look for opportunities with a core business which we believe will provide us with a return of investment and on investment within a moderate period of time, typically targeting about thirty-six to sixty months. Our objective is to invest in emerging corporations which meet our requirements as well as qualitative potential that we look for in each opportunity. In addition, we will look to invest in ventures with corporations. In some instances, we may relax our quantitative requirements with the view to assist such venture companies in developing a strategic business plan which may include merger or acquisition of other private operating businesses which may be synergistic to the existing business of the public corporation. We may invest in ventures with companies in any of the following stages. We will always have majority control and Board control of our venture subsidiaries.
The stages of development are defined as follows:
- Seed capital companies represent the earliest stage of development. These companies have raised relatively modest equity capital to prove a concept and qualify for start-up capital. Their activities generally are limited to product development, scientific and market research, recruiting a management team and developing a business plan. These companies likely do not have financial support from either venture capitalists or larger companies making strategic investments.
- Start-up stage companies are completing or have recently completed product development and initial marketing but have not sold their products commercially. Generally, such firms have made market studies, assembled key management, developed a business plan and are ready to commence operations.
- Expansion stage companies have initiated or are about to initiate full-scale operations and sales but may not be showing a profit.
- Mezzanine stage companies are approaching or have attained break even or profitability and are continuing to expand. An acquisition or initial public offering may be imminent.
QUALITATIVE CRITERIA. All potential ventures will first be evaluated and assessed based on their relative stage of development and the quality of an investment in such venture company based on the above criteria. Once our management team has determined that a potential venture satisfies the above criteria and is suitable for investment, it will then be evaluated using the multi-step process described below. After completion of the process, receipt and review of all internal and outside reports and evaluations of the potential venture company, the Board will consider the potential venture terms. If the Board approves the investment, we will then create appropriate legal documents to reflect our venture and any management service contracts between the venture and our company.
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We intend to follow the steps set forth below in our venture process:
(1) BUSINESS PLAN/ASSESSMENT. Business plan description and complete resumes of management from all entrepreneurs. Members of our management team will meet with the best of these entrepreneurs, attempting to identify key traits that have been associated with entrepreneurial success in the past, such as high energy, a must-win attitude, intellectual brilliance, high personal integrity, relevant experience, a strong work ethic, and the ability to prioritize and focus. A business plan submitted for evaluation to us should contain the following information:
| · | Overview of the business concept as well as the company’s strategic focus and direction. |
| · | Discussion of competition including a discussion of specialized expertise, intellectual property, patents, and/or other unique advantages held by either the company or its competitors. |
| · | Sources and uses of cash with respect to investment capital sought. |
| · | Pro forma financial projections for at least the current year and two subsequent years including expected capital requirements from the time of the investment capital received through the two subsequent years. |
| · | Operating plan including current and projected staffing, equipment, and space requirements. |
| · | Discussion of minimum dollar proceeds necessary in order to implement the business plan. |
| · | Marketing plan. |
| · | Discussion of conflicts of interest with investors together with steps being taken by the venture company to mitigate such conflicts of interest and to protect against future conflicts of interest. |
| · | Resumes for all key officers/managers. |
(2) EVALUATE POTENTIAL MARKET. We have developed relationships with consultants, who represent a valuable source of information about a target investment’s market. We will call upon these contacts as well as create new ones in the markets of each company seeking funding. As we evaluate markets, we must become confident that the company can attain a competitive market position over time.
(3) EXAMINE STRUCTURE OF BUSINESS MODEL. We will examine the structure upon which the business plan is built. The Board has indicated a distinct bias toward business models calling for high gross margins and relatively low capital intensiveness. Such businesses have the potential for higher internally sustainable growth rates than average and superior return on equity invested. In addition, we will require, whenever possible, implementation of the following policies into the articles, bylaws or operating agreements of its venture companies:
| · | There can be only one class of common shares, all with equal voting rights, and all distributions of capital or earnings can only be made to all members based upon their percentage interest without preference; |
| · | Compensation of the key officers/managers and their affiliates, including, but not limited to, all salary, bonuses, commissions and/or fees, shall be limited based upon the success of the venture company in reaching predetermined milestones; and |
| · | The primary responsibility of the management/officers of the entity is to serve as fiduciaries charged with serving the best interests of the stockholders/members even when such interests may be in conflict with the management, officers or other employees of the entity. |
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(4) CHECK REFERENCES. We will require that each entrepreneur supply a list of references in order that we may get a better sense of the entrepreneur’s past experience, strengths, weaknesses, and work habits. We make it a point to get references outside of this list as well, in order to avoid only “cherry-picked references.” We believe that these checks are important to develop a more complete and accurate picture of the team.
(5) CALL CUSTOMERS AND SUPPLIERS. We intend to call a number of current and/or prospective customers and suppliers to get a sense of how they view the targeted investment including its products and the market.
(6) EVALUATE PRODUCTS/TECHNOLOGY. As part of our analysis, we will evaluate the target venture’s current products, development pipeline and underlying technology. To evaluate technology, we will not rely on in-house expertise alone, but will contact and hire appropriate specialists and consultants.
(7) EVALUATE RISKS/REWARDS. Evaluate the pro-forma financials, the likelihood of an exit after a 6 month to 24 month holding period.
(8) NEGOTIATE VENTURE TERMS. When deciding on making a venture investment, we will draw up a term sheet for negotiation, and terms will be agreed upon.
(9) FINANCIALS AND CORPORATE INFORMATION.
We will, after formation of the venture subsidiary, control all accounting and financials as a subsidiary of our Company.
RESERVES. We intend to retain reserves after the venture investment in order to have sufficient funds for equity-oriented follow-on investments in venture companies. We intend to sell additional common stock to meet the funding requirements for any follow-on venture investments. If such sales are successful, we expect to have cash reserves. In order to enhance the rate of return on these reserves and increase the amounts ultimately available for investments and our operating costs, we plan to engage in a reserve management strategy.
AVERAGE INVESTMENT. The amount of funds committed to a venture will vary depending on the funds available to us, the quality and completeness of the venture management team, the perceived business opportunity, the capital required compared to existing capital, and the potential return. Although the venture or investment amounts will vary considerably, we expect that the venture (excluding follow-on investments) will be between $250,000 and $500,000.
INDUSTRY ANALYSIS AND HISTORY
Barriers to Entry in the Merchant Banking Industry
There is one major barrier to entry into the Merchant Banking Industry which is capital. We have very limited capital with which to compete in this industry. Many other competitors have been in the business for many years and have very large capital resources and an established reputation. Our barriers to entry are, in addition to lack of capital, lack of reputation, lack of recognition, part-time management, lack of financial history to raise money, and lack of equity in our company upon which to base a capital raise.
Competitive Factors Impacting Our Ability to Gain Market Share
Our competition enjoys advantages which may prevent us from achieving a market share due to our competitors’ known reputations, large funding abilities, competent management, and capital resources all of which will impede our abilities to achieve market share.
Competitive Factors in the Industry
There are numerous entities, investments banks, merchant banks, hedge funds, private equity, commercial banks and private investors which will compete for the same business in which we intend to engage. We will be at a significant
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disadvantage to all of these other competitors for the foreseeable future. All of our competitors should be considered to be far better capitalized than we are.
Competitive Position in the Industry
We are an insignificant participant in the merchant banking industry and cannot be expected to obtain a market share even discernable percentage wise. Without a large infusion of capital, we will remain a very small participant in the industry.
Merchant Banking
The term merchant banking is generally understood to mean negotiated private equity investment or financing through alternative methods by financial institutions in loans, convertible debt or off-balance sheet vehicles, or through unregistered securities of either privately or publicly held companies. Both investment banks, commercial banks, and other companies engage in merchant banking, and the type of security in which they invest is diverse. They may invest in securities with an equity participation feature; these may be convertible preferred stock or subordinated debt with conversion privileges or warrants. Other investment bank services include raising capital from outside sources, advising on mergers and acquisitions, and providing bridge loans while bond financing is being raised in a leveraged buyout (LBO) and are also typically offered by financial institutions or broker dealers engaged in the merchant bank industry. One which is often omitted is the provision of experienced management by the merchant to commercialize ideas, or technology.
Merchant banking has been an occasionally lucrative but a highly risky endeavor for the small number of bank holding companies and banks that have engaged in it under existing law, and for private equity investors. Banking law legislation has expanded the merchant-banking activity that is permissible to commercial banks and has spurred interest in this specialty on the part of some institutions. However, limitations exist that have scared many banks away from the markets after the Lehman collapse and the resulting fallout with JP Morgan, Bank of America and the big bank Wall Street bailout. Although for much of the past half-century commercial banks have been permitted (subject to certain restrictions) to engage in merchant banking activities, their continued role is limited by the conservatism of the regulators and their Boards.
Evolution of Modern Era Merchant Banking
Many banks entered merchant banking in the 1960s to take advantage of the economies of scope produced when private equity investing is added to other bank services, particularly commercial lending. As lenders to small and medium-sized companies, banks become knowledgeable about individual firms’ products and prospects and consequently are natural providers of direct private equity investment to these firms.
In the middle to late 1980s, the decision to enter merchant banking was thrust on other banks and bank holding companies by unforeseen events. In those years, as a result of the LDC (less-developed-country) debt crisis, many banks received private equity from developing nations in return for their defaulted loans. At that time, many of these banks set up merchant-banking subsidiaries to try to extract some value from this private equity.
Also, at about that time, most commercial banks began refocusing their private equity investments to middle-market and public companies (often low-tech, already profitable companies) and, rather than providing seed capital, financed expansion or changes in capital structure and ownership. Most particularly, they took equity positions in LBOs, takeovers, or recapitalizations or provided subordinated debt in the form of bridge loans to facilitate the transaction. Often, they did both. Commercial banks financed much of the LBO activity of the 1980s.
Then, in the mid-1990s, major commercial banks began once again focusing on venture capital, where they had substantial expertise from their previous exposure to this kind of investment. Some of these recent venture-capital investments have been spectacularly successful. For example, the Internet search engine Lycos was a 1998 investment of Chase Manhattan’s venture-capital arm.
We do not compete in the area of these merchant banks, or even large or mid-market banks. We are an insignificant participant in the total market and our focus is on small investments, which larger banks may rule out.
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Historical Track Records
Our Company has no historical track record, and we should be deemed a pure start-up of earning or operating with all of the risks of an unproven company (see “Risk Factors”).
IHG, our parent company, also may enter into management consulting agreements with companies for which BlackStar provides funding to attempt to guide the companies in the complex business world for the purpose of protecting and enhancing the venture investments made by BlackStar.
COMPETITION, MARKETS, REGULATION AND TAXATION
Competition
There are a large number of companies and individuals engaged in the Merchant Banking and Finance industry; accordingly, there is a high degree of competition. Almost all of the companies and individuals so engaged have substantially greater technical and financial resources than we do. We are attempting to create a novel solution in the BDTP TM that we may use as a model, potentially enabling us to generate ongoing revenue that we can then use for Merchant Banking.
We are an insignificant participant among the firms which engage in the funding of business opportunities. There are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we have. In view of our limited financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared to our competitors.
Investment Company Act 1940
Although we will be subject to regulation under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, we believe we will not be subject to regulation under the Investment Company Act of 1940 (the “1940 Act”) insofar as we will not be engaged in the business of investing or trading in securities within the definitions and parameters which would make us subject to the “1940 Act.” In the event we engage in business activities that result in us holding investment interests in a number of entities, we might become subject to regulation under the 1940 Act. In such event, we would be required to register as an Investment Company and incur significant registration and compliance costs. Under no circumstances does the company intend to become an investment company and its activities and its financial statement ratios of assets and cash will be carefully monitored and other activities reviewed by the Board to prevent being classified or inadvertently becoming an investment company which would be subject to regulation under the Investment Company Act of 1940.
As a fundamental concept, the 1940 Act requires registration of companies that invest and manage funds to invest for others and trade in securities of other companies. Those companies that cross a threshold of 40% of assets in cash and stock in other companies may be required to register. Investment companies may issue face amount certificates, be a Unit Investment Trust, or be a mutual fund. We intend to do several things to remain outside of the 1940 Act: a) we will not trade in securities of other companies or manage investments for others, b) we intend to remain primarily in the merchant bank lending business recognized as exempt under Sections 3(c)(4) and (5) of the 1940 Act, c) we intend to carefully monitor our ratios of cash and securities to total assets to avoid crossing the 1940 Act threshold, d) we intend to hold loans comprising 60% to 70% of our assets at any time, e) we intend to maintain secured loans to companies as our primary business, f) we do not intend to issue face amount certificates, g) we do not intend to distribute profits and dividends to our shareholders on an annual or shorter basis, if ever, h) we do not pass through profits and losses to our shareholders on a tax basis, i) smaller secured loans will be our primary business and our primary profit center, which we intend will account for more than 50% of our revenues; j) we will not issue Units in investment trusts, k) we will not act as a mutual fund, and l) we will not invest funds on behalf of others.
We have obtained no formal determination from the SEC as to our status under the 1940 Act and, consequently, any violation of the 1940 Act would subject us to material adverse consequences. We believe that, currently, we are exempt under Regulation 3(c)(4) and (5) of the 1940 Act.
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Markets.
Our market is highly competitive and constantly changing. Commercial success is frequently dependent on capital availability, the effectiveness and sufficiency of which are very difficult to predict accurately. It is one of the principal economic risks of mezzanine and expansion stage funding companies like ours.
Governmental Regulation.
Federal Regulations.
We are subject to regulations by securities laws as a public company. We do not intend to become an investment company under the Investment Company Act of 1940, but if we exceed certain thresholds of certain assets or our business operations cease to fall within certain exemptions, we might inadvertently become subject to the Act.
Compliance with Environmental Laws and Regulations.
We are not involved in operations with environmental considerations for our business.
State Regulations.
Certain states may require that we obtain a Lender’s License prior to making a loan in that state. We intend to address this on an as needed basis.
Title to Properties.
Not applicable.
Off Balance Sheet Arrangements.
We do not have any off-balance sheet arrangements.
Number of Persons Employed.
As of May 31, 2022, we have no full-time employees and 2 independent consultants who act as our officers and directors on a part-time basis of up to 40 hours per week.
Impacts of COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, as of March 2020, the Company transitioned its operations to 100% work from home and there has been minimal impact to our internal operations from the transition. The Company does not believe that there will be a material future impact to its operations and ultimately an impact to the Company’s overall revenues at this time.
PROPOSED NEW LINES OF BUSINESS
The matters discussed below contain certain forward-looking information and relate to analyses, business plans, business opportunities, management intentions and other information, available as of the date hereof, but is not yet fully determinable. These statements also relate to our contemplated future prospects, developments and business strategies. Although we believe that our plans, intentions and expectations reflected in or suggested by the matters discussed below are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved. Important factors that could cause actual plans, intentions or expectations to differ materially from our plans, intentions or expectations include, but are not limited to the risks and uncertainties included under “Risk Factors” in
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this document. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual plans, intentions or expectations may vary materially from those discussed below. Given these uncertainties, users of the information included below are cautioned not to place undue reliance on such information.
BlackStar Digital Trading Platform TM
Background – In June of 2017, the management of BlackStar began analyzing the crypto industry due in large part to its rapid ascent in popularity.
After the Jobs Act of 2012 enactment, it took three years to adopt and roll out crowdfunding. The landscape of new rules and regulations made Regulation CF extremely difficult for companies to effectively raise money. Companies were limited to funding, solicitation, trading, and the amount one could invest. The Bitcoin started trading on blockchain in 2011 and by 2017, coinciding with the failure of crowdfunding, coins and tokens were underwritten on a blockchain to fund global projects and start-up companies. Blockchain offered issuers a platform to fund and investors the freedom to trade with no limitations or regulations. Investors opened “Wallets” rather than Broker Dealer accounts. Investors made their own decisions, there were no minimum amounts, there were no trading hours, and there were no commissions. Investors could trade new ideas with a coin/currency connected to the issue through a “Wallet.” The “crypto currency” innovation was based on a new distributed ledger design using a “blockchain.” The many “tokens” and “coins” created and promoted on the “Blockchain Concept” were founded in a totally unregulated environment. The results have been that there have been many fraudulent “offerings” not in line with existing SEC registration requirements, there have been thefts of coins and tokens, collapses of the tokens/coins, bankruptcies and closures of brokers and traders in the crypto coin/token environment, all with enormous losses to investors.
The SEC has instead resorted to enforcement actions of existing laws to regulate this new industry. This has created the need to create blockchain innovations under existing rules.
BlackStar realized that the public blockchain trading of these faux currencies plagiarized the U.S. Securities Market and reduced the ability to fund and trade small companies and new issues. Management of the Company also noted the lack of specific regulation and has attempted to design a new system based within the existing rules of the SEC and FINRA.
Blackstar is continuing to develop the concept of replacing the Wallets with a Blockchain First TM philosophy and creating the BDTP TM, which is not currently operational. The customer assets are double encrypted and sent to the blockchain by a FINRA Registered Broker Dealer (no one can see order flow). Our current stage of development is such that we can demonstrate the functionality of the platform design and concept for fictional securities, but it is not approved or accepted by any broker, customer or regulatory agency at this time. The platform is designed to trade electronic fungible common shares equal to the shares held by DTCC (DWAC). BDTP TM represents a spot market, where only cash and free trading securities are exchanged. The blockchain system represents potentially an ideal exchange to the extent it is programmed to follow rules and has the following features:
| · | The trades on BDTP TM represents the true price a seller and buyer are willing to exchange for cash and securities. |
| · | The customer can trade all day long and their executions are sent back to the broker dealer, then unencrypted and placed in the account for settlement. |
| · | The customer can trade the spread with no commissions and no minimums, there can be no shorting, the market would be open during Globex hours. |
| · | Transparency of trades. |
| · | There would be only a small fee to enter the block. |
| · | All transactions on the BDTP TM Platform can be traced by FINRA, the SEC or any interested regulatory body. |
| · | The broker dealer remains custodian and fiduciary and responsible for compliance with “Know Your Customer” requirements. |
DTCC eligible book-entry securities are actually digital shares and are the typical way securities are held and traded today. The BDTP TM is designed to extend this concept so that the electronic fungible common shares of the trading
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company can be traded on the blockchain with efficiency that far exceeds what is available in customary trading, and avoids some negative aspects of the market, such as shorting, lower fees, instant order execution, and true pricing.
