UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________________ to ___________
______________
Commission file number: 000-55730
BLACKSTAR ENTERPRISE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 27-1120628 | |
(State of Incorporation) | (IRS Employer ID Number) |
4450 Arapahoe Ave., Suite 100, Boulder, CO80303
(Address of principal executive offices)
(303) 500-5073500-3210
(Registrant’s Telephone number)
(Former Address and phone of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
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.
Yes[X] | No | [ ] |
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).
Yes[X] | No | [ ] |
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,”filer”, “accelerated filer,”filer”, “smaller reporting company,”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 to Section 7(a)(2)(B) 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).
Yes[ ] |
No[X]
Indicate the number of share outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of September 4, 2020,August 11, 2021, there were 74,089,153122,627,383 shares of the registrant’s common stock, $.001 par value, issued and outstanding, not including shares reserved for conversion of notes.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk – Not Applicable | |
| Item 4. | Controls and Procedures | |
| PART II- OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. | Defaults Upon Senior Securities | |
| Item 4. | Mine Safety Disclosure – Not Applicable | |
| Item 5. | Other Information | |
| Item 6. | Exhibits | |
| Signatures |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2021 | December 31, 2020 | |||||||
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ASSETS | ||||||||
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Current Assets | ||||||||
Cash | $ | 505,485 | $ | 32,987 | ||||
Prepaid expenses | 14,196 | 51,224 | ||||||
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Total current assets | 519,681 | 84,211 | ||||||
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Fixed assets | 66,000 | 10,000 | ||||||
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Total Assets | $ | 585,681 | $ | 94,211 | ||||
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LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
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Current liabilities | ||||||||
Accounts payable | $ | 11,024 | $ | 29,880 | ||||
Accrued expenses | 26,542 | 4,517 | ||||||
Advances to related parties | 18,780 | 18,780 | ||||||
Convertible notes payable, net of discounts of $816,996 | ||||||||
and $158,390 at June 30, 2021 and December 31, 2020 | 148,279 | 25,885 | ||||||
Notes payable | 30,000 | 50,000 | ||||||
| ||||||||
Total current liabilities | 234,625 | 129,062 | ||||||
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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 | ||||||||
118,078,138 and 101,063,806 shares issued and outstanding | ||||||||
at June 30, 2021 and December 31, 2020 | 118,078 | 101,063 | ||||||
Additional paid in capital | 7,482,400 | 5,829,279 | ||||||
Common stock subject to cancellation | (250,000 | ) | 0— | |||||
Accumulated deficit | (7,000,422 | ) | (5,966,193 | ) | ||||
| ||||||||
Total stockholders' equity (deficit) | 351,056 | (34,851 | ) | |||||
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Total Liabilities and Stockholders' Deficit | $ | 585,681 | $ | 94,211 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
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Operating expenses | ||||||||||||||||
Legal and professional | $ | 23,804 | $ | 46,791 | $ | 46,304 | $ | 49,791 | ||||||||
Management consulting - related party | 98,000 | 9,910 | 149,142 | 26,410 | ||||||||||||
General and administrative | 139,525 | 31,114 | 195,172 | 46,733 | ||||||||||||
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Total operating expenses | 261,329 | 87,815 | 390,618 | 122,934 | ||||||||||||
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Other expense (income) | ||||||||||||||||
Amortization of discount on convertible notes | 251,507 | 26,273 | 350,089 | 59,516 | ||||||||||||
Amortization of convertible debt issuance costs | 19,531 | 3,077 | 23,964 | 9,577 | ||||||||||||
Loss on note payable conversions | 124,745 | 276,563 | 166,422 | 297,108 | ||||||||||||
Interest expense | 54,807 | 7,315 | 103,136 | 16,017 | ||||||||||||
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Other expense (income) | 450,590 | 313,228 | 643,611 | 382,218 | ||||||||||||
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Net (loss) | $ | (711,919 | ) | $ | (401,043 | ) | $ | (1,034,229 | ) | $ | (505,152 | ) | ||||
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Net (loss) per share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
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Weighted average number of common shares | ||||||||||||||||
outstanding - basic and diluted | 113,331,275 | 52,880,834 | 109,280,076 | 50,562,551 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
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BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||
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 - December 31, 2020 | 101,063,806 | $ | 101,063 | 1,000,000 | $ | 1,000 | $ | 5,829,279 | $ | 0— | 0— | $ | (5,966,193 | ) | $ | (34,851 | ) | |||||||||||||||||||
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Shares issued for conversion of notes and interest | 7,468,804 | 7,469 | — | — | 301,998 | — | — | — | 309,467 | |||||||||||||||||||||||||||
Beneficial conversion feature of convertible note | — | — | — | — | 917,000 | — | — | — | 917,000 | |||||||||||||||||||||||||||
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 subject to cancellation | 7,666,666 | 7,667 | — | — | 349,000 | (356,667 | ) | — | — | — | ||||||||||||||||||||||||||
Shares issued subject to cancellation realized | — | — | — | — | — | 106,667 | — | — | 106,667 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (1,034,229 | ) | (1,034,229 | ) | |||||||||||||||||||||||||
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Balances - June 30, 2021 | 118,078,138 | $ | 118,078 | 1,000,000 | $ | 1,000 | $ | 7,482,400 | $ | (250,000 | ) | 0— | $ | (7,000,422 | ) | $ | 351,056 | |||||||||||||||||||
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Balances - December 31, 2019 | 48,003,443 | $ | 48,003 | 1,000,000 | $ | 1,000 | $ | 4,117,321 | 0— | 0— | $ | (4,400,602 | ) | $ | (234,278 | ) | ||||||||||||||||||||
