BEGI 10-Q
BLACKSTAR ENTERPRISE GROUP, INC. (BEGI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from ______________ to ______________
Commission file number:
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices)
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(Registrant’s Telephone number)
(Former Address and phone of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
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No☐ |
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 for Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 to Section 13(a) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes☐ |
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 1, 2021, there were
TABLE OF CONTENTS
| Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3.Quantitative and Qualitative Disclosures About Market Risk – Not Applicable | 22 |
| Item 4.Controls and Procedures | 22 |
| PART II- OTHER INFORMATION | |
| Item 1.Legal Proceedings – Not Applicable | 22 |
| Item 1A.Risk Factors | 22 |
| Item 2.Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
| Item 3.Defaults Upon Senior Securities – Not Applicable | 22 |
| Item 4.Mine Safety Disclosure – Not Applicable | 23 |
| Item 5.Other Information – Not Applicable | 23 |
| Item 6.Exhibits | 23 |
| Signatures | 24 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, 2021 |
December 31, 2020 | |||||||
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ASSETS | ||||||||
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Current Assets | ||||||||
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Cash |
$ |
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$ |
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Prepaid expenses |
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Total current assets |
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Fixed assets |
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Total Assets |
$ |
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$ |
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LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
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Current liabilities | ||||||||
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Accounts payable |
$ |
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$ |
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Accrued expenses |
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Advances to related parties |
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Convertible notes payable, net of discounts of $ | ||||||||
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and $ |
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Notes payable |
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Total current liabilities |
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Stockholders' Equity (Deficit) | ||||||||
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Preferred stock, | ||||||||
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$ |
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Common stock, | ||||||||
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at September 30, 2021 and December 31, 2020 |
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Additional paid in capital |
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Accumulated deficit |
( |
) |
( |
) | ||||
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Total stockholders' equity (deficit) |
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( |
) | |||||
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Total Liabilities and Stockholders' Deficit |
$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
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Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
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2021 |
2020 |
2021 |
2020 | |||||||||||||
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Operating expenses | ||||||||||||||||
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Legal and professional |
$ |
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$ |
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$ |
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$ |
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Management consulting - related party |
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General and administrative |
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Total operating expenses |
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Other expense (income) | ||||||||||||||||
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Amortization of discount on convertible notes |
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Amortization of convertible debt issuance costs |
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Loss on note payable conversions |
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Interest expense |
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Other expense (income) |
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Net (loss) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
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Net (loss) per share - basic and diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
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Weighted average number of common shares | ||||||||||||||||
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outstanding - basic and diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
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Common Stock |
Preferred Stock | |||||||||||||||||||||||||||||||||||
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Shares |
Amount |
Shares |
Amount |
Additional Paid in Capital |
Common Stock Subject to Cancellation |
Common Stock to be Issued |
Accumulated Deficit |
Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
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Balances - June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
( |
) |
$ |
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Shares issued for conversion of notes and interest |
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— |
— |
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— |
— |
— |
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Beneficial conversion feature of convertible note |
— |
— |
— |
— |
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— |
— |
— |
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Shares issued subject to cancellation realized |
— |
— |
— |
— |
— |
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— |
— |
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Net loss |
— |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||||||||
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Balances - September 30, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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Balances - June 30, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
( |
) | ||||||||||||||||||
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Shares issued for conversion of notes and interest |
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— |
— |
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— |
— |
— |
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Beneficial conversion feature of convertible note |
— |
— |
— |
— |
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— |
— |
— |
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Shares issued for loan costs at $ |
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— |
— |
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— |
— |
— |
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Issuance of common stock to be issued |
— |
— |
— |
— |
— |
— |
( |
) |
— |
( |
) | |||||||||||||||||||||||||
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Loss on debt conversion |
— |
— |
— |
— |
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— |
— |
— |
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Net loss |
— |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||||||||
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Balances - September 30, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
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Common Stock |