We are not attempting to “tokenize” securities, but instead our concept is to use Distributed Ledger Technology to execute, and record transactions with higher efficiency and lower cost, which is essentially a back-office function.
Description – The Company intends that the BDTP TM will be a tool for trading securities within the existing FINRA and SEC regulated brokerage ecosystem, addressing many of the regulatory issues by operating within the existing confines of the system. Customers will continue to use brokerage accounts and broker dealers, and the transfer agent will continue to maintain the shareholder records. All custodial duties remain the same, as BDTP TM will pass encrypted customer and account information and buy/sell orders to relevant parties. As intended, the system would operate in the following manner: broker-dealers would invite customers to participate as users on the BDTP TM to buy and sell BlackStar Electronic Fungible Shares; the broker-dealers comply with all FinCen and stock exchange regulations, KYC and FinCen rules, submit IRS tax reports, etc.; orders, bids, and offers are entered into the BDTP TM (like a specialist’s order book) either by broker-dealers or by customers through trading software supplied by the broker-dealers; BDTP TM records all transactions; and finally, an Alternative Trading System (“ATS”) quoting digital prices would execute the trade; and the SEC/FINRA would have complete and transparent access to the data stored in BDTP TM, offering a single data interface and consolidated history of transactions. BDTP TM seamlessly integrates with the order entry processes, priority rules, and execution procedures of the existing brokerage ecosystem.
The Company has built the technology based upon the Quantum Ledger Database, a blockchain framework from Amazon Web Services (“AWS”), and to use the AWS Cloud for transaction data storage. BDTP TM would offer a web-based interface for trading transactions as well as an Application Programming Interface (API) that directly accesses all immutable transactions stored on BDTP TM. Using BlackStar’s concept ‘Blockchain First TM’, cash and shares of customers are recorded directly to the blockchain.
Under current SEC and FINRA regulations, any electronic fungible shares would still be required to be deposited through a FINRA registered broker dealer. Any FINRA broker dealer that accepts deposits can be used. Further, under current SEC Regulations, an ATS would need to trade the electronic fungible shares, and we do not intend to become an ATS unless necessary. We would prefer to use an existing ATS like OTC Markets.
Our platform is designed to be licensed to any company, together with an ATS arrangement system, for implementation by the licensee. Electronic fungible shares will trade on the platform exactly as “stock” is traded on OTC Markets, without markup or markdown in true “spot transactions.” Any company will be able to license and use our system (platform) to trade electronic fungible shares.
The Company currently intends to seek a contractual arrangement (a license) with an ATS for a quoting service, similar to our current listing of our common stock with OTC Markets Group. The execution of a trade on the blockchain through an ATS will be reported back to those broker dealers for clearing and settlement. Upon execution of a trade on the blockchain, the last price, volume, change and current bid-offer ladder will be disclosed to the public by the quoting service. The clearing of those electronic fungible shares will be the responsibility of the broker dealer that introduces their customer to trade on the BDTP TM blockchain. At this time, no ATS has committed to an arrangement. We intend to continue having discussions with ATS’s concurrent with the filing of this registration statement until we have secured an arrangement that will allow BDTP TM to operate.
The core platform has been designed for initial use with BlackStar common stock and is thus the BlackStar Digital Trading Platform TM. The platform will contain three features: the main trading feature, an indication of interest feature for future offerings, and a corporate governance feature. The indication of interest feature, known as the ‘Internet Digital Offering TM’ or IDO TM, would record indications of interest for potential, initial or secondary future offerings proposed by the public or private company that subscribes to our customized platform. The distributive ledger technology on a blockchain would enable them to gauge interest on a first come first serve basis. This IDO TM feature, only for use in self-underwriting situations, includes a method of facilitating a public or private offering for a company on an immutable blockchain; this may consist of the subscriber company uploading a preliminary prospectus to the platform if they are interested in raising capital, collecting a list of company shareholders, and collecting a list of non-company shareholders who have met at least a minimum threshold for potential interest in investing in the company, then prioritizing potential investors meeting the set requirements by the recorded timestamp and distributing the
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offering materials to them at the appropriate time in compliance with existing rules and regulations, including Know Your Customer. The final feature would record corporate governance information about a public company on an immutable blockchain; this includes a method of preparing for and complying with a financial statement audit, recording general corporate matters, recording financial and accounting matters, recording tax filing matters, on the immutable blockchain at least every 30 days, wherein each recording comprises a time stamp of receipt, and wherein each recording cannot be subsequently manipulated or changed. The corporate governance and indication of interest features can be made available to regulators in real-time.
Once BDTP TM is live, the Company intends to license the platform to other publicly traded companies as a subscription service with an Issuer-specific customizable interface operation through an ATS. This subscription service, BlackStar’s ‘Blockchain Equity Trading TM’ or BET TM, would enable each subscriber company to have access to their own trading platform, based on our core platform, where shares of their company’s common stock could be traded.
We understand that we must contract with an existing ATS and/or broker dealer to quote and clear the electronic fungible shares and trades. We intend to trade electronic fungible shares of BEGI using our blockchain platform, and the blockchain capability may enable BlackStar to provide access to trading data to any regulators if needed.
Current Status of BDTP TM – In July 2020, the Company determined that similar products and services (although not identical to the BDTP TM concept) have needed to register or have been required to register as an Alternative Trading System (“ATS”). Therefore, in lieu of expending the money and resources to become an ATS at this time, the Company is seeking to license our platform to an existing ATS, broker dealer, and/or clearing firm to host the BDTP TM so that it may comply with existing rules and regulations. The Company is currently evaluating its options for this next major step in the process, so that the BDTP TM may go live in accordance with existing laws and regulations. If we are unable to license it to an entity in this way, we may reevaluate whether to apply for ATS status. As of the date of this filing, the demonstration platform is complete and BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP TM over the next several months. The BDTP TM has been completely designed in terms of the following components: data model, reports, web-based user interface, blockchain interface, transaction logic, cloud interface, and functional demonstration app.
In June of 2021 Blackstar and Artuova successfully completed a production ready user interface for the BDTP TM which is feature-complete. As of May 31, 2022, the core platform and its software is complete and is in the testing phase; it will remain in the testing phase until we obtain an operating licensee (a broker-dealer, clearing firm, and/or ATS). We have spoken to broker-dealers and clearing firms throughout the development process but have yet to secure a contractual relationship. We will continue to seek out this licensee and have increased our efforts to reach out to various broker-dealers since completing the demonstration platform, and hope to secure an operating licensee within the next three to six months. The ability to obtain a licensee may be dependent on our ability to confirm that FINRA and the SEC will allow trading on our platform as described. If this is the case, the Company may alternatively seek to acquire an existing broker-dealer in order to become a FINRA-registered broker-dealer. Once we have secured a licensee broker-dealer, clearing firm, or ATS for the operations of the BDTP TM and begun operating the BDTP TM, we will seek subscriber companies desiring customized platforms. At that point, we will have the ability to showcase BDTP TM’s live operations. The technical platform operations and updates will be managed by Artuova, through our oversight and direction. The software building of additional platforms for subscriber companies may take as little as 48 hours. We have not yet developed our marketing campaign to seek out these customers, but plan to do so after securing our operating licensee, likely within the next six months. We anticipate our overall expansion of services into the blockchain industry within the next twelve months.
Our BlackStar Electronic Fungible Shares are proposed to be traded on the blockchain on our BDTP TM and the rights and privileges to each shareholder of the electronic fungible shares is the same as any certificated common shares of the Company. Such electronic fungible shares, if approved to be traded by the SEC and FINRA on BDTP TM, would not differ as to its share rights and privileges under state law (Delaware) from the authorized common stock. Since DTCC has for decades held electronic shares “under its agency” with Broker Dealers for “street name” shares, without any problems under Delaware General Corporation Laws, the electronic fungible shares would be no different from DTCC held shares, except being traded in blockchain transactions. Trading on private blockchain technology is compatible with the existing trading system because it can be programmed to follow the same protocols and rules as every other approved trading system. The Broker Dealer will double-encrypt the customer data and send it to the
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BDTP TM platform, while freezing the data in the customer's account. There is no difference in how orders are currently sent to market makers or Exchanges, but the benefit of BDTP TM is that there are additional security features, a prohibition on short selling, and customer execution of their own order.
DIAGRAM – Blockchain First TM: Financial services software for managing the trading of stocks or equities on a Distributed Ledger that prevents the disruption of order flow of customer trades.
*** THE BROKER DEALER SUBMIT THE CERTIFICATES TO THE TRANSFER AGENT AND THE TRANSFER AGENT APPROVES THE TRANSACTION. THEN THE BROKER DEALER’S POSITION IS EITHER DEBITED OR CREDITED DEPENDING UPON WHETHER IT WAS A DEPOSIT OR WITHDRAWAL. THE BROKER ENTERS THE TRANSACTION VIA DTCC’S COMMUNICATION SYSTEMS, THE TRANSFER AGENT THEN APPROVES THE TRANSACTION, FOR DWAC DEPOSITS, THE REQUESTING BROKER’S POSITION IN ITS DTC ACCOUNT IS INCREASED AS IS DTC’S FAST BALANCE IN THE ISSUE.
We believe that our system is compatible with the “Deposit and Withdrawal at Custodian” (DWAC) system because it can be withdrawn and converted into either certificate by the transfer Agent, or withdrawn from digital format by cancellation by the transfer agent and recorded into DTCC. To our knowledge, DWAC only processes certificates in order to convert them into electronic shares to be held at DTCC. We have designed our technology so as to be fully compatible with the DWAC system – i.e. shares can be moved into or out of the DWAC system just as with certificates. Blockchain technology is compatible with the DWAC system because it does not contradict or counter the system, but rather provides an alternative for the customer to execute trades without markups/markdowns and at very low costs. [DTCC is market-neutral, which means it accepts transactions from multiple exchanges and trading platforms on a nondiscriminatory basis. It currently supports more than 50 exchanges and trading platforms, including the New York Stock Exchange (NYSE), Nasdaq, and the OTC Markets]. This is the design of our system. It is not yet in usage for any securities and any such securities must first be registered with the SEC under the Securities Act or have an available exemption from registration.
We currently have no committed source for funding our operations but have entered into convertible promissory notes to continue operations in the interim, as disclosed in our most recent quarterly report for the period ended June 30, 2021. On September 1, 2021, we entered into a convertible promissory note with Power Up Lending Group, Ltd. for $53,750 (see the Current Report on Form 8-K filed September 30, 2021 and incorporated by reference herein); on October 1, 2021, we entered into a convertible promissory note with Power Up Lending Group, Ltd. for $78,750 (see the Current Report on Form 8-K filed October 26, 2021 and incorporated by reference herein); and on October 11,
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2021, we entered into a convertible promissory note with GS Capital Partners, LLC for $60,000 (see the Current Report on Form 8-K filed October 26, 2021 and incorporated by reference herein). On November 29, 2021, we entered into a convertible promissory note with Sixth Street Lending LLC for $45,750 (see the Current Report on Form 8-K filed on December 8, 2021 and incorporated by reference herein). On February 14, 2022, we entered into a convertible promissory note with Sixth Street Lending LLC for $55,750 (see the Current Report on Form 8-K filed on March 2, 2022 and incorporated by reference herein). We anticipate that we will need $500,000 over the next six months for the establishment of the license with a licensee and to initiate platform operations; the Company had a cash balance of $426,916 as of March 31, 2022. The initiation of operations of the BDTP TM will be dependent on the exact arrangement that we enter into and the regulatory approvals that may be required (see “Regulatory Challenges” below). Our Company has examined numerous “exchanges” or “platforms” for trading and believed that they lacked essential regulatory compliance practices. This research and management’s securities and compliance background lead the Company to engage a team of software experts at Artuova to create the platform that is being designed to contain the essentials for full regulatory compliance including:
• Know-Your-Customer (KYC)
• Anti-Money Laundering (AML)
• IRS tax reporting
• SEC compliance
Risk Management Framework – We currently have no risk management framework for addressing material risks associated with this new business strategy and our decisions will be guided by management’s judgment and experience.
Crypto Equity Management Corp.
BlackStar is conducting a continuing analysis for the Company’s involvement in Distributed Ledger Technology (“DLT”) related ventures. To pursue that end, the Company formed a subsidiary, Crypto Equity Management Corp. (“CEMC”), on September 30, 2017. As a merchant bank, BlackStar intends to seek to provide access to capital for companies and is specifically seeking out ventures involved in DLT. BlackStar recognizes the similarities in the rapidly evolving DLT ecosystem today compared to the Dot Com era in the 90’s, which present both challenges and opportunities. BlackStar intends to facilitate funding and management of DLT involved companies through majority controlled joint ventures CEMC. BlackStar, through CEMC, intends to initially control and manage each venture. Potential ventures for both BlackStar and CEMC will be analyzed using the combined business experience of its executives, with CEMC looking to fill those venture criteria with companies in digital share related businesses such as blockchain or DLT technologies. The Company does not intend to develop Investment Objectives or “criteria” in any manner but will rely on the acumen and experience of its executives. CEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTP TM. CEMC has not established any anticipated time frames or key milestones for CEMC business.
In addition, BlackStar intends to offer consulting and regulatory compliance services to blockchain and DLT companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in electronic fungible share-related ventures though CEMC, mainly in the areas of blockchain and distributed ledger technologies. Our long-term plan for provision of services is to finance the operations of CEMC through the successful production of the BDTP TM platform and subsequent subscription of the platform’s design as a service. As a subsidiary of BlackStar, CEMC additionally intends to offer consulting and regulatory compliance services to digital share related entities and blockchain entrepreneurs for securities, tax, and commodity issues. Our Company has always operated under the assumption that cryptocurrencies and tokens are “securities” and regulated under the existing law, SEC rules and other financial regulations. Due to significant experience of our management in the U.S. securities and commodities industry, we felt that we had regulatory compliance backgrounds that could be useful in assisting with regulatory compliance for former cryptocurrency offerors and token offerors. Management believes that there may be other companies offering unregistered securities in digital form with possible violations of securities and other laws including FinCen regulation, CFTC rules, exchange rules, AML, and tax laws. The concept of CEMC as a subsidiary of BlackStar is to provide compliance services for the multitude of laws that are applicable to digital securities. Currently in the testing and completion phase, BlackStar intends to build trading platforms for subscriber companies based on the BDTP TM model and offer the platforms
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through a subscription service called BlackStar ‘Blockchain Equity Trading TM’(“BET TM”), generating ongoing revenue for the Company.
Neither CEMC nor BlackStar intend to underwrite these entities or entrepreneurial companies, nor do we intend to act as broker-dealers or investment companies, though we acknowledge the potential requirements to register as such or to claim exemption from registration.
Crypto Equity Management Corp. is not currently operational, nor has it been since inception. The specific type and nature of services to be provided by CEMC may change based on whether the BDTP TM platform is able to ever begin services.
Crypto Industry SRO Inc.
In addition to the services described above, on December 31, 2017, BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc., a self-regulatory membership organization for the digital share industry.
Regulatory Challenges
BlackStar has always recognized that digital equities must be registered or otherwise have an exemption from registration within the existing SEC regulations and guidelines. BlackStar’s aim is to develop BDTP TM, a digital share trading platform, to trade free-trading BlackStar common stock only. The regulatory challenges presented come from integration of the platform into the existing broker-dealer ecosystem, approvals/advice of and compliance with the rules and regulations of OTC Markets Group, SEC, FinCen, IRS, anti-money laundering rules, and FINRA. These rules encompass the functionality of the system, cybersecurity laws, and state and federal financial laws. Until the implementation of the BDTP TM as designed, existing shareholders of electronic shares of BlackStar common stock will be traded through the existing Market Makers system.
Our first regulatory challenge is seeking the approval of the Securities and Exchange Commission (“SEC”) because the SEC has not yet adopted rules or regulations specific to the digital securities industry nor any regulations involving blockchain or distributed ledger transactions. The SEC has chosen to enforce its existing anti-fraud laws and the registration rules and regulations. Accordingly, we must work through the SEC approval process for our proposed system. We anticipate many comments and questions from the SEC during any approval process for the BDTP platform.
The SEC may adopt new rules and regulations relating to our digital based concept for trading and securities, which rules and regulations are impossible to predict at this time. Any new rules and regulations could make our concept for digital trading and securities difficult to bring into compliance with new rules and regulations resulting in our inability to achieve commercialization and revenues. Such events could result in costly delays in achieving regulatory approval, resulting in increased legal, administrative, and accounting costs and delays, or denial of revenues from our concept.
Our next regulatory challenge is that our concept requires implementation by a broker dealer registered with FINRA. We do not anticipate registering our company as a broker dealer, but instead would contract with a broker dealer to act as our agent/intermediary for our concept, thereby alleviating our Company of all regulatory compliance issues of a broker dealer.
The broker dealer may be challenged due to the fact FINRA has no developed rules and regulations involving digital trading of shares specifically. FINRA has, however, chosen to raise disclosure requirements and to conduct heightened examinations for broker dealers as to any involvement in the digital industry, with intent to bring enforcement actions for violations of SEC regulations or FINRA rules, and disciplinary actions against broker dealers for any such violations. As a direct result, it may be difficult to find a broker dealer willing to be in vanguard of the digital trading and securities industry involving our concept – even if we are able to achieve SEC approval for our digital trading platform.
We do not believe that FINRA is a regulatory hurdle because as a “Registered Security” FINRA broker dealers can choose to trade it or not. FINRA cannot regulate the security. It can regulate any ATS if it is also FINRA registered (due to the requirement of a Broker Dealer license), but that depends primarily on SEC regulation of the ATS.
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The final significant regulatory challenge involves the Alternative Trading System (“ATS”) as defined under 17 CFR §242.300. We understand the SEC position on digital securities to be that it is required to be traded through an ATS, with which we agree. An ATS must comply with many control, regulatory, reporting, securities, inspection, procedural, and disclosure requirements.
We do not intend to attempt to register as an ATS but rather will seek to contract with an existing ATS to license our platform (if approved by regulatory agencies) for the ATS use and management. Our platform will operate just as any other software platform used for trading by an ATS or broker/dealer. We believe this is ultimately the best solution from a regulatory standpoint to have the existing ATS manage those requirements for compliance with SEC and FINRA rules and regulations.