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Adjust for shares directly from IHG retirement to treasury at December 31, 2019 | (150,000 | ) | (150 | ) | — | — | 150 | — | — | — | — | |||||||||||||||||||||||||
Shares issued for conversion of notes and interest | 12,520,694 | 12,521 | — | — | 351,268 | — | — | — | 363,789 | |||||||||||||||||||||||||||
Conversion feature of convertible note | — | — | — | — | 103,000 | — | — | — | 103,000 | |||||||||||||||||||||||||||
Common stock to be issued for loans made to the Company – 550,000 shares | — | — | — | — | — | — | 11,000 | — | 11,000 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (505,152 | ) | (505,152 | ) | |||||||||||||||||||||||||
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Balances - June 30, 2020 | 60,374,137 | $ | 60,374 | 1,000,000 | $ | 1,000 | $ | 4,571,739 | $ | 0— | 11,000 | $ | (4,905,754 | ) | $ | (261,641 | ) | |||||||||||||||||||
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 JUNE 30, 2021 AND 2020
(Unaudited)
Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||
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 - March 31, 2021 | 107,307,525 | $ | 107,308 | 1,000,000 | $ | 1,000 | $ | 6,315,228 | $ | (106,667 | ) | $ | 0— | $ | (6,288,502 | ) | $ | 28,367 | ||||||||||||||||||
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Shares issued for conversion of notes and interest | 4,574,573 | 4,574 | — | — | 218,066 | — | — | — | 222,640 | |||||||||||||||||||||||||||
Beneficial conversion feature of convertible note | — | — | — | — | 653,500 | — | — | — | 653,500 | |||||||||||||||||||||||||||
Shares issued for loan costs | 300,000 | 300 | — | — | 11,700 | — | — | — | 12,000 | |||||||||||||||||||||||||||
Shares issued for financing fees | 396,040 | 396 | — | — | 19,406 | — | — | — | 19,802 | |||||||||||||||||||||||||||
Shares issued for software development | 500,000 | 500 | — | — | 19,500 | — | — | — | 20,000 | |||||||||||||||||||||||||||
Shares issued subject to cancellation | 5,000,000 | 5,000 | — | — | 245,000 | (250,000 | ) | — | — | — | ||||||||||||||||||||||||||
Shares issued subject to cancellation realized | — | — | — | — | — | 106,667 | — | — | 106,667 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (711,920 | ) | (711,920 | ) | |||||||||||||||||||||||||
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Balances - June 30, 2021 | 118,078,138 | $ | 118,078 | 1,000,000 | $ | 1,000 | $ | 7,482,400 | $ | (250,000 | ) | $ | 0— | $ | (7,000,422 | ) | $ | 351,056 | ||||||||||||||||||
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Balances -March 31, 2020 | 50,241,238 | $ | 50,241 | 1,000,000 | $ | 1,000 | $ | 4,139,711 | $ | 0— | $ | 0— | $ | (4,504,710 | ) | $ | (313,758 | ) | ||||||||||||||||||
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Shares issued for conversion of notes and interest | 10,132,899 | 10,133 | — | — | 329,028 | — | — | — | 339,161 | |||||||||||||||||||||||||||
Conversion feature of convertible note | — | — | — | — | 103,000 | — | — | — | 103,000 | |||||||||||||||||||||||||||
Common stock to be issued for loans made to the Company - 550,000 shares | — | — | — | — | — | — | 11,000 | — | 11,000 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (401,044 | ) | (401,044 | ) | |||||||||||||||||||||||||
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Balances - June 30, 2020 | 60,374,137 | $ | 60,374 | 1,000,000 | $ | 1,000 | $ | 4,571,739 | $ | 0— | $ | 11,000 | $ | (4,905,754 | ) | $ | (261,641 | ) | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
2021 | 2020 | |||||||
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Cash Flows From Operating Activities | ||||||||
Net (loss) | $ | (1,034,229 | ) | $ | (505,152 | ) | ||
Adjustments to reconcile net loss to net cash used | ||||||||
in operating activities | ||||||||
Amortization of convertible note issue costs | 23,964 | 9,577 | ||||||
Amortization of discounts on convertible notes | 350,089 | 59,516 | ||||||
Amortization of discounts on convertible note interest | 21,841 | |||||||
Effects of conversions on convertible debt discounts | 0— | 10,404 | ||||||
Loss on conversion of notes payable | 166,422 | 297,108 | ||||||
Interest and loan fees paid in stock | 173,669 | 23,162 | ||||||
Changes in operating assets and liabilities | ||||||||
Decrease in prepaids | 37,028 | 94 | ||||||
(Decrease) in accounts payable | (18,856 | ) | (2,942 | ) | ||||
Increase in accrued payables | 29,070 | 10,547 | ||||||
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Cash used in operating activities | (251,002 | ) | (97,686 | ) | ||||
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Cash Flows From Investing Activities | ||||||||
Purchase of software | (36,000 | ) | 0— | |||||
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Cash used in investing activities | (36,000 | ) | 0— | |||||
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Cash Flows From Financing Activities | ||||||||
Increase in notes payable | 0— | 125,000 | ||||||
Repayments of notes payable | (20,000 | ) | 0— | |||||
Repayments in advances from related party | 0— | (22,590 | ) | |||||
Proceeds from convertible notes, net of offering costs | ||||||||
and original issue discount | 779,500 | 0— | ||||||
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Net cash provided by financing activities | 759,500 | 102,410 | ||||||
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Net increase (decrease) in cash | 472,498 | 4,724 | ||||||
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Cash, beginning of period | 32,987 | 33,251 | ||||||
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Cash, end of period | $ | 505,485 | $ | 37,975 | ||||
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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 | $ | 917,000 | $ | 0— | ||||
Notes payable and interest converted to common stock | $ | 142,856 | $ | 87,225 | ||||
Common stock issued for software | $ | 20,000 | $ | 0— | ||||
Common stock to be issued for loan costs | $ | 0— | $ | 11,000 | ||||
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Cash paid for interest on debt | $ | 2,750 | $ | 0— | ||||
The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 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. (“NPI08”). OurThe Company was divested from Kingsley Capital, Inc. in a bankruptcy proceeding in 2008, in which Kingsley was the debtor. 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 EnergyEnterprise Group, Inc. and 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.