Preferred Stock | |||||||||||||||||||||||||||||||
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Shares |
Amount |
Shares |
Amount |
Additional Paid in Capital |
Common Stock Subject to Cancellation |
Accumulated Deficit |
Stockholders' Equity (Deficit) | |||||||||||||||||||||||||
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Balances - December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
( |
) | ||||||||||||||||
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Shares issued for conversion of notes and interest |
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— |
— |
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— |
— |
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Beneficial conversion feature of convertible note |
— |
— |
— |
— |
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— |
— |
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Shares issued for loan costs |
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— |
— |
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— |
— |
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Shares issued for financing fees |
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— |
— |
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— |
— |
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Shares issued for software development |
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— |
— |
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— |
— |
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Shares issued subject to cancellation |
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— |
— |
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( |
) |
— |
— | |||||||||||||||||||||||
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Shares issued subject to cancellation realized |
— |
— |
— |
— |
— |
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— |
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Net loss |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) | ||||||||||||||||||||||
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Balances - September 30, 2021 |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
| |||||||||||||||||
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Balances - December 31, 2019 |
|
$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
( |
) | ||||||||||||||||
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Adjust for shares issued directly from IHG retirement to treasury at December 31, 2019 |
( |
) |
( |
) |
— |
— |
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— |
— |
— | ||||||||||||||||||||||
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Shares issued for conversion of notes and interest |
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— |
— |
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— |
— |
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Beneficial conversion feature of convertible note |
— |
— |
— |
— |
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— |
— |
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Shares issued for loan costs |
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— |
— |
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— |
— |
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Net loss |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) | ||||||||||||||||||||||
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Balances - September 30, 2020 |
|
$ |
|
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$ |
|
$ |
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$ |
|
$ |
( |
) |
$ |
( |
) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
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2021 |
2020 | |||||||
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Cash Flows From Operating Activities | ||||||||
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Net (loss) |
$ |
( |
) |
$ |
( |
) | ||
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Adjustments to reconcile net loss to net cash used | ||||||||
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in operating activities | ||||||||
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Amortization of convertible note issue costs |
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Amortization of discounts on convertible notes |
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Amortization of discounts on convertible note interest |
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Loss on conversion of notes payable |
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Interest and loan fees paid in stock |
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Changes in operating assets and liabilities | ||||||||
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Decrease in prepaids |
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(Decrease) in accounts payable |
( |
) |
( |
) | ||||
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Increase in accrued payables |
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Cash used in operating activities |
( |
) |
( |
) | ||||
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Cash Flows From Investing Activities | ||||||||
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Purchase of software |
( |
) |
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Cash used in investing activities |
( |
) |
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Cash Flows From Financing Activities | ||||||||
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Increase in notes payable |
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Repayments of notes payable |
( |
) |
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Repayments in advances from related party |
( |
) |
( |
) | ||||
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Proceeds from convertible notes, net of offering costs and original issue discount |
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Net cash provided by financing activities |
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Net increase (decrease) in cash |
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( |
) | |||||
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Cash, beginning of period |
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Cash, end of period |
$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities | ||||||||
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Beneficial conversion feature initially recorded as debt discount |
$ |
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$ |
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Notes payable and interest converted to common stock |
$ |
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$ |
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Common stock issued for software |
$ |
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$ |
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Common stock to be issued for loan costs |
$ |
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$ |
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Cash paid for interest on debt |
$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(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 as NPI08, Inc. The Company changed its name to BlackStar Enterprise Group, Inc. in 2016 when new management and capital were introduced.
On January 25, 2016, International Hedge Group, Inc. (“IHG”) signed an agreement to acquire a
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, 2020 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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
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.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
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 nine months ended September 30, 2021 and the year ended December 31, 2020, the Company has generated no revenues and has incurred losses. As of September 30, 2021, the Company had cash of $
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 pronouncements
Management has evaluated accounting standards and interpretations issued but not yet effective as of September 30, 2021 and does not expect such pronouncements to have a material impact on the Company’s financial position, operations, or cash flows.