It could take a long time to prove the concept to the ATS and then to properly integrate operations into the ATS monitoring and regulatory systems.
We cannot at this time anticipate every regulatory action of the digital security industry in the future. Very few proposals for regulation have even reached proposal stage. New regulations of the digital securities industry could render our business either impossible due to the nature of regulations, or uneconomical, which would doom our concept.
We do not have any time frame for achieving any of the regulatory challenges.
The SEC may place additional oversight focus on broker-dealers in the following areas due to the digital nature of the securities: safekeeping of funds and operations that are unique to the safety and custody of Digital Asset Securities; broker-dealers’ and any affiliated entities’ compliance with registration requirements; adequate AML procedures, controls, and documentation regarding Digital Asset Securities; disclosure and due diligence obligations related to the offering of Digital Asset Securities; review of the existence and disclosures of conflicts of interest and the compliance policies and procedures to address them (e.g. broker-dealers may operate in multiple capacities, including as trading platforms or proprietary traders of Digital Asset Securities on their own and other platforms); and review of FINRA-member broker-dealer compliance processes in connection with the evaluation, approval, and monitoring of outside business activities related to digital assets. Many of these compliance issues will remain if we license with a broker-dealer instead of acquiring one.
Volatility of Cryptocurrencies and Tax Implications – Neither BlackStar nor CEMC will be trading in, accepting loan repayments in, or making loans in cryptocurrencies; the intent was to build a platform on which to trade digital securities of BlackStar on a private blockchain.
Cybersecurity Implications of DLT – Transactions on the distributed ledger fabric are protected by public-key X.509 certificates. The protection of PII data is the responsibility of each brokerage dealer. Any blockchain code used will be placed in a public repository after having been certified by an independent cybersecurity audit. Further, CEMC bases the operational requirements and cyber-security framework in part on the following publications the “Distributed Ledger Technology: Implications of Blockchain for the Securities Industry” published by FINRA, and the European Union Agency for Network and Information Security (ENISA) report entitled “Distributed Ledger Technology & Cybersecurity.”
| 44 |
DESCRIPTION OF PROPERTIES/ASSETS
Real Estate - None
Oil and Gas Properties - None
Patents - None
Trademarks - None
Our executive offices are located in Boulder, Colorado. We do not own any real property but lease an office space. We believe that substantially all of our property and equipment is in good condition, subject to normal wear and tear, and that our facilities have sufficient capacity to meet the current needs of our business.
PATENTS, TRADE NAMES, TRADEMARKS AND COPYRIGHTS
Either directly or through our subsidiaries, we have rights in various patents, trade names, trademarks, copyrights and other intellectual property necessary to conduct our business. Our services may use the intellectual property of others, including licensed software. We may occasionally license any future intellectual property to others as we deem appropriate.
We may be subject to various claims and legal actions arising in the ordinary course of business from time to time. We believe that the ultimate resolution of these matters, whether individually or in the aggregate, will not have a material adverse effect on our business, prospects, financial condition and results of operations.
At this time, the Company has not been named in any lawsuits, nor is it a party to any existing lawsuits.
d. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Currently there is a limited public trading market for our stock as quoted on the OTCQB under the symbol BEGI.
Rules Governing Low-price Stocks That May Affect Our Shareholders’ Ability to Resell Shares of Our Common Stock
Our stock currently is traded on the OTCQB under the symbol BEGI.
Quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, markdown or commission and may not reflect actual transactions. Our common stock will be subject to certain rules adopted by the SEC that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are securities with a price of less than $5.00, other than securities registered on certain national exchanges or quoted on the NASDAQ system, provided that the exchange or system provides current price and volume information with respect to transaction in such securities. The additional sales practice and disclosure requirements imposed upon broker-dealers are and may discourage broker-dealers from effecting transactions in our shares which could severely limit the market liquidity of the shares and impede the sale of shares in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny stock not otherwise exempt from the rules, to make a special suitability determination for the purchaser to receive the purchaser’s written consent to the transaction prior to sale, to deliver standardized risk disclosure documents prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must
| 45 |
also provide the customer with current bid and offer quotations for the penny stock. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.
Holders
As of the filing of this prospectus, we have 392 shareholders of record of our common stock. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144, a person who has not been an affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least 6 months, is entitled to sell shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144.
As of the date of this prospectus, our shareholders hold 209,818,602 shares. 46,000,000 shares underlying convertible notes may be sold pursuant to this Registration Statement.
Dividends
As of the filing of this registration statement, we have not paid any dividends to shareholders. There are no restrictions which would limit our ability to pay dividends on common equity or that are likely to do so in the future. The Delaware General Corporation Law, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend; we would not be able to pay our debts as they become due in the usual course of business; or our total assets would be less than the sum of the total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
The following is a complete list of the financial statements filed as a part of this Report.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2022 and 2021
(Unaudited)
| Page No. | |||
| CONSOLIDATED BALANCE SHEETS | F-3 | ||
| CONSOLIDATED STATEMENTS OF OPERATIONS | F-4 | ||
| CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT | F-5 | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | F-6 | ||
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | F-7 |
| 46 |
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(Audited)
| Page No. | |||
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-16 | ||
| CONSOLIDATED BALANCE SHEETS | F-17 | ||
| CONSOLIDATED STATEMENTS OF OPERATIONS | F-18 | ||
| CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT | F-19 | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | F-20 | ||
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | F-21 |
| 47 |
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2022 and 2021
(Unaudited)
| F-1 |
Table of Contents
| Page No. | |||
| CONSOLIDATED BALANCE SHEETS | F-3 | ||
| CONSOLIDATED STATEMENTS OF OPERATIONS | F-4 | ||
| CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT | F-5 | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | F-6 | ||
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | F-7 |
| F-2 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
|
CONSOLIDATED BALANCE SHEETS MARCH 31, 2022 AND DECEMBER 31, 2021 | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 426,916 | $ | 518,539 | ||||
| Prepaid expenses | 1,250 | 5,000 | ||||||
| Total current assets | 428,166 | 523,539 | ||||||
| Intangibles | 160,645 | 159,800 | ||||||
| Total Assets | $ | 588,811 | $ | 683,339 | ||||
| LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 32,794 | $ | 43,042 | ||||
| Accrued payables | 91,326 | 74,742 | ||||||
| Convertible notes payable, net of discounts of $189,989 | ||||||||
| and $534,856 at March 31, 2022 and December 31, 2021 | 808,886 | 689,169 | ||||||
| Total current liabilities | 933,006 | 806,953 | ||||||
| Stockholders' Equity (Deficit) | ||||||||
| Preferred stock, 10,000,000 shares authorized; | ||||||||
| $0.001 par value; 1,000,000 shares issued and outstanding | 1,000 | 1,000 | ||||||
| Common stock, 700,000,000 shares authorized; $0.001 par value | ||||||||
| 192,001,253 and 128,689,319 shares issued and outstanding | ||||||||
| at March 31, 2022 and December 31, 2021 | 192,001 | 128,689 | ||||||
| Additional paid in capital | 8,129,466 | 7,896,457 | ||||||
| Accumulated deficit | (8,666,662 | ) | (8,149,760 | ) | ||||
| Total stockholders' deficit | (344,195 | ) | (123,614 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 588,811 | $ | 683,339 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | ||||||||
| (Unaudited) | ||||||||
| 2022 | 2021 | |||||||
| Operating expenses | ||||||||
| Legal and professional | 36,199 | 22,500 | ||||||
| Management consulting - related party | 86,613 | 51,142 | ||||||
| General and administrative | 13,468 | 55,646 | ||||||
| Total operating expenses | 136,280 | 129,288 | ||||||
| Other expense (income) | ||||||||
| Amortization of discount on convertible notes | 313,923 | 98,582 | ||||||
| Amortization of convertible debt issuance costs | 20,328 | 4,433 | ||||||
| Loss on note payable conversions | 41,677 | |||||||
| Interest expense | 46,371 | 48,329 | ||||||
| Other expense (income) | 380,622 | 193,021 | ||||||
| Net (loss) | $ | (516,902 | ) | $ | (322,309 | ) | ||
| Net (loss) per share - basic and diluted | $ | — | $ | — | ||||
| Weighted average number of common shares | ||||||||
| outstanding - basic and diluted | 146,414,764 | 105,250,795 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock Subject to Cancellation | Accumulated Deficit | Stockholders' Equity (Deficit) | |||||||||||||||||||||||||
| Balances - December 31, 2021 | 128,689,319 | $ | 128,689 | 1,000,000 | $ | 1,000 | $ | 7,896,457 | $ | — | $ | (8,149,760 | ) | $ | (123,614 | ) | ||||||||||||||||
| Shares issued for conversion of notes and interest | 63,311,934 | 63,312 | — | — | 233,009 | — | — | 296,321 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (516,902 | ) | (516,902 | ) | ||||||||||||||||||||||
| Balances - March 31, 2022 | 192,001,253 | $ | 192,001 | 1,000,000 | $ | 1,000 | $ | 8,129,466 | $ | — | $ | (8,666,662 | ) | $ | (344,195 | ) | ||||||||||||||||
| Balances - December 31, 2020 | 101,063,806 | $ | 101,063 | 1,000,000 | $ | 1,000 | $ | 5,829,279 | $ | — | $ | (5,966,193 | ) | $ | (34,851 | ) | ||||||||||||||||
| Shares issued for conversion of notes payable | 2,894,231 | 2,895 | — | — | 83,932 | — | — | 86,827 | ||||||||||||||||||||||||
| Beneficial conversion feature of convertible note | — | — | — | — | 263,500 | — | — | 263,500 | ||||||||||||||||||||||||
| Shares issued for loan costs | 300,000 | 300 | — | — | 23,700 | — | — | 24,000 | ||||||||||||||||||||||||
| Shares issued for financing fees | 382,822 | 383 | — | — | 10,817 | — | — | 11,200 | ||||||||||||||||||||||||
| Shares issued subject to cancellation | 2,666,666 | 2,667 | — | — | 104,000 | (106,667 | ) | — | — | |||||||||||||||||||||||
| Net loss for the quarter ended March 31, 2021 | — | — | — | — | — | — | (322,309 | ) | (322,309 | ) | ||||||||||||||||||||||
| Balances - March 31, 2021 | 107,307,525 | $ | 107,308 | 1,000,000 | $ | 1,000 | $ | 6,315,228 | $ | (106,667 | ) | $ | (6,288,502 | ) | $ | 28,367 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 | ||||||||
| (Unaudited) | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net (loss) | $ | (516,902 | ) | $ | (322,309 | ) | ||
| Adjustments to reconcile net loss to net cash used | ||||||||
| in operating activities | ||||||||
| Amortization of convertible note issue costs | 20,328 | 4,433 | ||||||
| Amortization of discounts on convertible notes | 313,923 | 98,582 | ||||||
| Amortization of interest on convertible notes | 14,366 | 5,950 | ||||||
| Loss on conversion of notes payable | — | 41,677 | ||||||
| Interest and loan fees paid in stock | — | 35,200 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease in prepaids | 3,750 | 26,331 | ||||||
| (Decrease) in accounts payable | (10,248 | ) | (12,200 | ) | ||||
| Increase in accrued payables | 32,005 | 11,799 | ||||||
| Cash used in operating activities | (142,778 | ) | (110,537 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Software and patent costs | (845 | ) | (11,000 | ) | ||||
| Cash used in investing activities | (845 | ) | (11,000 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from convertible notes, net of offering costs | ||||||||
| and original issue discount | 52,000 | 217,500 | ||||||
| Net cash provided by financing activities | 52,000 | 217,500 | ||||||
| Net increase (decrease) in cash | (91,623 | ) | 95,963 | |||||
| Cash, beginning of period | 518,539 | 32,987 | ||||||
| Cash, end of period | $ | 426,916 | $ | 128,950 | ||||
| Supplemental disclosure of non-cash investing | ||||||||
| and financing activities | ||||||||
| Notes payable and interest converted to common stock | $ | 296,321 | $ | 45,150 | ||||
| Beneficial conversion feature initially recorded as debt discount | $ | — | $ | 263,500 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
BlackStar Enterprise Group, Inc. (the “Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007. On January 25, 2016, International Hedge Group, Inc. (“IHG”) signed an agreement to acquire a 95% interest in the Company. IHG was issued 44,400,000 shares of common stock and 1,000,000 shares of Series A Preferred Stock. IHG is our controlling shareholder and is engaged in providing management services and capital consulting to companies. IHG and BlackStar are currently managed and controlled by two individuals each of whom is a beneficial owner of an additional 9% of the Company’s common stock.
The Company intends to act as a merchant banking firm seeking to facilitate venture capital to early stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services to crypto-equity companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in crypto-related ventures through a wholly-owned subsidiary, Crypto Equity Management Corp (“CEMC”). BlackStar intends to serve businesses in their early corporate lifecycles and may provide funding in the forms of ventures in which they control the venture until divestiture or spin-off by developing the businesses with capital. BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc. (“Crypto”) in 2017. Crypto’s business plan is to act as a self-regulatory membership organization for the crypto-equity industry and set guidelines and best-practice rules by which industry members would abide. BlackStar will provide management of this entity under a services contract.
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with United States generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles (US GAAP) for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. These unaudited financial statements are condensed and should be read in conjunction with those financial statements included in the Form 10-K and interim disclosures generally do not repeat those in the annual statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
These unaudited consolidated financial statements include BlackStar and its wholly owned subsidiaries: Crypto Equity Management Corp. and Crypto Industry SRO Inc., and were prepared from the accounts of the Company in accordance with US GAAP. All significant intercompany transactions and balances have been eliminated on consolidation.
NOTE 2 – GOING CONCERN
The Company's financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements for the three months ended March 31, 2022 and the year ended
December 31, 2021, the Company has generated no revenues and has incurred losses. As of March 31, 2022, the Company had cash of
$426,916, working capital deficiency of $504,840 and an accumulated deficit of $8,666,662. These conditions raise substantial doubt
as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going
| F-7 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 2 – GOING CONCERN (continued)
concern. The continuation of the Company as a going concern is dependent upon the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's planned business. Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The Company’s significant estimates include income taxes provision and valuation allowance of deferred tax assets; the fair value of financial instruments; the carrying value and recoverability of long-lived assets, and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from Generally Accepted Accounting Principles (“GAAP”) separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company has elected to adopt the guidance under ASU 2020-06 for the fiscal year commencing January 1, 2022.
Although there are several other new accounting pronouncements
issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of
these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations.
Management has evaluated accounting standards and interpretations issued but not yet effective as of March 31, 2022 and does not
expect such pronouncements to have a material impact on the Company’s financial position, operations, or cash flows.
| F-8 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications
Certain amounts in the consolidated financial statements for prior year periods have been reclassified to conform with the current year presentation.
NOTE 4 – INTANGIBLES
Intangibles at March 31, 2022 and December 31, 2021 consist of capitalized costs for the Company’s proprietary software and patents as follows:
| 2022 | 2021 | |||||||||
| Software | $ | 88,000 | $ | 88,000 | ||||||
| Patents | 72,645 | 71,800 | ||||||||
| $ | 160,645 | $ | 159,800 | |||||||
NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company has an authorized number of preferred shares of 10,000,000, with a par value of $0.001 per share. On August 25, 2016, the Company issued 1,000,000 shares of its Series A Preferred Series stock to IHG in fulfillment of the purchase agreement. These shares are convertible at a ratio of 100 shares of the common stock of the Company for each share of preferred stock of the Company.
Common Stock
During the three months ended March 31, 2022, the Company issued shares of its common stock as follows:
| · | 63,311,934 shares for conversion of $296,321 principal and interest on convertible notes payable. |
During the three months ended March 31, 2021, the Company issued shares of its common stock as follows:
| · | 2,894,231 shares for conversion of $45,150 principal and interest on convertible note payable, and recognized a loss conversion of $41,677. |
| · | 300,000 shares valued at $24,000 ($0.08 per share) to a convertible note holder as consideration for the Company’s entering into certain third party transactions which were in default of the convertible promissory note, security purchase agreement and other related documents entered into on November 16, 2020. |
| · | 382,822 shares valued at $11,200 ($0.029 per share) as consideration for finder’s fee for loans made to the Company. |
| · | 2,666,666 shares valued at $106,667 ($0.04 per share) to a convertible note holder. These shares
have been issued as condition that the Company files a resale registration statement covering the underlying convertible shares.
The shares are returnable to the Company upon the effective date of the registration statement. |
| F-9 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 6 – WARRANTS
In April 2019, the Company issued a convertible note for $110,000. Pursuant to the terms of the note agreement, the Company issued warrants to the holder for the purchase 440,000 shares of the Company’s common stock. The warrants are exercisable at $0.25 per share for a term of 5 years. The $132,953 fair value of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: stock price $0.38; strike price $0.25; volatility 98%; risk free rate 2.25% and term of 5 years. The $132.953 fair value of the warrants was charged to operations when issued during the year ended December 31, 2019. At March 31, 2021, the intrinsic value of the outstanding warrants was $0, as the trading price of the Company’s common stock at that date was less than the underlying exercise price of the warrants.
A summary of warrant activity during the three months ended March 31, 2022 is presented below:
|
Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Outstanding and exercisable – December 31, 2021 | 540,000 | $ | 0.31 | 1.99 | ||||||||||
| Exercised | — | |||||||||||||
| Expired | — | |||||||||||||
| Outstanding and exercisable – March 31, 2022 | 540,000 | $ | 0.31 | 1.74 | ||||||||||
NOTE 7 – CONVERTIBLE NOTES
During the three months ended March 31, 2022, the Company had the following transactions related to its convertible note financings:
(i) On February 14, 2022, the Company entered into a financing agreement with Sixth Street Lending LLC to borrow $55,750. The note matures on February 14, 2023, bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest trading price of the Company’s common stock for the previous fifteen trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 47,871,198 shares for conversion. Net proceeds from the loan were $52,000, after legal fees and offering costs of $3,750.
(ii) In February and March 2022, Adar Alef LLC (“Adar Alef”) elected to make a partial conversion of $76,500 principal and $6,296 of accrued and unpaid interest thereon due on their note of April 29, 2021, in three tranches, into an aggregate 21,504,766 shares of the Company’s common stock at prices of $0.0023 to $0.0064 per share under the conversion provision and terms of the note agreement.
