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, 2020, we had an
accumulated deficit totaling $5,331,546. 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 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.
Recent Updates - The Company has designed and is constructing the Peer-to-Peer
("P2P") BlackStar Enterprise Trading Platform ("BDTP"), subject to obtaining
sufficient funding. We have completed a working demo on Amazon Blockchain that
facilitates shareholder trading activity while complementing the market makers.
The Company is positioning itself to trade
17
Table of Contents
BEGI common shares digital on Amazon's Blockchain while complying with the rules
and regulations within the Broker Dealer Eco-System. Currently we anticipate
that there may be a small charge to enter the platform, but no ticket charge,
and with unlimited commission-free trading. We believe that this parallel market
may produce liquidity from price movement or arbitrage, along with low cost of
entry and easy access to Bid and Offer prices for both shareholders and
speculators. In July 2020, the Company presented the concept to SEC FinHub staff
members for regulatory guidance and received the recommendation to apply for
Alternative Trading System ("ATS") status. BlackStar is evaluating its options,
including exploring partnerships with existing ATS's, and other strategies to go
live with BDTP in accordance with existing laws and regulations.
Currently in the demonstration phase, we estimate finalizing the BDTP at a cost
of $60,000 USD over the next five months and are seeking funds for the final
production of the platform. As of the date of this filing, the initial demo is
complete and BlackStar intends to continue to seek further input from various
regulatory agencies and OTC Markets 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 Company's success will be dependent upon the Company's ability to analyze
and manage the opportunities presented.
We intend to expend funds over the next four quarters as follows:
4th Quarter 2020 · BDTP Software Implementation/Ventures · $250,000
· Operations · $100,000
1st Quarter 2021 · BDTP Software Implementation/Ventures · $250,000
· Operations · $100,000
2nd Quarter 2021 · Ventures · $250,000
· Operations · $50,000
3rd Quarter 2021 · Ventures · $250,000
· Operations · $50,000
Our Budget for operations in the next year is as follows:
BDTP Development $ 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.
Based on our current cash reserves of $23,006 as of September 30, 2020, we have
limited cash for an operational budget. We have recently received funds from
convertible promissory notes to continue to provide operational funds. We may
offer a private placement of stock or notes to investors in order to achieve an
additional approximately $700,000 in funding in the next six months. We have not
yet commenced the offering, but may commence this offering in the 4th Quarter of
2020. 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
nocommitted 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.
18
Table of Contents
The independent registered public accounting firm's report on our financial
statements as of December 31, 2019, includes a "going concern" explanatory
paragraph that describes substantial doubt about our ability to continue as a
going concern.
Since our cash reserves were $23,006 as of the end of the third quarter, our
parent company, IHG, may fund on an interim basis any shortfall in our cash
reserves. If received, we would use those funds to pay legal, accounting, office
rent and general and administrative expense. We have estimated $100,000 for the
remaining quarter in 2020 in operational costs which includes ordinary legal,
accounting, travel, general and administrative, audit, rent, telephones and
miscellaneous.
Results of Operations
For the Three Months Ended September 30, 2020 compared to same period in 2019
During the three months ended September 30, 2020 and 2019, we had no revenues.
During the three months ended September 30, 2020, we recognized a net loss of
$(425,793) compared to a net loss of $(38,620) during the three months ended
September 30, 2019. Our operating expenses for the three months ended September
30, 2020 include $13,028 in legal and professional fees, $33,500 in management
consulting fees to a related party, and $10,936 in general and administrative
expenses, for a total of $57,464. Increased management consulting fees and legal
and professional fees increased the total operating expenses for the three
months ended September 30, 2020 by $28,913 as compared to the three months ended
September 30, 2019.
For the three months ended September 30, 2020, we recorded amortization of
discount on convertible notes of $(56,733), amortization of convertible debt
issuance costs of $(17,438), loss on note payable conversions of $(277,607), and
interest expense of $(16,551), resulting in other expenses of $(368,329). We
only recorded interest expense of $(10,069) in the same period ended September
30, 2019. The increase in other expenses of $358,260 from 2019 to 2020 is
attributable to convertible debt issuances and conversions in 2020.
Net loss per share for the three-month periods ending September 30, 2020 and
2019 was $(0.01) and $(0.001) per share, respectively.