Reclassifications
Certain amounts in the consolidated financial statements for prior year periods have been reclassified to conform with the current year presentation.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
NOTE 4 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company has an authorized number of preferred shares of
Common Stock
During the nine months ended September 30, 2021, the Company issued shares of its common stock as follows:
•
•
•
•
•
•
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
NOTE 5 – WARRANTS
In April 2019, the Company issued a convertible note for $
A summary of warrant activity during the nine months ended September 30, 2021 is presented below:
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Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) | ||||||||
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Outstanding and exercisable – December 31, 2020 |
|
$ |
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Exercised |
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Expired |
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Outstanding and exercisable – September 30, 2021 |
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$ |
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NOTE 6 – CONVERTIBLE NOTES
GS CAPITAL PARTNERS
On December 4, 2020, the Company entered into a financing arrangement with GS Capital Partners LLC. The face value of the note is $
The Company has recorded the conversion feature as a beneficial conversion feature of $
During the nine months ended September 30, 2021, GS Capital elected to convert the $
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
POWER UP LENDING GROUP
(i) On July 24, 2020, the Company entered into a financing agreement with Power Up to borrow $
On January 28, 2021, Power Up elected to convert the total principal and interest due on their note of
(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 $
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
(iii) On January 15, 2021, the Company entered into a financing agreement with Power Up Lending Group to borrow $
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
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 $
(iv) On March 31, 2021, the Company entered into a financing agreement with Power Up Lending Group to borrow $
(v) On July 26, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $
(vi) On July 28, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $
(vii) On September 1, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
and the Company has reserved
QUICK CAPITAL LLC
On November 23, 2020, the Company entered into a financing agreement with Quick Capital LLC to borrow $
SE HOLDINGS LLC
On January 26, 2021, the Company entered into a financing agreement with SE Holdings LLC to borrow $
ADAR ALEF LLC
On April 29, 2021, the Company entered into a financing agreement with Adar Alef, LLC to borrow $
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
Convertible notes payable at September 30, 2021 and December 31, 2020 are summarized as follows:
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GS Capital Partners |
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Power UP Lending Group |
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SE Holdings LLC |
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Quick Capital LLC |
$ |
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Adar Alef LLC |
$ |
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Discount |
$ |
( |
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NOTE 7 – NOTES PAYABLE
On November 18, 2020, outstanding loans to the two individuals were rolled over and extended into two new loans in the amounts of $
Effective May 18, 2021, each of the loan holders was repaid $
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
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 nine months ended September 30, 2021 and 2020 the Company recorded related party management fees of $
During the year ended December 31, 2020, there were no advances from related parties, and the Company repaid $
NOTE 9 – SUBSEQUENT EVENTS
On October 1, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $
On October 11, 2021, the Company entered into a financing agreement with GS Capital Partners LLC to borrow $
In October 2021, Power Up elected to convert (in three tranches) the total principal of $
The Company has analyzed its operations subsequent to September 30, 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.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements and Associated Risks.
This Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
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 financial statements, as of September 30, 2021, we had an accumulated deficit totaling $7,773,375. 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 of 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 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 though our newly formed 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.
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 crypto-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 is currently building a digital equity trading platform in order to trade registered BlackStar common shares in digital form (DWAC), and intends to use the platform design to provide custom subscription services to other public companies.
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Recent Updates – The Company is finalizing the design and build of the BlackStar Digital Trading Platform (“BDTP”), subject to obtaining sufficient funding. The Company is currently evaluating its options for the next major step in the process – BDTP will need to be paired with an operating partner (a broker-dealer, clearing firm, and/or registered Alternative Trading System (“ATS”)) prior to implementation. To that end, the Company is exploring partnerships 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 is complete and will remain in the testing phase until we obtain an operating partner. BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP over the next several months. The BDTP 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. In June of 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.
The Company’s success will be dependent upon the Company’s ability to analyze and manage the opportunities presented.
Contingent upon successfully raising funds, we intend to expend funds over the next four quarters as follows:
| 4th Quarter 2021 | · Ventures/BDTP | · $250,000 | |
| · Operations | · $100,000 | ||
| 1st Quarter 2022 | · Ventures/BDTP | · $250,000 | |
| · Operations | · $100,000 | ||
| 2nd Quarter 2022 | · Ventures/BDTP | · $250,000 | |
| · Operations | · $50,000 | ||
| 3rd Quarter 2022 | · Ventures/BDTP | · $250,000 | |
| · Operations | · $50,000 |
Our Budget for operations in the next year is as follows:
| BDTP Development and Testing | $ | 500,000 | ||
| Working Capital – Joint Ventures | $ | 500,000 | ||
| Legal, Audit and Accounting | $ | 150,000 | ||
| Fees, rent, travel and general & administrative expenses | $ | 150,000 | ||
| $ | 1,300,000 |
The Company may change any or all the budget categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable. The Company may need substantial additional capital to support its budget. We have not recognized revenues from our operational activities to date.