(iii) In January and February 2022,
Power Up elected to convert, in five tranches, the total principal of $103,750 due on their note of July 26, 2021, together with
accrued and unpaid interest thereon of $5,188, into an aggregate 12,982,155 shares of the
| F-10 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES (continued)
Company’s common stock (at conversion prices of $0.0075 to $0.0088 per share) under the conversion provision and terms of the note agreement
(iv) In February and March 2022, Power Up Lending Group Ltd. (Power Up) elected to convert, in four tranches, the total principal due on their note of July 28, 2021 of $78,750 and accrued and unpaid interest thereon of $3,938 into 21,273,289 shares of the Company’s common stock at conversion prices of $0.0029 to $0.0073 per share under the conversion provision and terms of the note agreement.
(v) In March 2022, Power Up elected to make a partial conversion of $21,900 principal due on their note of September 1, 2021 into 7,551,724 shares of the Company’s common stock at a price of $0.0029 per share under the conversion provision and terms of the note agreement.
As of March 31, 2022, the Company was in default on its certain of its convertible debt obligations as follows:
| · | Quick Capital LLC convertible note under the financing agreement entered into on November 23, 2020 in the principal amount of $33,275 due July 16, 2021. The Company has continued to accrue interest on the note at the rate of 10% per annum. |
| · | SE Holdings LLC (“SE Holdings”) convertible note under the financing agreement entered into on January 26, 2021 in the principal amount of $220,000 due January 26, 2022. The Company has accrued default interest on the note at the rate of 24% per annum subsequent to the due date (See Note 9). |
| F-11 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES (continued)
Convertible notes payable at March 31, 2022 and December 31, 2021 are summarized as follows:
| Note Holder | Face Amount | Interest Rate | Due Date | March 31, 2022 | December 31, 2021 | |||||||||||||
| GS Capital Partners LLC | $ | 60,000 | 8 | % | October 11, 2022 | $ | 60,000 | $ | 60,000 | |||||||||
| Power UP Lending Group Ltd. | $ | 103,750 | 10 | % | July 26, 2022 | $ | — | $ | 103,750 | |||||||||
| $ | 78,750 | 10 | % | July 28, 2022 | $ | — | $ | 78,750 | ||||||||||
| $ | 53,750 | 10 | % | September 1, 2022 | $ | 31,850 | $ | 53,750 | ||||||||||
| $ | 78,750 | 10 | % | October 1, 2022 | $ | 78,750 | $ | 78,750 | ||||||||||
| SE Holdings LLC | $ | 220,000 | 10 | % | January 26, 2022 | $ | 220,000 | $ | 220,000 | |||||||||
| Quick Capital LLC | $ | 33,275 | 10 | % | July 16, 2021 | $ | 33,275 | $ | 33,275 | |||||||||
| Adar Alef LLC | $ | 550,000 | 10 | % | April 29, 2022 | $ | 473,500 | $ | 550,000 | |||||||||
| Sixth Street Lending LLC | $ | 45,750 | 10 | % | November 29, 2022 | $ | 45,750 | $ | 45,750 | |||||||||
| $ | 55,750 | 10 | % | February 14, 2023 | $ | 55,750 | $ | — | ||||||||||
| Discount | $ | (189,989 | ) | $ | (534,856 | ) | ||||||||||||
| $ | 808,886 | $ | 689,169 | |||||||||||||||
NOTE 8 – RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it must rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. The advances are considered temporary in nature and have not been formalized by a promissory note.
IHG, controlling shareholder of
the Company, provides management consulting services to the Company. There is no formal written agreement that defines the compensation
to be paid. For the three months ended March 31, 2022 and 2021 the Company recorded related party management fees of $86,613 and
$51,142, respectively.
| F-12 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS (continued)
During the three months ended March 31, 2022 and 2021, there were no advances from related parties. At March 31, 2021, a former officer of the Company was owed $18,780, which amount was repaid during the year ended December 31, 2021.
NOTE 9 – SUBSEQUENT EVENTS
In April 2022, Power Up elected to convert, in two tranches, the remaining principal balance of $31,850 and accrued and unpaid interest thereon of $2,688 due on their note of September 1, 2021 into 12,400,682 shares of the Company’s common stock at prices of $0.0024 to $0.0029 per share under the conversion provision and terms of the note agreement.
In April 2022, Quick Capital, LLC issued a notice of default on the convertible note dated November 16, 2020 and stated that the outstanding amount due on the note is $133,317.38, the default interest per annum is 24%, and that the conversion price is the lowest trading price during the delinquency period with a 50% discount.
In April and May 2022, Power Up elected to convert, in five tranches, the total principal balance of $78,750 and accrued and unpaid interest thereon of $3,938 due on their note of October 1, 2021 into 40,260,417 shares of the Company’s common stock at prices of $0.0020 to $0.0024 per share under the conversion provision and terms of the note agreement.
In May 2022, GS Capital Partners LLC elected to make a partial conversion of $3,000 principal and accrued and unpaid interest of $133 due on their note of October 11, 2021 into 1,898,679 shares of the Company’s common stock at a price of $0.0017 per share under the conversion provision and terms of the note agreement.
On April 29, 2022, the Company did not satisfy its obligations for final payment of outstanding principal of $473,500 and accrued interest under a financing agreement entered into on April 29, 2021 with Adar Alef. Under the terms of the financing agreement, the stated interest rate of the note was 10% with default interest of 24%, and was convertible into common shares of the Company’s common stock at the option of the holder. The Company has accrued default interest of 24% on the outstanding principal amount subsequent to the due date of the note through March 31, 2022.
On April 27, 2022, the Company entered into an Amendment and Abatement Agreement (“Abatement Agreement”) with SE Holdings and Adar Alef (collectively “the Parties”) to address the Company’s default on the two outstanding convertible notes between the Parties. Under the terms of the Abatement Agreement, the Parties agreed to abate the conversion features under the notes for a period of forty five (45) days from April 15, 2022, with the conversion features resuming no sooner than May 30, 2022. The Company has agreed to pay to Adar Alef a total of $50,000 upon execution of the Abatement Agreement for principal, redemption penalty and accrued interest. The remaining principal and accrued interest on both of the notes to SE Holdings and Adar Alef will be due on May 30, 2022, unless further extended under the terms of the Abatement Agreement. The notes may be extended for an additional thirty (30) days through June 30, 2022 upon an additional payment of $25,000 to Adar Alef on or before May 30, 2022.
The Company has analyzed its operations subsequent to March 31, 2022 through the date that these financial statements were issued, and has determined that it does not have any additional material subsequent events to disclose.
| F-13 |
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(Audited)
| F-14 |
Table of Contents
(Audited)
| Page No. | |||
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PCAOB ID 5041 |
F-16 | ||
| CONSOLIDATED BALANCE SHEETS | F-17 | ||
| CONSOLIDATED STATEMENTS OF OPERATIONS | F-18 | ||
| CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT | F-19 | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | F-20 | ||
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | F-21 |
| F-15 |
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Blackstar Enterprise Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Blackstar Enterprise Group, Inc. as of December 31, 2021 and 2020, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ BF Borgers CPA PC
We have served as the Company's auditor since 2016
Lakewood, CO
March 28, 2022
| F-16 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| DECEMBER 31, 2021 AND 2020 | ||||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 518,539 | $ | 32,987 | ||||
| Prepaid expenses | 5,000 | 51,224 | ||||||
| Total current assets | 523,539 | 84,211 | ||||||
| Intangibles | 159,800 | 10,000 | ||||||
| Total Assets | $ | 683,339 | $ | 94,211 | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 43,042 | $ | 29,880 | ||||
| Accrued payables | 74,742 | 4,517 | ||||||
| Advances to related parties | — | 18,780 | ||||||
| Convertible notes payable, net of discounts of $534,856 | ||||||||
| and $158,390 at December 31, 2021 and 2020 | 689,169 | 25,885 | ||||||
| Notes payable | — | 50,000 | ||||||
| Total current liabilities | 806,953 | 129,062 | ||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, 10,000,000 shares authorized; | ||||||||
| $0.001 par value; 1,000,000 shares issued and outstanding | 1,000 | 1,000 | ||||||
| at December 31, 2021 and 2020; | ||||||||
| Common stock, 700,000,000 shares authorized; $0.001 par value | ||||||||
| 128,689,319 and 101,063,806 shares issued and outstanding | ||||||||
| at December 31, 2021 and 2020; | 128,689 | 101,063 | ||||||
| Additional paid in capital | 7,896,457 | 5,829,279 | ||||||
| Accumulated deficit | (8,149,760 | ) | (5,966,193 | ) | ||||
| Total stockholders' deficit | (123,614 | ) | (34,851 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 683,339 | $ | 94,211 | ||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| F-17 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | — | $ | — | ||||
| Operating expenses | ||||||||
| Legal and professional | 102,040 | 71,032 | ||||||
| Management consulting - related party | 344,642 | 100,530 | ||||||
| General and administrative | 460,781 | 59,620 | ||||||
| Total operating expenses | 907,463 | 231,182 | ||||||
| Other expense (income) | ||||||||
| Amortization of discount on convertible notes | 998,673 | 218,318 | ||||||
| Amortization of convertible debt issuance costs | 68,864 | 32,722 | ||||||
| Loss on note payable conversions | — | 1,006,558 | ||||||
| Interest expense | 208,567 | 76,811 | ||||||
| Other expense (income) | 1,276,104 | 1,334,409 | ||||||
| Net (loss) | $ | (2,183,567 | ) | $ | (1,565,591 | ) | ||
| Net (loss) per share - basic and diluted | $ | (0.02 | ) | $ | (0.02 | ) | ||
| Weighted average number of common shares | ||||||||
| outstanding - basic and diluted | 117,171,748 | 64,648,686 | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| F-18 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT | ||||||||||||||||||||||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2021 | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||
| Amount | Amount | Additional Paid | Accumulated | Stockholders' | ||||||||||||||||||||||||
| Shares | ($0.001Par) | Shares | ($0.001Par) | in Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balances - December 31, 2019 | 48,003,443 | $ | 48,003 | 1,000,000 | $ | 1,000 | $ | 4,117,321 | $ | (4,400,602 | ) | $ | (234,278 | ) | ||||||||||||||
| Adjust for shares issued directly from IHG retirement to treasury at December 31, 2019 | (150,000 | ) | (150 | ) | — | — | 150 | — | — | |||||||||||||||||||
| Shares issued for conversion of notes and interest | 50,411,141 | 50,411 | — | — | 1,349,712 | — | 1,400,123 | |||||||||||||||||||||
| Beneficial conversion feature of convertible notes | — | — | — | — | 287,275 | — | 287,275 | |||||||||||||||||||||
| Shares issued for loan costs at $0.02 per share | 550,000 | 550 | — | — | 10,450 | — | 11,000 | |||||||||||||||||||||
| Shares issued for loan costs at $0.0257 per share | 199,222 | 199 | — | — | 4,921 | — | 5,120 | |||||||||||||||||||||
| Shares issued for loan costs at $0.03 per share | 2,050,000 | 2,050 | — | — | 59,450 | — | 61,500 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,565,591 | ) | (1,565,591 | ) | |||||||||||||||||||
| Balances - December 31, 2020 | 101,063,806 | 101,063 | 1,000,000 | 1,000 | 5,829,279 | (5,966,193 | ) | (34,851 | ) | |||||||||||||||||||
| Shares issued for conversion of notes and interest | 18,079,985 | 18,080 | — | — | 295,305 | — | 313,385 | |||||||||||||||||||||
| Beneficial conversion feature of convertible notes | — | — | — | — | 1,337,750 | — | 1,337,750 | |||||||||||||||||||||
| Shares issued for loan costs | 300,000 | 300 | — | — | 23,700 | — | 24,000 | |||||||||||||||||||||
| Shares issued for financing fees | 1,078,862 | 1,079 | — | — | 41,923 | — | 43,002 | |||||||||||||||||||||
| Shares issued for software development | 500,000 | 500 | — | — | 19,500 | — | 20,000 | |||||||||||||||||||||
| Shares issued to debt holders for registration costs | 7,666,666 | 7,667 | — | — | 349,000 | — | 356,667 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,183,567 | ) | (2,183,567 | ) | |||||||||||||||||||
| Balances - December 31, 2021 | 128,689,319 | $ | 128,689 | 1,000,000 | $ | 1,000 | $ | 7,896,457 | $ | (8,149,760 | ) | $ | (123,614 | ) | ||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||
| F-19 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net (loss) | $ | (2,183,567 | ) | $ | (1,565,591 | ) | ||
| Adjustments to reconcile net loss to net cash used | ||||||||
| in operating activities | ||||||||
| Amortization of convertible note issue costs | 68,864 | 32,722 | ||||||
| Amortization of discounts on convertible notes | 998,673 | 218,318 | ||||||
| Amortization of interest on convertible notes | 59,997 | 11,889 | ||||||
| Loss on conversion of notes payable | — | 1,006,558 | ||||||
| Interest and loan fees paid in stock | 423,779 | 116,208 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease (increase) in prepaids | 46,224 | (40,667 | ) | |||||
| (Decrease) in accounts payable | (18,280 | ) | (27,512 | |||||
| Increase in accrued payables | 85,500 | 881 | ||||||
| Cash used in operating activities | (518,810 | ) | (247,194 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Software and patent costs | (98,358 | ) | (10,000 | |||||
| Cash used in investing activities | (98,358 | ) | (10,000 | |||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from convertible notes, net of offering costs | ||||||||
| and original issue discount | 1,171,500 | 260,000 | ||||||
| Increase in notes payable | — | 25,000 | ||||||
| Repayments of notes payable | (50,000 | ) | (5,000 | |||||
| Repayments of advances to related party | (18,780 | ) | (23,070 | |||||
| Net cash provided by financing activities | 1,102,720 | 256,930 | ||||||
| Net increase (decrease) in cash | 485,552 | (264 | ||||||
| Cash, beginning of period | 32,987 | 33,251 | ||||||
| Cash, end of period | $ | 518,539 | $ | 32,987 | ||||
| Supplemental disclosure of non-cash investing | ||||||||
| and financing activities | ||||||||
| Beneficial conversion feature initially recorded as debt discount | $ | 1,337,750 | $ | 287,275 | ||||
| Notes payable and interest converted to common stock | $ | 313,385 | $ | 387,344 | ||||
| Common stock issued for software | $ | 20,000 | $ | — | ||||
| Common stock issued for loan costs | $ | 67,002 | $ | 77,121 | ||||
| Common stock issued to debt holders for registration costs | $ | 356,667 | $ | — | ||||
| Cash paid for interest on debt | $ | 4,400 | $ | 4,676 | ||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| F-20 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
BlackStar Enterprise Group, Inc. (the “Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007. On January 25, 2016, International Hedge Group, Inc. (“IHG”) signed an agreement to acquire a 95% interest in the Company. IHG was issued 44,400,000 shares of common stock and 1,000,000 shares of Series A Preferred Stock. IHG is our controlling shareholder and is engaged in providing management services and capital consulting to companies. IHG and BlackStar are currently managed and controlled by two individuals each of whom is a beneficial owner of an additional 9% of the Company’s common stock.
The Company intends to act as a merchant banking firm seeking to facilitate venture capital to early stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services to crypto-equity companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in crypto-related ventures through a wholly-owned subsidiary, Crypto Equity Management Corp (“CEMC”). BlackStar intends to serve businesses in their early corporate lifecycles and may provide funding in the forms of ventures in which they control the venture until divestiture or spin-off by developing the businesses with capital. BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc. (“Crypto”) in 2017. Crypto’s business plan is to act as a self-regulatory membership organization for the crypto-equity industry and set guidelines and best-practice rules by which industry members would abide. BlackStar will provide management of this entity under a services contract.
Basis of presentation
The accompanying consolidated financial statements include BlackStar and its wholly owned subsidiaries: Crypto Equity Management Corp. and Crypto Industry SRO Inc, and were prepared from the accounts of the Company in accordance with accounting principles generally accepted in the United States of America (US GAAP). All significant intercompany transactions and balances have been eliminated on consolidation.
NOTE 2 – GOING CONCERN
The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements for the years ended December 31, 2021 and 2020, the Company has generated no revenues and has incurred losses. As of December 31, 2021, the Company had cash of $518,539, negative working capital of $283,414 and an accumulated deficit of $8,149,760. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The continuation of the Company as a going concern is dependent upon the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's planned business. Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
| F-21 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies refer to specific accounting principles and the methods of applying those principles to fairly present the Company’s financial position and results of operations in accordance with generally accepted accounting principles. The policies discussed below include those that management has determined to be the most appropriate in preparing the Company’s financial statements and are not discussed in a separate footnote.
Cash and cash equivalents
The Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties and all highly liquid investments with an original maturity of three months or less as cash equivalents. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2021 and 2020, the Company had no deposits in excess of the FDIC insured limits.
Revenue recognition
The Company recognizes revenue under ASC 606, using the following five-step model, which requires that we: (1) identify a contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations and (5) recognize revenue as performance obligations are satisfied. The Company currently has no sources of revenue.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance with Accounting Standards Update (“ASU”), Earnings per Share (Topic 260) which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic EPS would exclude any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. Under current Company policy the majority stockholder International Hedge Group has and intends to surrender an equivalent number of common shares each time shares are sold or converted from other instruments. As a result, the EPS is the same for basic and diluted shares.
Income Taxes
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.
The Company maintains a valuation allowance with respect to its deferred tax asset. The valuation allowance is established based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the reliability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change estimate.
| F-22 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification for its long-lived assets. The Company’s long –lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following to be some examples of important indicators that may trigger an impairment review; (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner of use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
The impairment charges, if any, are included in operating expenses in the accompanying statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The Company’s significant estimates include income taxes provision and valuation allowance of deferred tax assets; the fair value of financial instruments; the carrying value and recoverability of long-lived assets, and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
| F-23 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The estimated fair values of financial instruments were determined by management using available market information and appropriate valuation methodologies. The carrying amounts of financial instruments including cash approximate their fair value because of their short maturities.