On January 25, 2016, International Hedge Group, Inc. (“IHG”) signed an agreement to acquire a 95% interest in the Company. The name was changed to BlackStar Enterprise Group, Inc. in August of 2016. In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares of common stock of which IHG currently owns 4,792,702 due to anti-dilutive cancellation of shares by management (approximately 8% of outstanding common stock as of June 30, 2020), and 1,000,000 shares of ClassSeries A Preferred Stock. The Class A Preferred Stock is a super majority voting stock and is convertible at a rate of 100 common shares to one share of preferred stock. IHG is our controlling shareholder and is engaged in providing management services and capital consulting to companies, and, on occasion, capital consulting.companies. IHG and BlackStar are currently managed and controlled by the sametwo individuals John Noble Harris (beneficialeach of whom is a beneficial owner of an additional 7%9% of the Company’s common stock as of June 30, 2020) and Joseph Kurczodyna (beneficial owner of an additional 7% of common stock as of June 30, 2020).stock.
The Company is a Delaware corporation organized for the purpose of engaging in any lawful business. 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. In addition to the services described above, BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc., on December 31, (“Crypto”) in 2017. Crypto Industry SROCrypto’s business plan is in the beginning stages of organizing membership participation in the newly-formed nonprofit. Crypto Industry SRO is planned 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.
The Company’s fiscal year end is December 31. The Company’s financial statements are presented on the accrual basis of accounting.
Basis of presentation – Unaudited Financial Statements
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, 20192020 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
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NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued)
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 six months ended June 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021.
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
SIX MONTHS ENDED JUNE 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 six months ended June 30, 20202021 and the year ended December 31, 2019,2020, the Company has generated no revenues and has incurred losses. As of June 30, 2020,2021, the Company had cash of $37,975, negative$505,485, working capital of ($261,641)$285,056 and an accumulated deficit of ($4,905,754).$7,000,422. 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.
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.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and reflect our accounts and operations and those of our subsidiaries and include the accounts of BlackStar Enterprise Group, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
On September 30, 2017, the Company formed a wholly-owned subsidiary corporation, Crypto Equity Management Corp (“CEMC”) in the state of Colorado. The Company intends to use CEMC to pursue business opportunities in cryptocurrency sphere. These financial statements as currently presented reflect the combined operations of BEGI and CEMC. BlackStar also formed a subsidiary nonprofit company, Crypto Industry SRO Inc., on December 31, 2017.
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 June 30, 2020 and December 31, 2019, the Company had no deposits in excess of the FDIC insured limits.
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 deferred tax asset. Blackstar Enterprise Group establishes a valuation allowance 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.
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
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as all changes in stockholders’ equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments in investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our inception, there have been no differences between our Comprehensive loss and net loss. Our comprehensive loss was identical to our net loss for the six months ended June 30, 2020 and 2019.
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 June 30, 20202021, 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 periods presentation.
9
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BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 4 – PROPERTY, PLANT AND EQUIPMENTSTOCKHOLDERS’ EQUITY (DEFICIT)
As of June 30, 2020, all equipment, consisting of office equipment and computers, was fully depreciated and the Company recognized no depreciation expense for the six months then ended.
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 preferred seriesSeries A Preferred Series stock to IHGInternational Hedge Group, Inc. in fulfillment of the purchase agreement. As at June 30, 2020 there are 1,000,000 preferred series A shares issued and outstanding. 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.
Class A Preferred 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. 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"). 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. 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. 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.
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NOTE 5 – STOCKHOLDERS’ DEFICIT (continued)
Common Stock
As of December 31, 2019, the authorized number of common shares was 200,000,000, with a par value of $0.001 per share, and the authorized number of preferred shares is 10,000,000, with a par value of $0.001 per share. On March 10, 2020, the Company’s shareholders voted to increase the Company’s authorized common shares from 200,000,000 to 700,000,000.