Based on our current cash reserves of approximately $559,438 as of September 30, 2021, we have the cash for an operational budget of less than twelve months. We intend to offer a private placement to investors in order to achieve at least $1,000,000 in funding in the next year. We intend to commence this offering in the winter of 2021. 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 additional 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, 2020, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
Our cash reserves were only $32,987 in December 2020. To satisfy this shortfall and continue to fund operations, we issued convertible debt during the first three quarters of 2021, in addition to our parent company, IHG, has agreeing to fund on an
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interim basis any shortfall in our cash reserves. These funds have been used to pay legal, accounting, office rent and general and administrative expense. In early 2018, we completed a private placement of units for $165,000, and in November 2018 we raised $53,000 through a convertible promissory note which increased our working capital. In the year ended December 31, 2019, we received funding through various promissory notes and convertible promissory notes, totaling $280,000 with $236,150 being received in net cash proceeds. In the year ended December 31, 2020, we received funding through promissory notes totaling $25,000, and convertible promissory notes totaling $287,275 with $260,000 being received in net cash proceeds.
Results of Operations
For the Three Months Ended September 30, 2021 compared to same period in 2020
During the three months ended September 30, 2021 and 2020, we had no revenue. For the three months ended September 30, 2021, we recognized a net loss of $772,953 compared to a net loss of $425,792 for the three months ended September 30, 2020. Our operating expenses included $93,500 in related party management consulting fees, $23,572 in legal and professional fees, and $273,777 in general and administrative fees, for a total of $390,849 for the three months ended September 30, 2021. Higher related party management consulting fees and an increase in costs for fund raising costs, including the $250,000 value of common shares issued to a convertible note lender in the second quarter, increased the total operating expenses in the three months ended September 30, 2021 by $333,386 compared to the three months ended September 30, 2020. Our net loss from operations was $390,849 for the three months ended September 30, 2021 compared to net loss from operations of $57,463 for the same period ended September 30, 2020.
For the three months ended September 30, 2021, we had significantly higher 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 net other expenses of $382,104 for the three months ended September 30, 2021 compared to $368,329 for the same period in 2020. For the three months ended September 30, 2020 the Company recognized $17,438 for amortization of discount on convertible notes, as compared to $22,152 for the three months ended September 30, 2021. During the three months ended September 30, 2020, we recognized $277,607 as a loss on notes payable conversion.
Net loss per share for the 2021 and 2020 three-month periods ending September 30, 2021 and 2020 was $0.01 in each of the periods.
For the Nine Months Ended September 30, 2021 compared to same period in 2020
During the nine months ended September 30, 2021 and 2020, we had no revenue. For the nine months ended September 30, 2021, we recognized a net loss of $1,807,182 compared to a net loss of $930,944 for the nine months ended September 30, 2020. Our operating expenses included $242,642 in related party management consulting fees, $69,876 in legal and professional fees, and $468,950 in general and administrative fees, for a total of $781,468 for the nine months ended September 30, 2021. Higher related party management consulting fees and an increase in costs for fund raising, including the realization of the $356,667 value of common shares issued to convertible note lenders during the nine-month period, increased the total operating expenses in the nine months ended September 30, 2021 by $617,804 compared to the nine months ended September 30, 2020. Our net loss from operations was $781,468 for the nine months ended September 30, 2021 compared to net loss from operations of $163,664 for the same period ended September 30, 2020.
For the nine months ended September 30, 2021, we had significantly higher 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 net other expenses of $1,025,7144 for the nine months ended September 30, 2021 compared to $767,280 for the same period in 2020. For the nine months ended September 30, 2020, the Company recognized $27,015 for amortization of discount on convertible notes, as compared to $46,116 for the nine months ended September 30, 2021, and recognized $574,715 as a loss on notes payable conversion in 2020 period as compared to $166,422 during the comparable period in 2021.
Net loss per share for the 2021 and 2020 nine-month periods ending September 30, 2021 and 2020 was $0.02 in each of the periods.
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Management has evaluated the current business plan, ongoing operations and financial position of the Company as of September 30, 2021, and has determined that there is substantial doubt as to whether the Company will be able to continue to operate as a “going concern”. The Company has an accumulated deficit of $7,773,375 as of September 30, 2021, compared to an accumulated deficit of $5,966,193 as of December 31, 2020, and has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining the adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Liquidity and Capital Resources
As of September 30, 2021, we had total current assets of $571,384 comprised of $559,438 in cash and $11,946 in prepaids, compared to $84,211 total current assets as of December 31, 2020. Our total assets as of September 30, 2021 were $646,384 compared to $94,211 as of December 31, 2020. Current liabilities as of September 30, 2021 were $520,366 compared to $129,062 at December 31, 2020. Current liabilities as of September 30, 2021 consisted of accounts payable of $12,246, accrued payables of $51,072, convertible promissory notes of $427,048, net of discounts of $715,977, and notes payable of $30,000. As of September 30, 2021, we had a working capital equity of $51,018, compared to a negative working capital of $44,851 as of December 31, 2020.