Long Lived Assets
In accordance with ASC 350 the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances both internally and externally that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Stock-based Compensation
The Company accounts for stock-based compensation issued to employees based on FASB accounting standard for Share Based Payment. It requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period (usually the vesting period). It requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of the FASB accounting standard includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company currently has no stock-based compensation plan in place.
Original Issue Discount
For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded as a debt discount, reducing the face amount of the note and is amortized to interest expense over the life
of the debt.
Derivative Financial Instruments
Fair value accounting as required by ASC 815 – Derivatives and Hedging, requires bifurcation of embedded derivative instruments such as certain convertible features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Recent pronouncements
Management has evaluated accounting standards and interpretations issued but not yet effective as of December 31, 2021 and does not expect such pronouncements to have a material impact on the Company’s financial position, operations, or cash flows.
| F-24 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications
Certain amounts in the consolidated financial statements for prior year periods have been reclassified to conform with the current year presentation.
NOTE 4 – INTANGIBLES
Intangibles at December 31, 2021 and 2020 consist of capitalized costs for the Company’s proprietary software and patents as follows:
| 2021 | 2020 | |||||||||
| Software | $ | 88,000 | $ | 10,000 | ||||||
| Patents | 71,800 | — | ||||||||
| $ | 159,800 | $ | 10,000 | |||||||
NOTE 5 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has an authorized number of preferred shares of 10,000,000, with a par value of $0.001 per share. On August 25, 2016, the Company issued 1,000,000 shares of its Series A Preferred Series stock to IHG in fulfillment of the purchase agreement. These shares are convertible at a ratio of 100 shares of the common stock of the Company for each share of preferred stock of the Company.
Common Stock
As of December 31, 2021 and 2020, the total number of common shares outstanding was 128,689,319 and 101,063,806, respectively. The number of shares outstanding at December 31, 2020 was reduced by 150,000 in order to reflect that shares previously reported as outstanding as of December 31, 2019, but yet to be issued by the Company were issued from the block of shares that were returned to treasury by IHG. The share quantity was deemed by management to be immaterial, and therefore no amendment of the Form 10-K filed for the year ended December 31, 2019 was required.
During the year ended December 31, 2021, the Company issued shares of its common stock as follows:
- 18,079,985 shares for conversion of $313,385 principal and interest on convertible note payable.
- 300,000 shares valued at $24,000 ($0.08 per share) to a convertible note holder as consideration for the Company’s entering into certain third party transactions which were in default of the convertible promissory note, security purchase agreement and other related documents entered into on November 16, 2020.
- 1,078,862 shares valued at $43,002 as consideration for financing fees for loans made to the Company.
- 500,000 shares valued at $20,000 ($0.04 per share) as partial consideration for software development costs.
- 2,666,666 shares valued at $106,667 ($0.04 per share) to a convertible note holder. These shares have been issued as condition that the Company files a resale registration statement covering the underlying convertible shares. The shares are returnable to the Company upon the effective date of the registration statement. The resale registration
| F-25 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 5 – STOCKHOLDERS’ DEFICIT (continued)
statement was not filed in the period stipulated in the agreement with the note holder, and accordingly the $106,667 value of the shares has been charged to operations during the year ended December 31, 2021.
- 5,000,000 shares valued at $250,000 ($0.05 per share) to a convertible note holder. These shares were issued as condition that the Company files a resale registration statement covering the underlying convertible shares. The shares are returnable to the Company upon the effective date of the registration statement. The resale registration statement was not filed in the period stipulated in the agreement with the note holder, and accordingly the $250,000 value of the shares has been charged to operations during the year ended December 31, 2021.
During the year ended December 31, 2020, the Company issued shares of its common stock as follows:
| · | 50,411,141 shares for conversion of $393,563 principal, interest and fees on convertible notes payable, and recognized a loss on note payable conversions of $1,006,558. |
| · | 150,000 shares, valued at $3,000 ($0.02 per share) as consideration for extension of notes originally dated April 29, 2019, as extended, for an additional six months through October 29, 2020. |
| · | 400,000 shares valued at $8,000 ($0.02 per share) as partial consideration for an aggregate $25,000 of loans made to the Company on May 18, 2020. |
| · | 199,222 shares valued at $5,120 ($0.0257 per share) as consideration for finder’s fee for loans made to the Company. |
| · | 2,050,000 shares valued at $61,500 ($0.03 per share) as consideration for financing fees and loan extension. |
NOTE 6 – WARRANTS
In April 2019, the Company issued a convertible note for $110,000. Pursuant to the terms of the note agreement, the Company issued warrants to the holder for the purchase 440,000 shares of the Company’s common stock. The warrants are exercisable at $0.25 per share for a term of 5 years. The $132,953 fair value of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: stock price $0.38; strike price $0.25; volatility 98%; risk free rate 2.25% and term of 5 years. The Company recognized a warrant expense of $132,593 at the time of grant of the warrants.
A summary of warrant activity during the years ended December 31, 2020 and 2021 is presented below:
| Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Outstanding and exercisable – December 31, 2019 | 540,000 | $ | 0.31 | 3.24 | ||||||||||
| Exercised | — | |||||||||||||
| Expired | — | |||||||||||||
| Outstanding and exercisable – December 31, 2020 | 540,000 | $ | 0.31 | 2.99 | ||||||||||
| Exercised | — | |||||||||||||
| Expired | — | |||||||||||||
| Outstanding and exercisable – December 31, 2021 | 540,000 | $ | 0.31 | 1.99 | ||||||||||
| F-26 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 7 – CONVERTIBLE NOTES
GS CAPITAL PARTNERS
(i) On December 4, 2020, the Company entered into a financing arrangement with GS Capital Partners LLC. The face value of the note is $55,000 at an interest rate of 10% and the maturity date is December 2, 2021. At the time of the disbursement the Company received $45,000 net cash proceeds, as there was a deduction from proceeds to the Company of $10,000 for original interest discount and placement costs. The repayment is a lump sum payment on the due date or is convertible into Company common stock at the discretion of the lender. The conversion, if chosen, will be at 50% of the two lowest trading days in the previous ten-day period prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note.
The Company has recorded the conversion feature as a beneficial conversion feature of $55,000. The fair value of $55,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the current trading prices of the Company’s common stock. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
During the year ended December 31, 2021, GS Capital elected to convert the $55,000 principal and $2.936 of accrued and unpaid interest due on the note into 3,612,003 shares of the Company’s common stock under the conversion provision and terms of the note agreement.
(ii) On October 11, 2021, the Company entered into a financing agreement with GS Capital Partners LLC to borrow $60,000. The note matures on October 11, 2022, bears interest at 8%, with a default rate of 24%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 60% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note. The Company received net proceeds from the loan of $50,000, after legal and financing fees of $10,000.
POWER UP LENDING GROUP
(i) On July 24, 2020, the Company entered into a financing agreement with Power Up to borrow $43,000 with a due date of July 24, 2021. The note bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 61% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note. The Company has reserved 41,876,318 shares for conversion. Net proceeds from the loan were $40,000, after legal fees and offering costs of $3,000. These fees and costs are being amortized over the term of the note. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $43,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
On January 28, 2021, Power Up elected to convert the total principal and interest due on their note of July 24, 2020 in the principal amount of $43,000 and $2,150 of accrued and unpaid interest thereon into 2,894,231 shares of the Company’s common stock at $0.0156 per share.
| F-27 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 7 – CONVERTIBLE NOTES (continued)
(ii) On October 8, 2020, the Company received the proceeds from a financing agreement entered into with Power Up Lending Group on September 24, 2020 to borrow $53,000. The note bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 61% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 25,429,828 shares for conversion. Net proceeds from the loan were $50,000, after legal fees and offering costs of $3,000. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $53,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note.
Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
On April 12, 2021, Power Up elected to convert the total principal and interest due on their note of October 8, 2020 in the principal amount of $53,000 and $2,650 of accrued and unpaid interest thereon into 1,939,024 shares of the Company’s common stock at $0.0287 per share.
(iii) On January 15, 2021, the Company entered into a financing agreement with Power Up Lending Group to borrow $43,500. The note bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 61% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 20,871,651 shares for conversion. Net proceeds from the loan were $40,000, after legal fees of $3,500. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $43,500 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
In July 2021, Power Up elected to convert (in two tranches) the total principal of $43,500 due on the note, together with accrued and unpaid interest thereon of $2,175, into an aggregate 3,572,791 shares of the Company’s common stock (1,304,348 shares at $0.0138 per share and 2,268,443 shares at $0.0122 per share) under the conversion provision and terms of the note agreement.
(iv) On March 31, 2021, the Company entered into a financing agreement with Power Up Lending Group to borrow $103,500. The note bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 63% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 20,535,714 shares for conversion. On April 1, 2021, the Company received the net proceeds from the loan of $100,000, after legal fees and offering costs of $3,500.
In October 2021, Power Up elected to convert (in three tranches) the total principal of $103,500 due on the note of March 31, 2021, together with accrued unpaid interest thereon of $5,175, into an aggregate 6,061,936 shares of the Company’s common stock (2,358,232 shares at $0.0164 per share and 3,703,704 shares at $0.0189 per share) under the conversion provision and terms of the note agreement.
| F-28 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 7 – CONVERTIBLE NOTES (continued)
(v) On July 26, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $103,750. The note matures on July 26, 2022, bears interest at 10%, with a default rate of 22%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest closing bid prices of the Company’s common stock for the previous 15 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note, and the Company has reserved 34,220,756 shares for conversion. The Company received net proceeds from the loan of $100,000, after legal and financing fees of $3,750. (See Note 12).
(vi) On July 28, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $78,750. The note matures on July 28, 2022, bears interest at 10%, with a default rate of 22%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest closing bid prices of the Company’s common stock for the previous 15 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note, and the Company has reserved 36,346,153 shares for conversion. The Company received net proceeds from the loan of $75,000, after legal and financing fees of $3,750. (See Note 12).
(vii) On September 1, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $53,750. The note matures on September 1, 2022, bears interest at 10%, with a default rate of 22%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest closing bid prices of the Company’s common stock for the previous 15 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note, and the Company has reserved 17,348,036 shares for conversion. The Company received net proceeds from the loan of $50,000, after legal and financing fees of $3,750.
(viii) On October 1, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $78,750. The note matures on October 1, 2022, bears interest at 10%, with a default rate of 22%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest closing bid prices of the Company’s common stock for the previous 15 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note, and the Company has reserved 23,954,227 shares for conversion. The Company received net proceeds from the loan of $75,000, after legal and financing fees of $3,750.
QUICK CAPITAL LLC
On November 23, 2020, the Company
entered into a financing agreement with Quick Capital LLC to borrow $33,275 with a due date of July 16, 2021. The note bears interest
at 10%, with a default rate of 24%, and is convertible into shares of the Company’s common stock. The conversion price is
to be calculated at 60% of the 2 lowest trading prices of the Company’s common stock for the previous 20 trading days prior
to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding
common stock. There are no warrants or options attached to this note, and the Company has reserved 12,000,000 shares for conversion.
Net proceeds from the loan were $25,000, after legal fees and offering costs of $8,275. The Company has recorded the conversion
feature as a beneficial conversion feature. The fair value of $33,275 for the expense portion of the note is being amortized over
the term of the note. This fair value has been determined
| F-29 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 7 – CONVERTIBLE NOTES (continued)
based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock As of December 31, 2021, the Company is in default on this note.
SE HOLDINGS LLC
On January 26, 2021, the Company entered into a financing agreement with SE Holdings LLC to borrow $220,000. The note bears interest at 10%, with a default rate of 24%, and is convertible, at any time after the date of issuance. The conversion price is to be calculated at 50% of the average of the three lowest trading price of the Company’s common stock for the previous twenty trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 44,000,000 shares for conversion. Net proceeds from the loan were $177,500, after original issue discount of $20,000 and legal fees and offering costs of $22,500. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $220,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock
ADAR ALEF LLC
On April 29, 2021, the Company entered into a financing agreement with Adar Alef, LLC to borrow $550,000. The note bears interest at 10%, with a default rate of 24%, and is convertible at the option of the holder, at any time after the date of issuance. The conversion price is to be calculated at 50% of the average of the three lowest closing bid prices of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 86,105,000 shares for conversion The Company received the net proceeds from the loan of $462,000, after original issue discount, legal fees and offering costs of $88,000. (See Note 12).
SIXTH STREET LENDING LLC
On November 29, 2021, the Company entered into a financing agreement with Sixth Street Lending LLC to borrow $45,750,000. The note matures on November 31, 2022, bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest trading price of the Company’s common stock for the previous fifteen trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 21,436,938 shares for conversion. Net proceeds from the loan were $42,000, after legal fees and offering costs of $3,750. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $45,750 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
| F-30 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 7 – CONVERTIBLE NOTES (continued)
Convertible notes payable at December 31, 2021 and December 31, 2020 are summarized as follows:
| Holder | Face Amount | Interest Rate | Due Date | 2021 | 2020 | |||||||||||||
| GS Capital Partners | $ | 55,000 | 10 | % | December 2, 2021 | $ | — | $ | 55,000 | |||||||||
| $ | 60,000 | 8 | % | October 11, 2022 | $ | 60,000 | $ | — | ||||||||||
| Power Up Lending Group | $ | 43,000 | 10 | % | July 24, 2021 | $ | — | $ | 43,000 | |||||||||
| $ | 53,000 | 10 | % | September 24, 2021 | $ | — | $ | 53,000 | ||||||||||
| $ | 43,500 | 10 | % | January 15, 2022 | $ | — | $ | — | ||||||||||
| $ | 103,750 | 10 | % | July 26, 2022 | $ | 103,750 | $ | — | ||||||||||
| $ | 78,750 | 10 | % | July 28, 2022 | $ | 78,750 | $ | — | ||||||||||
| $ | 53,750 | 10 | % | September 1, 2022 | $ | 53,750 | $ | — | ||||||||||
| $ | 78,750 | 10 | % | October 1, 2022 | $ | 78,750 | $ | — | ||||||||||
| SE Holdings LLC | $ | 220,000 | 10 | % | January 26, 2022 | $ | 220,000 | $ | — | |||||||||
| Quick Capital LLC | $ | 33,275 | 10 | % | July 16, 2021 | $ | 33,275 | $ | 33,275 | |||||||||
| Adar Alef LLC | $ | 550,000 | 10 | % | April 29, 2022 | $ | 550,000 | $ | — | |||||||||
| Sixth Street Lending LLC | $ | 45,750 | 10 | % | November 29, 2022 | $ | 45,750 | $ | — | |||||||||
| Discount | $ | (534,856 | ) | $ | (158,390 | ) | ||||||||||||
| $ | 689,169 | $ | 25,885 | |||||||||||||||
NOTE 8 – NOTES PAYABLE
On November 18, 2020, existing outstanding loans to two individuals were rolled over and extended into two new loans in the amounts of $20,000 and $30,000, due May 18, 2021 with interest at 11%. Each of the two loan holders was paid $2,500 principal (an aggregate $5,000) and aggregate accrued interest of $3,026. In addition, the two individuals were issued an aggregate 1,550,000 shares of the Company’s common stock valued at $46,500 ($0.03 per share), under the default penalty provisions of the original notes.
Effective May 18, 2021, each of the loan holders was repaid $10,000 principal and accrued interest of $1,100 and $1,650. The two notes were rolled into new loans in the amounts of $10,000 and $20,000, due November 18, 2021 with interest at 11%. In addition, the two individuals were issued an aggregate 300,000 shares of the Company’s common stock valued at $12,000 ($0.04 per share). The loans and related accrued interest were repaid in full in November 2021.
| F-31 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 9 - INCOME TAXES
A reconciliation of the provision for income taxes at the United States federal statutory rate of 21% and a Colorado state rate of 5% compared to the Company’s income tax expense as reported at December 31, 2020 and 2021 is as follows:
| Income tax valuation allowance | ||||||||
| 2020 | 2021 | |||||||
| Net loss before income taxes | $ | (1,565,591 | ) | $ | (2,183,567 | ) | ||
| Adjustments to net loss | ||||||||
| Loss on note payable conversion | 1,006,558 | — | ||||||
| Convertible note expense | 218,318 | 998,373 | ||||||
| Net taxable income (loss) | (340,715 | ) | (1,185,194 | ) | ||||
| Income tax rate | 26 | % | 26 | % | ||||
| Income tax recovery | 88,586 | 308,150 | ||||||
| Valuation allowance change | (88,586 | ) | (308,150 | ) | ||||
| Provision for income taxes | $ | — | $ | — | ||||
The significant components of deferred income tax assets at December 31, 2020 and 2021 are as follows:
| Components of deferred income tax assets | ||||||||
| 2020 | 2021 | |||||||
| Net operating loss carryforward | $ | 1,241,372 | $ | 2,498,066 | ||||
| Valuation allowance | (1,241,372 | ) | (2,498,066 | ) | ||||
| Net deferred income tax asset | $ | — | $ | — | ||||
NOTE 10 – RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it must rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. The advances are considered temporary in nature and have not been formalized by a promissory note.
IHG, controlling shareholder of the Company, provides management consulting services to the Company. There is no formal written agreement that defines the compensation to be paid. For the years ended December 31, 2021 and 2020 the Company paid related party management fees to IHG of $344,642 and $100,530, respectively.
| F-32 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 10 – RELATED PARTY TRANSACTIONS (continued)
During the years ended December 31, 2021 and 2020, there were no advances from related parties. In 2020, the Company repaid $23,070 to its parent company, IHG, for advances previously made. At December 31, 2020, a former officer of the Company was owed $18,780, which amount repaid in 2021.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At December 31, 2021 and 2020, there were no legal proceedings against the Company.
NOTE 12 – SUBSEQUENT EVENTS
(i) On February 14, 2022, the Company entered into a financing agreement with Sixth Street Lending LLC to borrow $55,750. The note matures on February 14, 2023, bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest trading price of the Company’s common stock for the previous fifteen trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 47,871,198 shares for conversion. Net proceeds from the loan were $52,000, after legal fees and offering costs of $3,750.
(ii) In February and March 2022, Adar Alef LLC elected to make a partial conversion of $60,500 principal and $4,861 of accrued and unpaid interest thereon due on their note of April 29, 2021 into an aggregate 13,978,625 shares of the Company’s common stock (7,44,947 shares at $0.0031 per share and 6,533,678 shares at $0.006 per share) under the conversion provision and terms of the note agreement.