For the Nine Months Ended September 30, 2020 compared to same period in 2019
During the nine months ended September 30, 2020 and 2019, we had no revenues.
During the nine months ended September 30, 2020, we recognized a net loss of
$(930,944) compared to a net loss of $(497,623) during the nine months ended
September 30, 2019. The net loss for 2020 was due to operating expenses of
$163,664 and other expenses totaling $(767,280). Our operating expenses for the
nine months ended September 30, 2020 included $62,819 in legal and professional
fees, $59,910 in management consulting fees to a related party, and $40,935 in
general and administrative expenses, for total operating expenses of $163,664.
Operating expenses were lower by $26,196 for the nine months ended September 30,
2020 compared to the same period in 2019, due mainly to lower legal and
professional fees and management consulting fees, though general and
administrative expenses were higher, resulting in a lesser net loss for the nine
months ended September 30, 2020 compared to the same period in 2019.
For the nine months ended September 30, 2020, we recorded amortization of
discount on convertible notes of $(116,249), amortization of convertible debt
issuance costs of $(27,015), loss on note payable conversions of $(574,715), and
interest expense of $(49,301), resulting in other expenses of $(767,280). We
recorded an amortization of discount on convertible notes of $(110,000), a
warrant expense of $(132,593), and an interest expense of $(65,170) for total
other expenses of $(307,763) in the nine months ended September 30, 2019,
resulting in an overall increase in other expenses of $459,571 from 2019 to
2020. The increase from 2019 to 2020 is attributable to increased convertible
debt issuances and conversions in 2020.
Net loss per share for the nine-month period in 2020 and 2019 was $(0.02) and
$(0.01) per share, respectively.
Our auditor has expressed substantial doubt as to whether we will be able to
continue to operate as a "going concern" due to the fact that the Company has an
accumulated deficit of $(5,331,546) as of September 30, 2020, compared to an
accumulated deficit of $(4,400,602) at December 31, 2019, 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.
19
Table of Contents
Liquidity and Capital Resources
At September 30, 2020, we had total current assets of $26,262 comprised of
$23,006 in cash and $3,256 in prepaids, compared to $43,808 total current assets
at December 31, 2019. Current liabilities at September 30, 2020 were $330,066
compared to $278,086 at December 31, 2019. Current liabilities at September 30,
2020 consisted of accounts payable of $53,843, accrued payables of $18,456,
advances payable to a related party of $19,260, convertible promissory notes
payable, net, of $183,507, and notes payable of $55,000. At September 30, 2020,
we had a working capital deficit of ($303,804), compared to a deficit of
($234,278) at December 31, 2019.
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, 2020, the Company had no cash
received from equity offerings or shareholder contributions. We received
$165,000 from notes payable and made $22,590 of repayments of advances from
related parties. In the nine months ended September 30, 2019, we recorded
$75,000 from the sales of common stock, $114,000 in notes payable, and $10,478
in advances from related parties. Net cash provided by financing activities was
$142,410 for the nine months ended September 30, 2020, compared to $199,478 for
the same period the year before.
Investing Activities
The Company had no investing activities during the nine-month periods ended
September 30, 2020 and 2019.
Operating Activities
During the nine months ended September 30, 2020, we used $(152,655) in cash for
our net operating activities, compared to $(205,797) used in operating
activities for the same period in 2019. The decreased amount of cash used in
operating activities is attributable to adjustments to reconcile net loss to net
cash used in operating activities in many of the categories in the nine months
ended September 30, 2020. We recorded a total of $764,837 in adjustments to
reconcile net loss to net cash used in operating activities and had changes in
operating assets and liabilities totaling $13,452 for the nine months ended
September
20
Table of Contents
30, 2020. For the same period in 2019, we recorded a total of $242,893 in
adjustments to reconcile net loss to net cash used in operating activities and
had changes in operating assets and liabilities totaling $48,933.
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, 2020
and December 31, 2019, we had accumulated deficit of $(5,331,546) and
$(4,400,602), respectively and we will require additional working capital to
fund operations through 2020 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, 2019, 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.
Off Balance Sheet Arrangements
None
© Edgar Online, source Glimpses
BLACKSTAR ENTERPRISE GROUP, INC. 