As of June 30, 2020, and December 31, 2019, the total number of common shares outstanding was 60,374,137 and 48,003,443, respectively. The number of shares outstanding at June 30, 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, in fact, issued from the block of shares that were returned to treasury by International Hedge Group, Inc. The share quantity was deemed by management to be not material therefore not requiring an amendment of the Form 10-K for the year ended December 31, 2019 that was previously filed.
During the six months ended June 30, 2020,2021, the Company issued an aggregrate 12,520,694 shares of its common stock as follows:
•
7,468,804 shares for conversion of $54,519$148,856 principal and $12,161 accrued interest on convertible notesnote payable, and recognized a loss on note payable conversionsconversion of $297,108.$166,422.
Common Stock to be Issued•
At June 30, 2020, the Company is obligated to issue an aggregate 550,000300,000 shares of its common stock, valued at $11,000,$24,000 ($0.08 per share) to two individualsa convertible note holder as partial 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 $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 as follow:
files a resale registration statement covering the underlying convertible shares. The shares are returnable to be issued arethe 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 $106,667 value of the shares has been charged to operations as of June 30, 2021.
•
5,000,000 shares valued at $0.02$250,000 ($0.05 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.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 5 – 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 exerecisable 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 June 30, 2021, the intrinsic value of the outstanding warrants was $0, as the trading price of the underlyingCompany’s common stock asat that date was less than the underlying exercise price of the date of the agreements.
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NOTE 6 – WARRANTSwarrants.
A summary of warrant activity during the sixthree months ended June 30, 20202021 is presented below:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||
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Outstanding and exercisable – December 31, 2020 | 540,000 | $ | 0.31 | 2.99 | |||||||
Exercised | 0— | ||||||||||
Expired | 0— | ||||||||||
Outstanding and exercisable – June 30, 2021 | 540,000 | $ | 0.31 | 2.49 | |||||||
Shares |
Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Outstanding and exercisable – December 31, 2019 | 540,000 | $ | .31 | 3.99 | ||||||||||
| Granted | — | |||||||||||||
| Exercised | — | |||||||||||||
| Expired | — | |||||||||||||
| Outstanding and exercisable – June 30, 2020 | 540,000 | $ | .31 | 3.49 | ||||||||||
NOTE 76 – CONVERTIBLE NOTES
AUCTUS FUNDGS CAPITAL PARTNERS
On April 26, 2019,December 4, 2020, the Company entered into a financing arrangement with Auctus FundGS Capital Partners LLC. The face value of the note is $110,000$55,000 at an interest rate of 12%10% and the maturity date is January 26, 2020. As of January 26, 2020, the Company is in default with the payments required by the note and is therefore subject to a default rate of 24%.December 2, 2021. At the time of the disbursement the Company received $97,250$45,000 net cash proceeds, as there was a deduction from proceeds to the Company of $2,750$10,000 for legal fees related to the issuance of the promissory noteoriginal interest discount and a deduction of $10,000 as prepaid interest to the lender of which $1,111 was expensed in the current quarter.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. This represents a discount of fifty percent (50%). The number of shares to be issued in the conversion will be calculated as follows: the average price of the two lowest trading days of the preceding the days will be multiplied by 0.50 ((to arrive at the discount factor) and then the resulting price will be divided into the principal and accrued interest resulting in the number of shares due. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are also 440,000no warrants or options attached to this note with an exercise price of $0.25 and a life of 5 years.note.
The Company has recorded the conversion feature as a Beneficial Conversion Feature.beneficial conversion feature of $55,000. The fair value of $110,000$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.
The Company has accounted for the value of the warrants using the Black-Scholes model with a stock price of $0.38, volatility of 98%, risk free rate of 2.25%In June 2021, GS Capital elected to convert $40,000 principal and a life of 5 years. Within these parameters the Company has recorded a warrant expense of $132,593.
During the six months ended June 30, 2020, the lender converted an aggregate $11,916 of principal,$2,056 accrued interest and feesdue on the note into 5,257,1952,635,549 shares of the Company’s common stock under the conversion provision and terms of the Company.note agreement. The Company has recognized a loss on conversion of $41,406, based$44,663. As of June 30, 2021, $15,000 principal was remaining on the difference between the trading price and the valuenote. (See Note 9).
11
Table of the debt converted.Contents
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BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 76 – CONVERTIBLE NOTES (continued)
GS CAPITAL PARTNERS
On November 1, 2019, the Company entered into a financing arrangement with GS Capital Partners LLC. The face value of the note is $70,000 at an interest rate of 10% and the maturity date is November 1, 2020. At the time of the disbursement the Company received $54,450 net cash proceeds, as there was a deduction from proceeds to the Company of $3,500 for legal fees related to the issuance of the promissory note, $6,000 as prepaid interest and $6,050 as a note placement expense. 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. This represents a discount of fifty percent (50%). The number of shares to be issued in the conversion will be calculated as follows: the average price of the two lowest trading days of the preceding the days will be multiplied by 0.50 (to arrive at the discount factor) and then the resulting price will be divided into the principal and accrued interest resulting in the number of shares due. 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. The fair value of $38,032 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 six months ended June 30, 2020, the lender converted an aggregate $21,107 of principal and interest on the note into 2,329,031 shares of common stock of the Company. The Company has recognized a loss on conversion of $118,635, based on the difference between the trading price and the value of the debt converted.