(iii) On February 17, 2022, Power Up Lending Group Ltd. elected to make a partial conversion of $25,000 principal due on their note of July 28, 2021 into 3,424,658 shares of the Company’s common stock at a conversion price of $0.0073 per share under the conversion provision and terms of the note agreement.
(iv) In January and February 2022, Power Up elected to convert (in five tranches) the total principal of $103,750 due on their note of July 26, 2021, together with accrued and unpaid interest thereon of $5,188, into an aggregate 12,982,155 shares of the Company’s common stock (at conversion prices of $0.0075 to $0.0088 per share) under the conversion provision and terms of the note agreement.
The Company has analyzed its operations subsequent to December 31, 2021 through the date that these financial statements were issued, and has determined that it does not have any additional material subsequent events to disclose.
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f. SELECTED FINANCIAL INFORMATION
Not applicable.
g. SUPPLEMENTARY FINANCIAL INFORMATION
Not applicable.
h. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking statements.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying unaudited financial statements, as of March 31, 2022, we had an accumulated deficit totaling $(8,666,662). This raises substantial doubts about our ability to continue as a going concern.
Plan of Operation
BlackStar Enterprise Group, Inc. (the “Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007 as NPI08, Inc. (“NPI08”). In January 2010, NPI08 acquired an ownership interest in Black Star Energy Group, Inc., a Colorado Corporation. BlackStar Energy then merged into NPI08, with NPI08 being the surviving entity. Concurrently, NPI08 changed its name to BlackStar Energy Group, Inc. On January 25, 2016, International Hedge Group, Inc. signed an agreement to acquire a 95% interest in the Company. In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares of common stock and 1,000,000 shares of Class A Preferred Stock. The name was changed to BlackStar Enterprise Group, Inc. in August of 2016.
The Company is a Delaware corporation organized for the purpose of engaging in any lawful business. The Company intends to act as a merchant bank as at the date of these financial statements. We currently trade on the OTC QB under the symbol “BEGI”. The Company is a merchant banking firm seeking to facilitate venture capital to early-stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services to companies desiring to issue digital shares and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in digital share related ventures though our wholly-owned subsidiary, Crypto Equity Management Corp., (“CEMC”), mainly in the areas of blockchain and distributed ledger technologies (“DLT”). BlackStar intends to serve businesses in their early corporate lifecycles and may provide funding in the forms of ventures in which we control the venture until divestiture or spin-off by developing the businesses with capital. We have only engaged in one transaction as a merchant bank form to date.
Our investment strategy focuses primarily on ventures with companies that we believe are poised to grow at above-average rates relative to other sectors of the U.S. economy, which we refer to as “emerging growth companies.” Under no circumstances does the company intend to become an investment company and its activities and its financial statement ratios of assets and cash will be carefully monitored and other activities reviewed by the Board to prevent being classified or inadvertently becoming an investment company which would be subject to regulation under the Investment Company Act of 1940.
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As a merchant bank, BlackStar intends to seek to provide access to capital for companies and is specifically seeking out ventures involved in DLT or blockchain. BlackStar intends to facilitate funding and management of DLT-involved companies through majority controlled joint ventures through its subsidiary CEMC. BlackStar, through CEMC, intends to initially control and manage each venture. Potential ventures for both BlackStar and CEMC will be analyzed using the combined business experience of its executives, with CEMC looking to fill those venture criteria with companies in digital share related businesses such as blockchain or DLT technologies. The Company does not intend to develop Investment Objectives or “criteria” in any manner but will rely on the acumen and experience of its executives. BlackStar has built a trading platform in order to trade electronic fungible shares and intends to use the platform design to provide custom subscription services to other public companies.
Recent Updates – The Company is finalizing the marketing plan to promote and roll out the three features of its blockchain platform. The Company plans to offer its Private Funding and Corporate Governance Blockchain to individual private companies. The Company is currently evaluating its options for the next major step in its main feature. BlackStar’s Digital Trading Platform (“BDTP TM”) will need to be paired with an operating Licensee (a broker-dealer, clearing firm, and/or registered Alternative Trading System (“ATS”)) to quote the shares prior to implementation. To that end, the Company is exploring relationships with broker-dealers and existing ATS’s and other strategies to go live with BDTP in accordance with existing laws and regulations. As of the date of this filing, the core platform of BDTP TM is complete and will remain in the testing phase until we obtain an operating Licensee . BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP TM over the next several months. The BDTP TM has been completely designed in terms of the following components: data model, reports, web-based user interface, blockchain interface, transaction logic, cloud interface, and functional demonstration app. The software is complete in demonstrating a proof-of-concept trading ability, while recording activity using an immutable blockchain ledger. Currently, the working model platform is hosted on Amazon’s Quantum Ledger Database. During the year ended December 31, 2021, BlackStar and Artuova successfully completed a production ready and feature-complete user interface for the digital platform which is now in the final stages of quality assurance. BlackStar is actively pursuing relationships with various broker-dealers, clearing firms, and ATS’s to complete the final stages of this multi-year engineering effort. Additionally, during 2021, BlackStar has filed with the U.S. Patent and Trademark Office (“USPTO”) for patent protection of its proprietary software.
The Company’s success will be dependent upon its ability to analyze and manage the opportunities presented and is contingent upon successfully raising funds and, ultimately, the operationality of its digital trading platform.
Currently in the demonstration phase, we estimate $30,000 to be expended over the next three months. This budget will be used to finalize the integration of the digital platform into the broker-dealer ecosystem after the appropriate ATS and broker-dealer relationships are established.
Based on our current cash reserves of approximately $426,916 as of March 31, 2022, we have the cash for an operational budget of approximately twelve months. We intend to offer a private placement of common shares to investors in order to achieve at least $5,000,000 in funding in the next year to scale our business plan. We intend to commence this offering in mid-summer of 2022. If we are unable to generate enough revenue to cover our operational costs, we will need to seek additional sources of funds. Currently, we have no committed source for any funds as of date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
The independent registered public accounting firm’s report on our financial statements as of December 31, 2021, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
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Results of Operations
For the Three Months Ended March 31, 2022 compared to same period in 2021
Net loss for the three months ended March 31, 2022 was $516,902 as compared to $322,309 for the three months ended March 31, 2021, an increase of $194,593. As explained below, most of the losses in those periods was attributable to non-cash transactions from the issuance of convertible debt and other financings.
For the three months ended March 31, 2022, we had significantly higher non-operating (other) expenses, substantially all of which are non-cash, predominately due to amortization of discounts on debt issuance and conversion features of the convertible promissory notes that we have used to finance our continued operations. This resulted in total other expenses of $380,622 for the three months ended March 31, 2022 as compared to $193,021 for the same period in 2021. For the three months ended March 31, 2022, the Company recognized $313,923 for amortization of discount on convertible notes, as compared to $98,582 for the three months ended March 31, 2021. During the three months ended March 31, 2021, we recognized a loss of $41,677on notes payable conversions as compared to none in the three months ended March 31, 2022. This reduction is due to a change in the Company’s accounting treatment for conversion of debt to equity. The increase in amortization of discount on convertible notes is attributable to an increase in debt conversions in 2022 as compared to 2021.
General and administrative expenses in 2022 were $13,468 a decrease of $42,178 from general and administrative expenses of $55,646 in 2021. In 2021, the Company recorded an expense of $35,200 for cash and stock payments for fund raising fees as compared to no costs incurred of this nature in 2022. General and administrative costs, exclusive of fees for fund raising, were for investor relations, filing fees, transfer agent fees and overhead operational costs which were comparable for the 2022 and 2021 quarterly periods.
In 2022, the Company paid management consulting fees to IHG of $86,613 as compared to $51,142 paid in 2021.
Legal and professional fees of $36,199 for the three months ended March 31, 2022 increased by $13,699 from $22,500 for the comparable period ended March 31, 2021. Fees for the 2022 and 2021 periods were predominately for SEC regulatory and statutory filings and audit and related fees for annual audits.
Liquidity and Capital Resources
At March 31, 2022, we had a working capital deficit of $504,840 and cash of $426,916 as compared to a working capital deficit of $283,414 and cash of $518,539, at December 31, 2021. The decrease in cash and increase in working capital deficit was due primarily to the utilization of available cash for operations and an increase in debt funding from December 31, 2021 as compared to March 31, 2022, with all new debt issuances maturing within one year from the date of issuance. The Company used new and existing fundings to maintain operating activities and complete software development and patent filings with the USPTO for its digital trading platform. During the three months ended March 31, 2022, we used $142,778 of cash for operating activities and paid $845 in investing activities for patent costs. In the comparable 2021 period, operating activities utilized cash of $110,537 and investing activities for software development and patent costs utilized cash of $11,000.
Substantially all of our funding has been from convertible debt financings in 2022 and 2021. The debt instruments were with non-related investment firms, carried an interest rate of 10%, matured six months to one year from date of financing and were convertible into shares of the Company’s common stock at a discount to the trading prices of the common shares of 35% to 40%. During three months ended March 31,2022, we issued convertible debt with a face value of $55,750, receiving cash proceeds, net of financing costs, of $52,000. During the three months ended March 31,2021, we issued convertible debt with a face value of $220,000, receiving cash proceeds, net of financing costs, of $217,500. During the three months ended March 31, 2022, convertible note holders were issued 63,311,934 shares of common stock for conversion of $296,321 face value of debt and related accrued interest and fees in 2022. In the comparable 2021 period, note holders were issued 2,894,231 shares of common stock for conversion of $86,827 face value of debt and related accrued interest and fees.
While management of the Company believes that the Company will be successful in its current and planned activities, there can be no assurance that the Company will be successful in obtaining sufficient revenues from our planned
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operations and raise sufficient equity, debt capital or strategic relationships to sustain the operations and future business of the Company.
Our ability to create sufficient working capital to sustain us over the next twelve-month period, and beyond, is dependent on our raising additional equity or debt capital, and ultimately to commence revenues form or digital trading platform.
There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Availability of Additional Capital
Notwithstanding our success in raising net cash proceeds of $52,000 and $217,500 from convertible debt financing in the periods ended March 31,2022 and 2021, respectively, there can be no assurance that we will continue to be successful in raising capital and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. We estimate that we will need to raise $5,000,000 over the next twelve months to scale up our current plan. The Company feels it has sufficient capital to pay 2022 expenses and implement our platform of blockchain features in third quarter of 2022.
Any additional financings may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of Common Stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs.
Going Concern
We have only a very limited amount of cash and have incurred operating losses and limited cash flows from operations since inception. As of March 31, 2022 and December 31, 2021, we had accumulated deficit of $8,666,662 and $8,149,760, respectively and we will require additional working capital to fund operations through 2022 and beyond. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements included in this Form 10-Q do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. The audited financial statements included in the Company’s recent annual report on Form 10-K have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern.
Our registered independent auditors have issued an opinion on our financial statements as of December 31, 2021 which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we our digital trading platform has been approved to begin trading. There is no assurance that any revenue will be realized in the future. Accordingly, we must raise capital from sources other than the actual revenue from issuance of memberships in our digital trading platform.
There can be no assurance that we will have adequate capital resources to fund planned operations or that any additional funds will be available to us when needed or at all, or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.
Off Balance Sheet Arrangements
None.
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Results of Operations
For the Year Ended December 31, 2021 compared to same period in 2020
Net loss for the year ended December 31, 2021 was $2,183,567 as compared to $1,565,591 for the year ended December 31, 2020, an increase of $617,976. As explained below, most of the losses in those years was attributable to non-cash transactions from the issuance of convertible debt and other financings during the years.
In 2021, non-cash expenses associated with convertible debt financings were $1,127,534 as compared to $262,929 in 2020, an increase of $864,605. This increase was due to the increase issuance of convertible debt financing in 2021 and for the costs related amortization of debt issuance costs, debt discounts and interest on convertible notes. In 2020, the Company also recognized a non-cash loss on conversion of notes payable of $1,006,558. In addition, in 2021, the Company issued common stock, in lieu of cash payments, valued at $423,779 for interest and loan fees as compared to common stock issued in 2020 for interest and loan fees valued at $116,208.
General and administrative expenses in 2021 were $460,781 an increase of $401,161 from general and administrative expenses of $59,620 in 2020. In 2021, the Company incurred $411,779 in cash and stock payments for fund raising fees as compared to no costs incurred of this nature in 2020. General and administrative costs in 2021, exclusive of fees for fund raising, were $49,002 for investor relations, filing fees, transfer agent fees and overhead operational costs. Similar operational and overhead costs incurred in 2020 were $59,620.
In 2021 the Company paid management consulting fees to IHG of $344,642 as compared to $100,530 paid in 2020.
Legal and professional fees of $102,040 for the year ended December 31, 2021 increased by $31,008 from $71,032 for the year ended December 31, 2020. Fees for both 2021 and 2020 were predominately for SEC regulatory and statutory filings, fees for annual audit and quarterly reviews.
Liquidity and Capital Resources
At December 31, 2021, we had a working capital deficit of $283,054 and cash of $518,539, as compared to a working capital deficit of $44,851 and cash of $32,987 at December 31, 2020. The increase in both cash and working capital deficit was due primarily to the increase in debt funding during 2021 as compared to 2020, with all new debt issuances maturing within one year of date of issuance. The Company used new and existing fundings to maintain operating activities and complete software development and patent filings with the USPTO for its digital trading platform. During 2021, we used $559,168 of cash for operating activities; and paid $98,438 in investing activities for software development costs of $58,000 and incurred legal fees for patent costs of $71,800, of which $31,442 is included in accounts payable at December 31, 2021. In 2020, operating activities utilized cash of $257,194 and investing activities for software development was $10,000.
Substantially all of our funding has been from convertible debt financings in 2021 and 2020. The debt instruments were with non-related investment firms, carried an interest rate of 10%, matured six months to one year from date of financing and were convertible into shares of the Company’s common stock at a discount to the trading prices of the common shares of 35% to 40%. During 2021, we issued convertible debt with a face value of $1,137,750, receiving cash proceeds of $1,171,500. During 2020, we issued convertible debt with a face value of $287,275, receiving cash proceeds of $260,000. Note holders were issued 18,079,985 shares of common stock for conversion of $298,000 face value of debt and related accrued interest and fees in 2021. In 2020, note holders were issued 50,411,141 shares of common stock for conversion of $349,856 face value of debt and related accrued interest and fees. We had a net increase in liquidity from financings of $1,102,720 in 2021, and $256,930 in 2020.
While management of the Company believes that the Company will be successful in its current and planned activities, there can be no assurance that the Company will be successful in obtaining sufficient revenues from our planned operations and raise sufficient equity, debt capital or strategic relationships to sustain the operations and future business of the Company.
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Our ability to create sufficient working capital to sustain us over the next twelve-month period, and beyond, is dependent on our raising additional equity or debt capital, and ultimately to commence revenues form or digital trading platform.
There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Availability of Additional Capital
Notwithstanding our success in raising net cash proceeds of $1,171,500 and $260,000 from convertible debt financing in 2021 and 2020, respectively, there can be no assurance that we will continue to be successful in raising capital and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. We estimate that we will need to raise $5,000,000 over the next twelve months to scale up our current plan. The Company feels it has sufficient capital to pay 2022 expenses and implement our platform of blockchain features in third quarter of 2022.
Any additional financings may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of Common Stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs.
Going Concern Consideration
Our registered independent auditors have issued an opinion on our financial statements as of December 31, 2021 which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we our digital trading platform is operational. Accordingly, we must raise capital from sources other than the actual revenue from issuance of memberships in our digital trading platform.
Off-Balance Sheet Arrangements
At December 31, 2021 and 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Contractual Obligations and Commitments
We have no material commitments for capital expenditures within the next year, however, as operations are expanded substantial capital will be needed to pay for expansion and working capital.
We have made equity and debt offerings in order to support our growth plans, to date, and may do so in the future.
There are no commitments to provide additional funds by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow coverage of our expenses as they may be incurred. The principals of the Company have extensive investment banking backgrounds and have used their resources since the 2016 inception of their management of Blackstar.
Critical Accounting Policies
Our significant accounting policies are described in the notes to our financial statements as of December 31, 2021 and 2020 and are included elsewhere in this report.
i. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
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j. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.
k. DIRECTORS and EXECUTIVE OFFICERS
The following table sets forth information as to persons who currently serve as our directors or executive officers, including their ages as of May 31, 2022.
| Name | Age | Position | ||
| John Noble Harris | 74 | Chief Executive Officer and Director | ||
| Joseph E. Kurczodyna | 68 | Chief Financial Officer and Director |
Our officers are elected by the board of directors at the first meeting after each annual meeting of our stockholders and hold office until their successors are duly elected and qualified under our bylaws.
The directors named above will serve until the next annual meeting of our stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders’ meeting. Officers will hold their positions at the pleasure of the board of directors absent any employment agreement. There is no arrangement or understanding between our directors and officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer.
BIOGRAPHICAL INFORMATION
John Noble Harris, Chief Executive Officer and Director
Mr. Harris began his career in the securities industry in 1971 with Newhart Cook & Co., a St. Louis based NYSE member firm. Licensed both as a broker and principal, he ultimately managed brokerage offices for several regional NASD brokerage firms. Since 1985, he has been self- employed as a business consultant and as a private investor. Mr. Harris brings to the Company experience in the public securities market. Mr. Harris served as the president of Tombstone Technologies from 2005-2010 and eventually merged the public company with Hunt Global Resources. In 2011, Mr. Harris became president of Rare Green, Inc., a private mineral exploration company. In 2014, Mr. Harris was one of the founders of International Hedge Group, Inc. (“IHG”). In 2016, IHG acquired 44,400,000 shares of common stock and 1,000,000 Class A Preferred shares in BlackStar Enterprise Group, Inc. As of December 31, 2020, IHG owned 4,792,702 shares of common stock and 1,000,000 Class A Preferred shares in BlackStar Enterprise Group Inc.