We intend to attempt to raise capital through several sources: a) partner venture funds, b) private placements of our stock, and/or c) loans from our parent company IHG. We do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to ensure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.
We do not have terms or committed sources of capital of any type at this time. If we are able to raise additional capital, we intend to launch the BDTP, and further, enter into additional joint ventures. We intend to use the funds repaid from the joint ventures to a) retire debt, b) fund additional joint ventures with companies, and c) provide operational funds.
We have been, and intend to continue, working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts.
We do not anticipate that we will purchase any significant equipment over the next twelve months.
We do not anticipate any significant changes in the number of employees unless we significantly increase the size of our operations. We believe that we do not require the services of additional independent contractors to operate at our current level of activity. However, if our level of operations increases beyond the level that our current staff can provide, we may need to supplement our staff in this manner.
Financing Activities
During the nine months ended September 30, 2021, the Company had no cash received from equity offerings or shareholder contributions, and we received $1,004,500 from convertible notes, net of offering costs and original issue discounts. The Company also made $20,000 repayments of notes payable and $18,780 of repayments of advances from related parties in the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company had no cash received from equity offerings or shareholder contributions. The Company received $165,000 from notes payable and made $22,590 of repayments of advances from related parties for the nine months ended September 30, 2020. Net cash provided by financing activities was $965,720 for the nine months ended September 30, 2021, compared to $142,410 for the same period in 2020. During the nine months ended September 30, 2021 and 2020, $204,741 and $129,703, respectively, in principal and interest on convertible notes was converted to common stock.
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Investing Activities
Net cash used in investing activities was $45,000 for software development for the nine-month period ended September 30, 2021, as compared to $0 for the nine months ended September 30, 2020.
Operating Activities
During the nine months ended September 30, 2021, net cash used in operating activities was $394,269, compared to $152,655 used in operating activities for the same period in 2020. The increased amount of cash used in operating activities is attributable to increases in operating and other expenses, increasing the net loss for the nine months ended September 30, 2021.
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 September 30, 2021 and December 31, 2020, we had accumulated deficit of $7,773,375 and $5,966,193, respectively and we will require additional working capital to fund operations through 2021 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.
Based on our financial history since inception, in their report on the financial statements for the period ended December 31, 2020, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. There is no assurance that any revenue will be realized in the future.
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.
Short Term
On a short-term basis, we have not generated revenues sufficient to cover our growth-oriented operations plan. Based on prior history, we may continue to incur losses until such a time that our revenues are sufficient to cover our operating expenses and growth-oriented operations plan. As a result, we may need additional capital in the form of equity or loans, none of which is committed as of this filing.
Capital Resources
We have only common stock as our capital resource, and our assets, cash and receivables.
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.
Need for Additional Financing
We do not have capital sufficient to meet our growth plans. We have made equity and debt offerings in order to support our growth plans, to date, and may do so in the future.
No commitments to provide additional funds have been made 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.
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Off Balance Sheet Arrangements
None
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer/principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
Management has carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Due to the lack of personnel and outside directors, management acknowledges that there are deficiencies in these controls and procedures. The Company anticipates that with further resources, the Company will expand both management and the board of directors with additional officers and independent directors in order to provide sufficient disclosure controls and procedures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There are no material changes to risk factors as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Aside from what has been disclosed in the Current Reports on Form 8-K filed September 30, 2021, the Company had no unregistered sales of equity securities for the three months ended September 30, 2021 and through the date of this filing.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a–14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
| 32.1 | Certification of Chief Executive Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Chief Financial Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as an Inline XBRL document and included in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BLACKSTAR ENTERPRISE GROUP, INC. | ||
| (Registrant) | ||
| Dated: November 15, 2021 | By: | /s/ John Noble Harris |
| John Noble Harris | ||
| (Chief Executive Officer, Principal Executive Officer) | ||
| Dated: November 15, 2021 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer, Principal Accounting Officer) | ||
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