ADAR ALEF
On November 4, 2019 the Company entered into a financing arrangement with Adar Alef, LLC. The face value of the note is $70,000 at an interest rate of 10% and the maturity date is November 1, 2020. At the time of the disbursement the Company received $54,450 net cash proceeds, as there was a deduction from proceeds to the Company of $3,500 for legal fees related to the issuance of the promissory note, $6,000 as prepaid interest and $6,050 as a note placement expense. 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. This represents a discount of fifty percent (50%). The number of shares to be issued in the conversion will be calculated as follows: the average price of the two lowest trading days of the preceding the days will be multiplied by 0.50 (to arrive at the discount factor) and then the resulting price will be divided into the principal and accrued interest resulting in the number of shares due. 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. The fair value of $38,040 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 six months ended June 30, 2020, the lender converted an aggregate $33,657 of principal on the note into 4,934,468 shares of common stock of the Company. The Company has recognized a loss on conversion of $137,067, based on the difference between the trading price and the value of the debt converted.
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NOTE 7 – CONVERTIBLE NOTES (continued)
POWER UP LENDING GROUP
(i) On May 21,July 24, 2020, the Company entered into a financing agreement with Power Up Lending Group to borrow $103,000$43,000 with a due date of May 21,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 63,319,67241,876,318 shares for conversion. Net proceeds from the loan were $100,000,$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.beneficial conversion feature. The fair value of $103,000$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.
NOTE 8 – NOTES PAYABLE
On April 24, 2019,January 28, 2021, Power Up elected to convert the Company was loaned $20,000 from an unrelated individual. Thetotal principal and interest due on their note was due October 24, 2019 with an interest rate of 11%. In addition, the individual received 100,000 shares of restricted common stock. These shares were valued at $30,000 which represents the trading price as of the date indicated and were recorded to interest expense. On December 13, 2019, the Company negotiated a six-month extension with the lender and paid $1,100 cash for accrued interest and issued 100,000 shares of common stock as an additional inducement for the extension. The stock was valued at $0.027 per share per the loan agreement, resulting in $2,700 of interest expense based on the stock’s closing price on that date. On AprilJuly 24, 2020 in the lender agreed to a second six month extension through October 24, 2020. As consideration for enteringprincipal amount of $43,000 and $2,150 of accrued and unpaid interest thereon into the extension, the Company agreed to pay the lender accrued interest on the note of $1,100 and to issue 100,0002,894,231 shares of the Company’s common stock valued at $0.02$0.0156 per share,share. The Company recognized a loss on conversion of $41,677.
(ii) On October 8, 2020, the closingCompany 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 stock as of the extension agreement date. The $2,000 value of the shares was recorded as interest expense and included in Common Stock to be Issued. As of June 30, 2020, the interest due had not been paid nor had the shares of common stock been issued.
On April 29, 2019, the Company was loaned $10,000 from an unrelated individual. The note was due on October 29, 2019 with an interest rate of 11%. In addition, the individual received 50,000 shares of restricted common stock. These shares were valued at $19,000 which represents thelowest trading price as of the date indicated and recorded to interest expense. On December 13, 2019, the Company negotiated a six-month extension with the lender and paid $550 cash for accrued interest and issued 50,000 shares of common stock as an additional inducement for the extension. The stock was valued at $0.027 per share per the loan agreement, resulting in $1,350 of interest expense based on the stock’s closing price on that date. On April 29, 2020, the lender agreed to a second six month extension through October 29, 2020. As consideration for entering into the extension, the Company agreed to pay the lender accrued interest on the note of $550 and to issue 50,000 shares of the Company’s common stock valued at $0.02 per share,for the closing priceprevious 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 stocktotal 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 extension agreement date. The $1,000 valuenote is being amortized over the term of the shares was recorded as interest expense and included in Common Stock to be Issued. As of June 30, 2020, the interest due had notnote. This fair value has been paid nor had the shares of common stock been issued.
On May 18, 2020, the Company entered into loan agreements with two unrelated individuals, who are current note holders in the aggregate amount of $30,000. Each of the new loans is for $12,500, an aggregate $25,000. The notes are due November 18, 2020 with interest at 11%. The notes may be prepaid at any time but in the event of the prepayment the full amount of principal and interest will required to be paid. In the event that the Company is unable to make paymentdetermined based on the due date, the default interest rate will continue at 11% but the Company is obligated to issue 500,000 shares of its common stock to each
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NOTE 8 – NOTES PAYABLE (continued)
lender. As additional consideration for entering into the loans, each individual shall be issued 200,000 shares of common stock, an aggregate 400,000 shares. The shares are valued at $0.02 per share, the closingtrading price of the Company’s common stock as of the date of the loan.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. The $8,000 value ascribedCompany recognized a loss on conversion of $80,082.
(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 been capitalizedrecorded the conversion feature as prepaid interest anda beneficial conversion feature. The fair value of $43,500 for the expense portion of the note is being amortized over the six month term of the loans. Asnote. 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. (See Note 9)
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
(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.
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 inton 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 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.