Joseph E. Kurczodyna, Chief Financial Officer and Director
Working with various Commodity and Stock brokerage firms in Chicago and Denver Mr. Kurczodyna began his career in 1977 trading Bonds and T-Bill futures. In the 1980’s, he focused on underwriting early-stage companies. As a principle with Mills Financial, a registered Broker Dealer with the SEC and NASD, he underwrote and syndicated the Western International Gold & Silver (WIGS) in 1984. In 1991, Mr. Kurczodyna purchased Mills Financial and was the firm’s President and General Principle. While leading Mills Financial, he underwrote and funded several private placements and IPO’s. In 1998, Mills was the lead underwriter for United Financial Mortgage Corp. (UFMC), which was eventually listed on the American Stock Exchange. From 2004 to 2009, Mr. Kurczodyna was the CEO of Capital Merchant Bank LLC, an independent investment banker. From 2006-2008 he acted as the CFO and Director of OnMedia International. In 2009, Mr. Kurczodyna founded Patriot Mortgage Acceptance Corp. a private mortgage company. In 2014, Mr. Kurczodyna was one of the founders of International Hedge Group Inc. (IHG). In 2016, IHG acquired 44,400,000 shares of common stock and 1,000,000 Class A Preferred shares in BlackStar Enterprise Group Inc. As of December 31, 2020, IHG owned 4,792,702 shares of common stock and 1,000,000 Class A Preferred shares in BlackStar Enterprise Group Inc., and Mr. Kurczodyna became the controlling shareholder of IHG by issuance of super majority voting preferred shares.
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CONFLICTS OF INTEREST – GENERAL
There can be no assurance that management will resolve all conflicts of interest in favor of the Company.
Our directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other entities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates it will devote approximately 30-40 hours per week to the Company’s affairs.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our Company to disclose business opportunities which come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to our company to disclose to it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. We have no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person.
Our Board of Directors has adopted a policy that the Company will not seek a fund of, any entity in which any officer or director serves as an officer or director or in which they or their family members own or hold a controlling ownership interest. Although the Board of Directors could elect to change this policy, the Board of Directors has no present intention to do so.
The members of the Board and management are also the Board and Management of our parent, International Hedge Group, Inc. (“IHG”) and have ownership and compensation through IHG. IHG may be engaged by client borrowers of our Company to provide consulting services, and such poses a risk of financial conflict to our Company.
We expect that the selection of a business opportunity will be complex. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, we believe that there are numerous firms seeking the benefits of an issuer who has complied with the 1934 Act. Such benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all stockholders and other factors. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. We have, and will continue to have, essentially no assets to provide the owners of business opportunities. However, we will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an issuer who has complied with the 1934 Act without incurring the cost and time required to conduct an initial public offering.
COMMITTEES OF THE BOARD OF DIRECTORS
We are managed under the direction of its board of directors.
EXECUTIVE COMMITTEE
We do not have an executive committee, at this time.
AUDIT COMMITTEE
We have formed a non-independent audit committee in October 2016 to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the compliance by the Company with legal and regulatory requirements and (3) the independence and performance of the Company’s internal and external auditors. Joe Kurczodyna, as Chairman, and John Harris act as the initial members of the Audit Committee.
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The functions of the audit committee are to review the scope of the audit procedures employed by our independent auditors, to review with the independent auditors our accounting practices and policies and recommend to whom reports should be submitted, to review with the independent auditors their final audit reports, to review with our internal and independent auditors our overall accounting and financial controls, to be available to the independent auditors during the year for consultation, to approve the audit fee charged by the independent auditors, to report to the board of directors with respect to such matters and to recommend the selection of the independent auditors.
In the absence of a separate audit committee, our board of directors functions as audit committee and performs some of the same functions of an audit committee, such as recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management’s administration of the system of internal accounting control.
ANNUAL MEETING
The annual meeting of stockholders is anticipated to be held in the Fall of 2022 and will include the election of directors. The annual meeting will be held at our principal office or at such other place as permitted by the laws of the State of Delaware and on such date as may be fixed from time to time by resolution of our board of directors.
The 2019 Annual Meeting was held on March 10, 2020. Please see the Definitive Proxy Statement on Schedule 14A and the subsequent results on Form 8-K. Importantly, the shareholders voted in favor of an increase in the authorized shares of the Company from 200,000,000 to 700,000,000 and an amendment to the Certificate of Incorporation was filed with the State of Delaware. A copy of the stamped amendment is attached to the Form 8-K as Exhibit 3(i).1.
PREVIOUS “BLANK CHECK” OR “SHELL” COMPANY INVOLVEMENT
No members of our management have been involved in previous “blank-check” or “shell” companies.
Involvement in Legal Proceedings
No executive Officer or Director of our Company has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding that is currently pending.
No executive Officer or Director of our Company is the subject of any pending legal proceedings.
No Executive Officer or Director of our Company is involved in any bankruptcy petition by or against any business in which they are a general partner or executive officer at this time or within two years of any involvement as a general partner, executive officer, or Director of any business.
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l. EXECUTIVE AND DIRECTOR’S COMPENSATION
COMPENSATION
Summary of Executives and Director Compensation Table
The following table sets forth the compensation paid to our officers for the years ended December 31, 2021, 2020, 2019, and 2018.
SUMMARY EXECUTIVES COMPENSATION TABLE
In Dollars
| Name & Position | Year | Contract Payments ($) (See Footnotes) |
Bonus ($) |
Stock awards ($) |
Option awards ($) |
Non-equity incentive plan compensa-tion ($) |
Non-qualified deferred compensation earnings ($) |
All other compensation ($) |
Total ($) | |||||||||||||||||||||||||||
| John Noble Harris, CEO | 2021 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 344,642 | (4) | $ | 344,642 | (4) | |||||||||||||||||||||||
| 2020 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 100,530 | (3) | $ | 100,530 | (3) | ||||||||||||||||||||||||
| 2019 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 104,720 | (2) | $ | 104,720 | (2) | ||||||||||||||||||||||||
| 2018 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 104,331 | (1) | $ | 104,331 | (1) | ||||||||||||||||||||||||
| Joseph E. Kurczodyna, CFO | 2021 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 344,642 | (4) | $ | 344,642 | (4) | |||||||||||||||||||||||
| 2020 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 100,530 | (3) | $ | 100,530 | (3) | ||||||||||||||||||||||||
| 2019 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 104,720 | (2) | $ | 104,720 | (2) | ||||||||||||||||||||||||
| 2018 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 104,331 | (1) | $ | 104,331 | (1) | ||||||||||||||||||||||||
| All Current Executive Officers | 2021 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 344,642 | (4) | $ | 344,642 | (4) | |||||||||||||||||||||||
_____________________
| (1) | Management collectively, through IHG, was paid consulting fees of $104,331 for the year ended December 31, 2018. |
| (2) | Management collectively, through IHG, was paid consulting fees of $104,720 for the year ended December 31, 2019. |
| (3) | Management collectively, through IHG, was paid consulting fees of $100,530 for the year ended December 31, 2020. |
| (4) | Management collectively, through IHG, was paid consulting fees of $344,642 for the year ended December 31, 2021. |
Management fees as of March 31, 2022
IHG, controlling shareholder of the Company, provides management consulting services to the Company. There is no formal written agreement that defines the compensation to be paid. For the year ended December 31, 2021, the Company recorded related party management fees of $344,642. Management fees for the three months ended March 31, 2022 were $86,613.
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Employment Contracts and Termination of Employment and Change-in-Control Arrangements
There are no employment contracts, compensatory plans or arrangements, including payments to be received from us, with respect to any of our directors or executive officers which would in any way result in payments to any such person because of his or her resignation, retirement or other termination of employment with us. These agreements do not provide for payments to be made as a result of any change in control of us, or a change in the person’s responsibilities following such a change in control. Our Company entered into a Management Consulting Agreement with our parent company, IHG, on December 1, 2017. The agreement is attached as Exhibit 10.1 to the Amend. No. 1 to the Form 10-K for the year ended December 31, 2017. The term of the agreement is until terminated with 30 days prior notice. We agreed to pay IHG $25,000 for services occurring in 2017, payable as cash, stock, or both upon mutual agreement. We will limit expenses of IHG pursuant to the allocations made in the budget, and all reasonable pre-approved out-of-pocket expenses actually incurred by IHG on behalf of the Company will be reimbursed. IHG agreed to assist the Company in all filing necessary to be a fully reporting public company, assist the Company in public relations, evaluate candidates for the portfolio of companies in merchant banking, establish new contacts for the Company and develop proposals and deals to capture revenues, and assist the Company in their capital funding strategy. IHG have continued to consult for the Company and for their services, they have been paid $344,642 and $100,530 for the years ended December 31, 2021 and 2020, respectively.
Compensation Committee Interlocks and Insider Participation
Our board of directors in our entirety acts as the compensation committee for BlackStar Enterprise Group, Inc.
DIRECTOR COMPENSATION
The following table sets forth certain information concerning compensation paid to our directors for services as directors, but not including compensation for services as officers reported in the “Summary Executives’ Compensation Table” during the years ended December 31, 2021, 2020, 2019 and 2018:
| Name | Year |
Fees earned or paid in cash ($) |
Stock awards ($) |
Option awards ($) | Non-equity incentive plan compensation ($) |
Non-qualified deferred compensation earnings ($) |
All other compensation ($) |
Total ($) | ||||||||||||||||||||||||
| John Noble Harris, | 2021 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
| Director | 2020 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
| 2019 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||||
| 2018 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||||
| Joseph E. Kurczodyna, | 2021 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
| Director | 2020 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
| 2019 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||||
| 2018 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||||
| All Current Directors | 2021 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||
The term of office for each Director is one (1) year, or until his/her successor is elected at our annual meeting and qualified. The term of office for each of our Officers is at the pleasure of the Board of Directors.
The Board of Directors has no nominating, auditing committee or a compensation committee. Therefore, the selection of person or election to the Board of Directors was neither independently made nor negotiated at arm’s length.
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At this time, our Directors do not receive cash compensation for serving as members of our Board of Directors.
Limitation on Liability and Indemnification
We are a Delaware corporation. The Delaware General Corporation Laws (DGCL) provides that the articles of incorporation of a Delaware corporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or our stockholders for monetary damages for breach of fiduciary duty as a director, except that any such provision may not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or our stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) acts specified in Section 78 (concerning unlawful distributions), or (iv) any transaction from which a director directly or indirectly derived an improper personal benefit. Our articles of incorporation contain a provision eliminating the personal liability of directors to our company’ or our stockholders for monetary damages to the fullest extent provided by the DGCL.
The DGCL provides that a Delaware corporation must indemnify a person who was wholly successful, on the merits or otherwise, in defense of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal (a “Proceeding”), in which he or she was a party because the person is or was a director, against reasonable expenses incurred by him or her in connection with the Proceeding, unless such indemnity is limited by the corporation’s articles of incorporation. Our articles of incorporation do not contain any such limitation.
The DGCL provides that a Delaware corporation may indemnify a person made a party to a Proceeding because the person is or was a director against any obligation incurred with respect to a Proceeding to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan) or reasonable expenses incurred in the Proceeding if the person conducted himself or herself in good faith and the person reasonably believed, in the case of conduct in an official capacity with the corporation, that the person’s conduct was in the corporation’s best interests and, in all other cases, his or her conduct was at least not opposed to the corporation’s best interests and, with respect to any criminal proceedings, the person had no reasonable cause to believe that his or her conduct was unlawful. Our articles of incorporation and bylaws allow for such indemnification. A corporation may not indemnify a director in connection with any Proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or, in connection with any other Proceeding charging that the director derived an improper personal benefit, whether or not involving actions in an official capacity, in which Proceeding the director was judged liable on the basis that he or she derived an improper personal benefit. Any indemnification permitted in connection with a Proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with such Proceeding.
The DGCL, unless otherwise provided in the articles of incorporation, a Delaware corporation may indemnify an officer, employee, fiduciary, or agent of the corporation to the same extent as a director and may indemnify such a person who is not a director to a greater extent, if not inconsistent with public policy and if provided for by our bylaws, general or specific action of our board of directors or stockholders, or contract. Our articles of incorporation provide for indemnification of our directors, officers, employees, fiduciaries and agents to the full extent permitted by Delaware law.
Our articles of incorporation also provide that we may purchase and maintain insurance on behalf of any person who is or was a director or officer of our company or who is or was serving at our request as a director, officer or agent of another enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not we would have the power to indemnify him or her against such liability.
EQUITY COMPENSATION PLAN INFORMATION
Key Employees Stock Compensation Plan
Effective December 1, 2016, our Stock Option and Award Plan (the “Stock Incentive Plan”) was approved by our Board of Directors. Under the Stock Incentive Plan, the Board of Directors may grant options or purchase rights to purchase common stock to officers, employees, and other persons who provide services to us or any related company.
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The participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase or exercise price, conditions and other terms of each award are determined by the Board of Directors, except that the term of the options shall not exceed 10 years. A total of 10 million shares of our common stock are subject to the Stock Incentive Plan and maybe either a qualified or non-qualified stock option. The shares issued for the Stock Incentive Plan may be either treasury or authorized and unissued shares. As of May 31, 2022, we have granted no stock options to purchase any shares of our common stock under the Plan.
m. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF MAY 2, 2022
The following table sets forth information with respect to the beneficial ownership of our outstanding common stock by:
| · | each person who is known by us to be the beneficial owner of five percent (5%) or more of our common stock; |
| · | our executive officers, and each director as identified in the “Management — Executive Compensation” section; and |
| · | all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this document into shares of our common stock are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of our common stock that we believe was beneficially owned by each person or entity as of May 2, 2022.
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OFFICERS AND DIRECTORS
| Title of Class | Name of Beneficial Owner (1) | Amount and Nature of Beneficial Owner | Percent of Class Outstanding (2)(4)(5) | Number of Shares & Warrants if fully exercised | Percent of Class including Warrants | |||||||||||||
| Common Stock | John Noble Harris, Chief Executive Officer and Director (3)(4) |
9,119,369 | 4.34 | % | 9,119,369 | 4.34 | % | |||||||||||
| Class A Preferred Convertible Stock | John Noble Harris Chief Executive Officer and Director (3)(4) |
1,000,000 | 100 | % | N/A | N/A | ||||||||||||
| Common Stock | Joseph E. Kurczodyna, Chief Financial Officer and Director (3)(4) |
9,119,369 | 4.34 | % | 9,119,369 | 4.34 | % | |||||||||||
| Class A Preferred Convertible Stock | Joseph E. Kurczodyna, Chief Financial Officer and Director (3)(4) |
1,000,000 | 100 | % | N/A | N/A | ||||||||||||
| Common shares | All Directors and Executive Officers as a Group (2 persons) Common Shares | 9,119,369 | 4.34 | % | 9,119,369 | 4.34 | % | |||||||||||
| All Directors and Executive Officers as a Group (2 persons) Preferred Shares | 1,000,000 | 100 | % | N/A | N/A | |||||||||||||
| (1) | The address of each person listed above, unless otherwise indicated, is c/o BlackStar Enterprise Group, Inc., 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303. |
| (2) | Based upon 210,358,602 common shares issued and outstanding on a fully diluted basis. (Does not include conversion rights of Class A Preferred Super Majority Voting Convertible Stock held by International Hedge Group, Inc., or any shares reserved under convertible notes). |
| (3) | Mr. Harris, Mr. Lahr and Mr. Kurczodyna are persons owning and/or controlling International Hedge Group, Inc. and deemed beneficial owners. |
| (4) | International Hedge Group, Inc. (“IHG”), Mr. Harris, Mr. Lahr and Mr. Kurczodyna are shown collectively as each own significant IHG common shares. IHG also controls voting of the BlackStar Class A Super Majority Voting Preferred stock which votes 60% of the common at all times. Mr. Kurczodyna additionally has effective control of IHG through IHG Class A Super Majority Voting Preferred shares. |
| (5) | Including other affiliate companies of Mr. Harris and Mr. Kurczodyna. Mr. Harris owns 2,884,445 shares personally and 1,442,222 through an affiliated company, for a total of 4,326,667 (2.06%), not including ownership in IHG. Mr. Kurczodyna owns 2,884,445 shares personally and 1,442,222 through an affiliated company, for a total of 4,326,667 (2.06%), not including ownership in IHG. Mr. Kurczodyna additionally has effective control of IHG through IHG Class A Super Majority Voting Preferred shares. |
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GREATER THAN 5% STOCKHOLDERS
| Title of Class | Name of Beneficial Owner (1) | Amount and Nature of Beneficial Owner | Percent of Class Outstanding (2)(4)(5) | Number of Shares & Warrants if fully exercised | Percent of Class including Warrants | |||||||||||||
| Common Stock | International Hedge Group, Inc. (4) | 4,792,702 | 2.28 | % | 4,792,702 | 2.28 | % | |||||||||||
| Class A Preferred Convertible Stock | International Hedge Group, Inc. (4) | 1,000,000 | 100 | % | N/A | N/A | ||||||||||||
| Common Stock | John Noble Harris, Chief Executive Officer and Director (3)(4) |
9,119,369 | 4.34 | % | 9,119,369 | 4.34 | % | |||||||||||
| Class A Preferred Convertible Stock | John Noble Harris, Chief Executive Officer and Director (3)(4) |
1,000,000 | 100 | % | N/A | N/A | ||||||||||||
| Common Stock | Todd H. Lahr, Former President and Former Director (3)(4)(6) |
15,848,258 | 7.53 | % | 15,848,258 | 7.53 | % | |||||||||||
| Class A Preferred Convertible Stock | Todd H. Lahr, Former President and Former Director (3)(4)(6) |
1,000,000 | 100 | % | N/A | N/A | ||||||||||||
| Common Stock | Joseph E. Kurczodyna, Chief Financial Officer and Director (3)(4) |
9,119,369 | 4.34 | % | 9,119,369 | 4.34 | % | |||||||||||
| Class A Preferred Convertible Stock | Joseph E. Kurczodyna, Chief Financial Officer and Director (3)(4) |
1,000,000 | 100 | % | N/A | N/A | ||||||||||||
| Total | 24,501,592 | 11.65 | % | 24,501,592 | 11.65 | % | ||||||||||||
|
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(1) | The address of each person listed above, unless otherwise indicated, is c/o BlackStar Enterprise Group, Inc., 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303. |
| (2) | Based upon 210,358,602 shares issued and outstanding on a fully diluted basis. (Does not include conversion rights of Class A Preferred Super Majority Voting Convertible Stock held by International Hedge Group, Inc., or any shares reserved under convertible notes). |
| (3) | Mr. Harris, Mr. Lahr and Mr. Kurczodyna are persons owning and controlling International Hedge Group, Inc. and deemed beneficial owners. |
| (4) | International Hedge Group, Inc. (“IHG”), Mr. Harris, Mr. Lahr and Mr. Kurczodyna are shown collectively as they jointly own IHG. IHG also controls voting of the BlackStar Class A Super Majority Voting Preferred stock which votes 60% of the common at all times. Mr. Kurczodyna additionally has effective control of IHG through IHG Class A Super Majority Voting Preferred shares. |
| (5) | Including other affiliate companies of Mr. Harris and Mr. Kurczodyna. Mr. Harris owns 2,884,445 shares personally and 1,442,222 through an affiliated company, for a total of 4,326,667 (2.06%), not including ownership in IHG. Mr. Kurczodyna owns 2,884,445 shares personally and 1,442,222 through an affiliated company, for a total of 4,326,667 (2.06%), not including ownership in IHG. Mr. Kurczodyna additionally has effective control of IHG through IHG Class A Super Majority Voting Preferred shares. |
| (6) | Resigned as an Officer and Director of BlackStar Enterprise Group, Inc. on February 8, 2017 and as an Officer and Director of International Hedge Group, Inc. on February 9, 2017. |
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Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination of beneficial ownership of securities. That rule provides that a beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security. Rule 13d-3 also provides that a beneficial owner of a security includes any person who has the right to acquire beneficial ownership of such security within sixty days, including through the exercise of any option, warrant or conversion of a security. Any securities not outstanding which are subject to such options, warrants or conversion privileges are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person. Those securities are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. Included in this table are only those derivative securities with exercise prices that we believe have a reasonable likelihood of being “in the money” within the next sixty days. Please note that all convertible notes outstanding contain provisions prohibiting the holders from converting if their ownership would become greater than 4.99%.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
We adopted a Stock Option and Award Plan on December 1, 2016. We have authorized 10,000,000 shares of common stock to be available for the Plan. We have granted no options exercisable for shares of our common stock under the Plan.
n. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, PROMOTERS AND CONTROL PERSONS
Other than the transactions discussed below, we have not entered into any transaction in past two years, nor are there any proposed transactions in which any of the founders, directors, executive officers, shareholders or any members of the immediate family of any of the foregoing had or is to have a direct or indirect material interest.
On December 18, 2020, our parent company, IHG, filed an amendment to their articles of incorporation designating 1,000,000 of their 20,000,000 authorized preferred shares to be designated Class A Preferred Stock and setting forth the Convertible Super Majority Voting Privileges. The IHG Board of Directors authorized a vote by the disinterested shareholders, and a majority of shareholders voted in favor of issuing the 1,000,000 IHG Class A Preferred shares to Mr. Kurczodyna as compensation for services provided to IHG. The holders of the IHG Class A shall have that number of votes equal to that number of IHG common shares which is not less than 60% of the vote required to approve any action, and the holders of IHG Class A Preferred may choose to convert the IHG Class A Preferred Stock into shares of IHG common stock at the rate of one (1) IHG Class A Preferred for two-hundred ten (210) IHG common shares. This is a significant increase to the control of IHG by Mr. Kurczodyna, which effectively means that Mr. Kurczodyna has control of BlackStar since IHG owns the BlackStar Class A Super Majority Voting Preferred. Mr. Kurczodyna previously shared control of IHG with Mr. Harris and Mr. Lahr.
CONFLICTS OF INTEREST – GENERAL
There can be no assurance that management will resolve all conflicts of interest in favor of the Company.
Our directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other entities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates it will devote between 20 and 40 hours per week to the Company’s affairs.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our Company to disclose business opportunities which come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to our company to disclose to it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company.
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We have no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person.
Our Board of Directors has adopted a policy that the Company will not seek a fund of, any entity in which any officer or director serves as an officer or director or in which they or their family members own or hold a controlling ownership interest. Although the Board of Directors could elect to change this policy, the Board of Directors has no present intention to do so.
The members of the Board and management are also the Board and Management of our parent, International Hedge Group, Inc. (“IHG”) and have ownership and compensation through IHG. IHG will often be engaged by client borrowers of our Company to provide, consulting services, and such poses a risk of financial conflict to our Company.
Related Party Employment Agreements and Family Relationships of Directors
No family relationships of Directors exist and no related party employment agreements exist as of May 31, 2022.
Capital Contributions by Officer, Director, Principal Shareholder
The Company was initially financed by its current and former officers and directors, and its parent company, IHG. The Company issued restricted common shares during 2016, 2017 and 2018 to its founders and IHG, and has subsequently retired shares of its parent, IHG, to treasury as anti-dilutive measures. Additionally, Messrs. Harris and Kurczodyna have assigned shares converted from warrants. IHG controls the Company through the BlackStar Class A Super Majority Preferred Stock. As of December 2020, Mr. Kurczodyna additionally controls IHG through IHG Super Majority Preferred Stock. Further details are included in the discussion of “Description of Securities” above.
Director Independence
Our board of directors undertook our annual review of the independence of the directors and considered whether any director had a material relationship with us or our management that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, the board of directors affirmatively determined that none of our directors are “independent” as such term is used under the rules and regulations of the Securities and Exchange Commission.
There are no material changes in the Company’s affairs which have occurred since the end of the latest fiscal year or which audited financial statements were included in the latest Form 10-K and that have not been described in a Form 10-Q or Form 8-K filed under the Exchange Act.
ITEM 12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934 and file reports and other information with the SEC. You can read our SEC filings, including the registration statement, over the internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Additionally, you can obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of its Public Reference Room.
EXPERTS
The financial statements as of December 31, 2021 and 2020 and for each of the years in the two-year period ended December 31, 2021 have been so included in reliance on the report of BF Borgers CPA PC, which includes an
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explanatory paragraph as to the company’s ability to continue as a going concern, of BF Borgers CPA PC, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of BF Borgers CPA PC as experts in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to “incorporate by reference” into this prospectus information we have filed with it. The information incorporated by reference is an important part of this prospectus and is considered to be part of this prospectus. We incorporate by reference the documents listed as exhibits to the document in Item 16.
ITEM 12A. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Delaware General Corporation Law requires us to indemnify officers and directors for any expenses incurred by any officer or director in connection with any actions or proceedings, whether civil, criminal, administrative, or investigative, brought against such officer or director because of his or her status as an officer or director, to the extent that the director or officer has been successful on the merits or otherwise in defense of the action or proceeding. The Delaware General Corporation Law permits a corporation to indemnify an officer or director, even in the absence of an agreement to do so, for expenses incurred in connection with any action or proceeding if such officer or director acted in good faith and in a manner in which he or she reasonably believed to be in or not opposed to the best interests of us and such indemnification is authorized by the stockholders, by a quorum of disinterested directors, by independent legal counsel in a written opinion authorized by a majority vote of a quorum of directors consisting of disinterested directors, or by independent legal counsel in a written opinion if a quorum of disinterested directors cannot be obtained.
The Delaware General Corporation Law prohibits indemnification of a director or officer if a final adjudication establishes that the officer’s or director’s acts or omissions involved intentional misconduct, fraud, or a knowing violation of the law and were material to the cause of action. Despite the foregoing limitations on indemnification, the Delaware General Corporation Law may permit an officer or director to apply to the court for approval of indemnification even if the officer or director is adjudged to have committed intentional misconduct, fraud, or a knowing violation of the law.
The Delaware General Corporation Law also provides that indemnification of directors is not permitted for the unlawful payment of distributions, except for those directors registering their dissent to the payment of the distribution.
According to our bylaws, we are authorized to indemnify our directors to the fullest extent authorized under Delaware Law subject to certain specified limitations.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and persons controlling us pursuant to the foregoing provisions or otherwise, we are advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
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[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
Dealer Prospectus Delivery Requirements
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We have expended, or will expend fees in relation to this registration statement as detailed below:
| Expenditure Item | Amount | |||
| Attorney Fees | $ | 25,000 | ||
| Audit Fees | $ | 10,000 | ||
| Transfer Agent Fees | $ | 2,000 | ||
| SEC Registration and Blue Sky Registration fees (estimated) | $ | 5,000 | ||
| Printing Costs and Miscellaneous Expenses (estimated) | $ | 5,000 | ||
| Total | $ | 47,000 | ||
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We intend to maintain general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons who control us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements, and the insurance are necessary to attract and retain talented and experienced directors and officers. At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have sold securities in the past two fiscal years without registering the securities under the Securities Act of 1933 as shown in the following summaries, including transactions occurring to the date of this filing:
On February 14, 2022, BlackStar Enterprise Group, Inc. and Sixth Street Lending LLC entered into a convertible promissory note totaling $55,750 and a securities purchase agreement. The Company has initially reserved out of its authorized Common Stock one share of Common Stock for conversion, although 47,871,198 may be reserved pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on March 2, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
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2021
On January 15, 2021, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $43,500 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 20,871,651 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on January 26, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On January 28, 2021, BlackStar Enterprise Group, Inc. and SE Holdings, LLC entered into a convertible promissory note totaling $220,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 44,000,000 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on February 4, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On March 31, 2021, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $103,500 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 20,535,714 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on April 8, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On April 29, 2021, BlackStar Enterprise Group, Inc. and Adar Alef, LLC entered into a convertible promissory note totaling $550,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 86,105,000 shares of Common Stock for conversion pursuant to the note. Details of the promissory note, securities purchase agreement, and transfer agent letter can be found in the Form 10-Q and exhibits filed May 17, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On May 6, 2021, the Company issued 396,040 shares of restricted common stock to Carter, Terry & Company pursuant to an engagement agreement for capital raising services dated October 17, 2019. The issuance was made in reliance upon Section 4(a)(2) of the Act and under an exemption of Rule 506(b) of Regulation D, or any other such exemptions as the transaction may qualify. Carter, Terry & Company is well known to us and our management, through pre-existing business relationships, as our current financial advisor and placement agent. Carter, Terry & Company was provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to our management in connection with this issuance. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.
On June 23, 2021, the outstanding loans to the two individuals first entering into loans with the Company on April 24 and 29, 2019, respectively, were paid off and the Company entered into two new loans in the amounts of $10,000 $20,000, dated May 18, 2021 and due November 18, 2021 with interest at 11%. Each of the two loan holders was paid $10,000 principal (an aggregate $20,000) and aggregate accrued interest of $2,750. In addition, the two individuals were issued an aggregate 300,000 shares of the Company’s common. The Company and the holders of the notes above executed agreements in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
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On June 24, 2021, BlackStar Enterprise Group, Inc. issued 500,000 shares to Matthew Baldwin for services rendered and the issuance was made by us in reliance upon Section 4(a)(2) of the Act and under an exemption of Rule 506(b) of Regulation D, or any other such exemptions as the transaction may qualify. Mr. Baldwin is well known to us and our management, through pre-existing business relationships, as our long-standing contractor for software development. Mr. Baldwin was provided access to all material information, which he requested, and all information necessary to verify such information and were afforded access to our management in connection with his issuance. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.
On September 1, 2021, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $53,750 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 17,348,036 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on September 30, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On October 1, 2021, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $78,750 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 23,954,227 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on October 26, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On October 11, 2021, BlackStar Enterprise Group, Inc. and GS Capital Partners, LLC entered into a convertible promissory note totaling $60,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 13,245,000 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on October 26, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On November 29, 2021, BlackStar Enterprise Group, Inc. and Sixth Street Lending LLC entered into a convertible promissory note totaling $45,750 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 21,436,938 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on December 8, 2021. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
2020
On May 22, 2020, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $103,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 63,319,672 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on June 2, 2020. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On July 24, 2020, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $43,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 46,478,112 shares of Common Stock for conversion pursuant to the note. Details of the
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promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on August 4, 2020. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On September 24, 2020, BlackStar Enterprise Group, Inc. and Power Up Lending Group Ltd. entered into a convertible promissory note totaling $53,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 25,429,828 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on October 14, 2020. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On November 20, 2020, BlackStar Enterprise Group, Inc. and Quick Capital, LLC. entered into a convertible promissory note totaling $33,275 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 12,000,000 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on November 27, 2020. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
On December 4, 2020, BlackStar Enterprise Group, Inc. and GS Capital Partners, LLC. entered into a convertible promissory note totaling $55,000 and a securities purchase agreement. The Company initially reserved out of its authorized Common Stock 28,000,000 shares of Common Stock for conversion pursuant to the note. Details of the promissory note and securities purchase agreement can be found in the Form 8-K and exhibits filed on December 8, 2020. The Company and the holder executed the securities purchase agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. On June 4, 2021, GS Capital Partners, LLC converted $17,500 of principal and $983 of interest and fees into 990,360 shares of common stock. On June 14, 2021, GS Capital Partners, LLC converted $22,500 of principal and $1,294 of interest and fees into 1,645,189 shares of common stock. On July 6, 2021, GS Capital Partners, LLC converted the remaining $15,000 of principal and $990 of interest and fees into 976,454 shares of common stock. At the time of filing, the note was paid in full.
Exemption from Registration Claimed
Sales and issuances by us of the unregistered securities listed above were made by us in reliance upon Rule 506 of Regulation D to the individuals listed above. All of the individuals and/or entities listed above that purchased the unregistered securities were all known to us and our management, through pre-existing business relationships, as long-standing business associates, friends, and employees. All purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to our management in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition. Each purchaser made written representation under Rule 506 of Regulation D, including net worth and sophistication. We required written representation that each purchaser who was not an accredited investor, either alone or with his purchaser representative, had such knowledge and experience in financial and business matters that he/she was capable of evaluating the merits and risks of the prospective investment, and the issuer reasonably believed (based on written representations) immediately prior to making any sale that the purchaser came within this description.
ISSUER PURCHASES OF EQUITY SECURITIES
We did not repurchase any shares of our common stock during the three months ended March 31, 2022.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are incorporated into this registration statement on Form S-1:
EXHIBIT INDEX
*Filed Herewith
** Contained within Exhibit 23.1
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We hereby undertake the following:
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
| a. | To include any prospectus required by Section 10(a) (3) of the Securities Act of 1933; |
| b. | To reflect in the prospectus any facts or events arising after the effective date of this registration statement, or most recent post-effective amendment, which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; and |
| c. | To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement. |
That, for the purpose of determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to the directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of the directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of the directors, officers, or controlling persons in connection with the securities being registered, we will unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
For determining liability under the Securities Act, to treat the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b) (1) or (4) or 497(h) under the Securities Act as part of this Registration Statement as of the time the Commission declared it effective.
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In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this Registration Statement to be signed on our behalf by the undersigned, thereunto duly authorized, in the City of Boulder, State of Colorado, July 29, 2022.
BLACKSTAR ENTERPRISE GROUP, INC.
| /s/ John Noble Harris | July 29, 2022 | |
| John Noble Harris | ||
| (Chief Executive Officer and Principal Executive Officer) | ||
| /s/ Joseph E. Kurczodyna | July 29, 2022 | |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer and Principal Accounting Officer) | ||
In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.
| /s/ John Noble Harris | July 29, 2022 | |
| John Noble Harris | ||
| Director | ||
| /s/ Joseph E. Kurczodyna | July 29, 2022 | |
| Joseph E. Kurczodyna | ||
| Director | ||
EXHIBIT 21
SUBSIDIARIES
Crypto Equity Management Corp. (“CEMC”) formed September 30, 2017 in the State of Colorado as a for profit corporation; currently non-operational.
Crypto Industry SRO Inc. formed December 31, 2017 in the State of Colorado as a non-profit corporation; currently non-operational.
Christen Lambert
Attorney at Law
2920 Forestville Rd., Ste. 100, PMB 1155 — Raleigh, North Carolina 27616
Phone: 919-473-9130
Email: christen@christenlambertlaw.com
July 29, 2022
Blackstar Enterprise Group, Inc.
4450 Arapahoe Ave., Suite 100
Boulder, CO 80303
Re: Registration Statement on Form S-1 for up to 46,000,000 Shares of Common Stock Underlying Convertible Notes, $0.001 par value, of Blackstar Enterprise Group, Inc.
Gentlemen:
At your request, I have examined the Registration Statement on Form S-1, as amended, which is being filed with the Securities and Exchange Commission ("SEC") (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of:
| · | Up to 46,000,000 shares of common stock underlying convertible notes |
In rendering the following opinion, I have examined and relied upon all of the documents listed as exhibits to the Registration Statement on Form S-1, as amended, and resolutions of the Board of Directors of the Company adopted by the Board of Directors of the Company authorizing the agreement for the issuance of the stock, registered in this Registration Statement on Form S-1, as amended, to which this letter refers. In my examination, I have assumed the genuineness of all signatures, the authenticity, accuracy and completeness of the documents submitted to me as originals, and the conformity with the original documents of all documents submitted to me as copies.
I have not undertaken, nor do I intend to undertake, any independent investigation beyond such specified documents and records, but to the extent necessary for this opinion, I have inquired and am satisfied as to the adequacy and accuracy of such documents and records. I have examined all documents necessary to form my opinions.
Based on the foregoing, it is my opinion that the stock being registered under the Registration Statement, when and as issued, will be duly and validly authorized, fully paid and non-assessable under Delaware Laws.
I express no opinion as to compliance with the Securities Acts or "blue sky" laws of any state in which the stock is proposed to be offered and sold or as to the effect, if any, which non-compliance with such laws might have on the validity of transfer of the stock.
I consent to the filing of this opinion as an exhibit to any filing made with the Securities and Exchange Commission or under any state or other jurisdiction's securities act for the purpose of registering, qualifying or establishing eligibility for an exemption from registration or qualification of the stock described in the Registration Statement in connection with the offering described therein.
This opinion covers only matters of Delaware law and nothing in this opinion shall be deemed to imply any opinion related to the laws of any other jurisdiction. Nothing herein shall be deemed to relate to or constitute an opinion concerning any matters not specifically set forth above.
The information set forth herein is as of the date of this letter. I disclaim any undertaking to advise you of changes which may be brought to my attention after the effective date of the Registration Statement.
Sincerely,
/s/Christen Lambert
Christen Lambert, Attorney at Law
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Registration Statement on Amendment No. 4 to Form S-1 of our report dated March 28, 2022 , relating to the financial statements of Blackstar Enterprise Group, Inc., as of December 31, 2021 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Lakewood, CO
July 29, 2022