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.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
Convertible notes payable at June 30, 2021 and December 31, 2020 then underlyingare summarized as follows:
Holder | Face Amount | Interest Rate | Due Date | 2021 | 2020 | |||||||||||
| ||||||||||||||||
GS Capital Partners | $ | 55,000 | 10% | December 2, 2021 | $ | 15,000 | $ | 55,000 | ||||||||
| ||||||||||||||||
Power UP Lending Group | $ | 43,000 | 10% | July 24, 2021 | $ | 0— | $ | 43,000 | ||||||||
| $ | 53,000 | 10% | September 24, 2021 | $ | 0— | $ | 53,000 | ||||||||
$ | 43,500 | 10% | January 15, 2022 | $ | 43,500 | $ | 0— | |||||||||
$ | 103,500 | 10% | March 31, 2022 | $ | 103,500 | $ | 0— | |||||||||
| ||||||||||||||||
SE Holdings LLC | $ | 220,000 | 10% | January 26, 2022 | $ | 220,000 | $ | 0— | ||||||||
| ||||||||||||||||
Quick Capital LLC | $ | 33,275 | 10% | July 16, 2021 | $ | 33,275 | $ | 33,275 | ||||||||
| ||||||||||||||||
Adar Alef LLC | $ | 550,000 | 10% | April 29, 2022 | $ | 550,000 | $ | 0— | ||||||||
| ||||||||||||||||
Discount | $ | (816,996 | ) | $ | (158,390 | ) | ||||||||||
| ||||||||||||||||
$ | 148,279 | $ | 25,885 | |||||||||||||
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 $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 have not beenof 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 andan aggregate 300,000 shares of the $8,000 value is included in Common Stock to be Issued.Company’s common stock valued at $12,000 ($0.04 per share).
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 98 – 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.
In addition, International Hedge GroupIHG, 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 six months ended June 30, 20202021 and 20192020 the Company recorded the related party management consulting expensefees of $26,410$149,142 and $56,430 respectively. For the three months ended June 30, 2020 and 2019 the Company recorded the related party management consulting expense of $9,910 and $54,000$26,410, respectively.
During the six monthsyear ended June 30,December 31, 2020, there were no advances from related parties, and the Company repaid $22,590$23,070 to its parent company, International Hedge Group, Inc.IHG. At June 30, 2020, Joseph Kurczodyna, an officer of the Company, was owed $480; and Todd Lahr,2021, a former officer of the Company was owed $18,780.
NOTE 109 – SUBSEQUENT EVENTS
•
On July 6, 2021, GS Capital elected to convert the remaining $15,000 principal and accrued interest of $879 due on their note into 976,954 shares of the Company’s common stock ($0.016375 per share) under the conversion provision and terms of the note agreement.
•
In July 2021, Power Up elected to convert (in two tranches) the total principal of $43,500 due on their note of January 15, 2021 together with accrued upaid 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 August 2020,2,268,443 shares at $0.0122 per share) under the conversion provision and terms of the note agreement.
•
On July 26, 2021, the Company issued sharesentered 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 to two convertible note holders as consideration for debt conversion as follows:
Management has evaluated significant subsequent events through September 4, 2020,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.
•
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.
The Company has analyzed its operations subsequent to June 30, 2021 through the date that these financial statements were availableissued, and has determined that it does not have any additional material subsequent events to be issued, noting none that require additional disclosure.disclose.
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ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements and Associated Risks.
This formForm 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”,“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 June 30, 2020,2021, we had an accumulated deficit totaling $4,905,754.($7,000,422). 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 atof 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.
Recent Updates – The Company has designedis finalizing the design and is constructingbuild of the Peer-to-Peer (“P2P”) BlackStar EnterpriseDigital 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 itselfcurrently evaluating its options for the next major step in the process – BDTP will need to trade BEGI common shares digital on Amazon’s Blockchain while complyingbe paired 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 forregistered Alternative Trading System (“ATS”) status. BlackStarprior to implementation. To that end, the Company is evaluating its options, including exploring partnerships with existing ATS’s.
CurrentlyATS’s and other strategies to go live with BDTP in the demonstration phase, we estimate finalizing the BDTP at a cost of $60,000 USD over the next five monthsaccordance with existing laws and are seeking funds for the final production of the platform.regulations. As of the date of this filing, the initial demo of BDTP is complete and BlackStar intends to continue to seek further input from various regulatory agencies and OTC Marketsothers 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
16
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-dealer and clearing firms 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.
WeContingent upon successfully raising funds, we intend to expend funds over the next four quarters as follows:
| 3rd Quarter | ·Ventures/BDTP | · | |
| ·Operations | · | ||
| 4th Quarter 2021 | ·Ventures/BDTP | ·$250,000 | |
| ·Operations | ·$100,000 | ||
| ·Ventures/BDTP | · | ||
| ·Operations | · | ||
| 2nd Quarter 2022 | ·Ventures/BDTP | ·$250,000 | |
| ·Operations | |||
| · | |||
Our Budget for operations in the currentnext 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 |
| 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.activities to date.
Based on our current cash reserves of $37,975approximately $554,657 as of June 30, 2020,July 31, 2021, we have limitedthe cash for an operational budget.budget of less than six months. We have recently received funds from convertible promissory notesintend 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 $700,000at least $1,000,000 in funding in the next six months.year. We have not yet commenced the offering, but mayintend to commence this offering in the 3rd Quarterwinter of 2020.2021. If we are unable to generate enough revenueto 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, 2019,2020, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
Since
While our cash reserves were $37,975 as of the end of the 2nd Quarter,only $32,987 in December 2020, our parent company, IHG, mayhas agreed to fund on an interim basis any shortfall in our cash reserves. If received, weWe would use thoseour funds to pay legal, accounting, office rent and general and administrative expense. We have estimated $200,000$50,000 for the remainingfirst and fourth quarters and $100,000 in the second and third quarters in 20202021 in operationaloperations costs which includes ordinary legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. 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 June 30, 20202021 compared to same period in 20192020
During the three months ended June 30, 20202021 and 2019,2020, we had no revenues. Duringrevenue. For the three months ended June 30, 2020,2021, we recognized a net loss of $(401,043)$711,920 as compared to a net loss of $(442,889) during$401,043 for the three months ended June 30, 2019.2020. Our operating expenses included $9,910$98,000 in related party management consulting fees, $46,791$23,804 in legal and professional fees, and $31,114$139,526 in general and administrative fees, for a total of $87,815$261,330 for the three months ended June 30, 2020. Lower2021. Higher related party management consulting fees decreasedand an increase in costs for fund raising increased the total operating expenses in the three months ended June 30, 2020
17
2021 by $58,426$173,514 compared to the same periodthree months ended June 30, 2019.2020. Our net loss from operations was $(87,815)$261,329 for the three months ended June 30, 20202021 compared to net loss from operations of $(146,261)$87,815 for the same period ended June 30, 2019.2020.
For the three months ended June 30, 2020,2021, we amorizedhad 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 notepromissory notes that we have used to finance our continued operations. This resulted in net other expenses of $(26,273), convertible debt issuance costs of $(3,077), loss on note payable conversions of $(276,563) and recognized interest expense of $(7,315), resulting$450,590 for the three months ended June 30, 2021 a compared to $313,228 for the same period in other net expenses of $(313,228).2020. For the three months ended June 30, 2019, we had2020 the Company recognized $26,273 for amortization of discount on convertible notes, as compared to $251,507 for the three months ended June 30, 2021. This increase was due to increased funding from convertible note expenses of $(110,000), a warrant expense of $(132,593), and interest expense of $(54,055), resulting in other net expenses of $(296,648).issuances for the 2021 three month period as compared to the 2020 three month period.
Net loss per share for the 2021 and 2020 three-month periodperiods was $0.01 in 2020 and 2019 was $(0.01) and $(0.01) per share, respectively.each of the periods.
For the Six Months Ended June 30, 20202021 compared to same period in 20192020
During the six months ended June 30, 20202021 and 2019,2020, we had no revenues. Duringrevenue. For the six months ended June 30, 2020,2021, we recognized a net loss of $(505,152)$1,034,229 compared to a net loss of $(459,003) during the six months ended June 30, 2019. The net loss$505,152 for the six months ended June 30, 2020 was due to operating expenses of $122,934.2020. Our operating expenses included $26,410$149,142 in related party management consulting fees-related, $49,791fees, $46,304 in legal and professional fees, and $46,733$195,172 in general and administrative fees, for a total of $122,934$390,618 for the six months ended June 30, 2021. Higher related party management consulting fees and an increase in costs for fund raising increased the total operating expenses in the six months ended June 30, 2021 by $122,732 compared to the six months ended June 30, 2020. Operating expenses were lower by $38,375Our net loss from operations was $1,034,229 for the six months ended June 30, 20202021 compared to the same period in 2019, due mainly to lower legal and professional fees and management consulting fees, resulting in a lower net loss for the six months ended June 30, 2020 compared to the same period in 2019. Our net loss from operations was $(122,934) for the six months ended June 30, 2020 compared to net loss from operations of $(161,309)$122,934 for the same period ended June 30, 2019.2020.
For the six months ended June 30, 2020,2021, we amortizedhad 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 notepromissory notes that we have used to finance our continued operations. This resulted in net other expenses of $(59,516), $(9,577)$643,611 for the six months ended June 30, 2021 as compared to $382,218 for the same period in convertible debt issuance costs, loss on note payable conversions of $(297,108) and recognized interest expense of $(16,017), resulting in other net expenses of $(382,218).2020. For the six months ended June 30, 2019, we had2020 the Company recognized $59,516 for amortization of discount on convertible notes, as compared to $350,089 for the six months ended June 30, 2021. This increase was due to increased funding from convertible note expenses of $(110,000), a warrant expense of $(132,593), and interest expense of $(55,101), resulting in other net expenses of $(297,694).issuances for the 2021 period as compared to the 2020 period.
Net loss per share for the 2021 and 2020 six-month periodperiods was $0.01 in 2020 and 2019 was $(0.01) and $(0.01) per share, respectively.each of the periods.
Our auditorManagement has expressedevaluated the current business plan, ongoing operations and financial position of the Company as of June 30, 2021, and has determined that there is substantial doubt as to whether wethe Company will be able to continue to operate as a “going concern” due to the fact that the. The Company has an accumulated deficit of $(4,905,754)$7,000,422 as of June 30, 2020,2021, compared to an accumulated deficit of $(4,400,602) at$4,905,754 as of December 31, 2019,2020, 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
AtAs of June 30, 2020,2021, we had total current assets of $48,438$519,681 comprised of $37,975$505,485 in cash and $10,463$14,196 in prepaid expenses, compared to $43,808$84,211 total current assets at December 31, 2019. Our total assets at June 30, 2020 were $48,438 compared to $43,808 as of December 31, 2019.2020. Our total assets as of June 30, 2021 were $585,681 compared to $94,211 as of December 31, 2020. Current liabilities atas of June 30, 20202021 were $310,079$234,625 compared to $278,086 at$129,062 as of December 31, 2019.2020. Current liabilities atas of June 30, 20202021 consisted of accounts payable of $54,450,$11,024, accrued liabilities of $14,183,$26,542, advances payable to related parties of $19,260,$18,780, convertible promissory notes of $295,337, before$148,279, net of discounts of $128,151,$816,996, and notes payable of $55,000. At$30,000. As of June 30, 2020,2021, we had a deficit of ($261,641)$285,056 in working capital, compared to a deficitnegative working capital of ($234,278) atof $44,851 as of December 31, 2019.2020.
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 enter into additional joint ventures and would intend to use the funds repaid from the joint ventures to a) retire debt, and b) fund additional joint ventures with companies, and c) to 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
18
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 six months ended June 30, 2020,2021, the Company had no cash received $0 from subscription agreementsequity offerings or private placement offerings. The Company received shareholder contributions, in the amountand we received $779,500 from convertible notes, net of $0 inoffering costs and original issue discounts; During the six months ended June 30, 2020. We received $125,000 from2021 and 2020, $142,856 and $87,225, respectively in principal and and interest on convertible notes payable and made $22,590 of repayments in advances from related parties. Net cash provided by financing activities was $102,410 for the six months ended June 30, 2020, comparedconverted to $150,478 for the same period the year before.common stock
Investing Activities
Net cash used in investing activities was $0$36,000 for bothsoftware development for the six-month periodsperiod ended June 30, 2020 and 2019.2021, as compared to $0 for the six months ended June 30, 2020.
Operating Activities
During the six months ended June 30, 2020, we2021, net cash used $(97,686) in cash for our net operating activities was $251,002, compared to $(136,353)$97,686 used in operating activities for the same period in 2019. We recorded $02020. The increased amount of cash used in operating activities is attributable to increases in operating and $10,000 in cash paid for interestother expenses, increasing the net loss for the six months ended June 30, 2020 and 2019, respectively, and had notes payable and interest converted to common stock of $87,225 and $16,000 for the six months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020, the Company included $8,000 in prepaid expenses and common stock to be issued for interest on new loans.
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 June 30, 20202021 and December 31, 2019,2020, we had accumulated deficit of $(4,905,754)$7,000,422 and $(4,400,602),$5,966,193, respectively and we will require additional working capital to fund operations through 20202021 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, 2019,2020, 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.
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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
NoneNone.
ItemITEM 3. Quantitative and Qualitative Disclosures About Market Risk.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.
ItemITEM 4. Controls and ProceduresCONTROLS 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 June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
None.
In light of the current COVID-19 global pandemic, the Company included the first two new risk factors below in the annual report for the year ended December 31, 2019. The Company additionally will add the subsequent risk factors going forward until further notice.
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.
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.
UNKNOWN DURATION AND IMPACT OF COVID-19.
As the COVID-19 pandemic is complex and rapidly evolving, the Company's plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows. Other than the accounting delay in our periodic reports in the first few months of the pandemic, we do not currently believe that COVID-19 will substantially impair the long-term operations of our business, as we are not reliant on a physical presence or brick-and-mortar business; however, our ability to find investors, obtain financing, and generally fund our ongoing operations may be impacted due to the ongoing and anticipated economic downturn, the length and severity of which is unknown at this time.
Other than as provided above, thereThere are no material changes to risk factors as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2019.2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
CONVERTIBLE NOTES
OnAside from what has been disclosed in our Registration Statement on Form S-1 filed July 16, 2021, the Quarterly Report on Form 10-Q filed May 21, 2020,17, 2021, the Annual Report on Form 10-K filed April 12, 2021, and in the Current Reports on Form 8-K filed April 8, 2021 and August 3, 2021, the Company entered into a financing agreement with Power Up Lending Group to borrow $103,000 with a due datehad no unregistered sales of May 21, 2021. The note bears interest at 10%, with a default rate of 22%,equity securities for the three months ended June 30, 2021 and is convertible, commencing 180 days afterthrough 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 63,319,672 shares for conversion. Net proceeds from the loan were $100,000, after legal fees and offering costs of $3,000. These fees and costs are being amortized over the term of the note. Details of the note can be found in the Form 8-K filed June 2, 2020. The proceeds of the note will be used for operational expenses.filing.
The Company has recorded the conversion feature as a Beneficial Conversion Feature. The fair value of $103,000 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.
NOTES PAYABLE
On May 18, 2020, the Company entered into loan agreements with two unrelated individuals, who are current note holders in the aggregate amount of $30,000. Each of the new loans is for $12,500, an aggregate $25,000. The notes are due November 18, 2020 with interest at 11%. The notes may be prepaid at any time but in the event of the prepayment the full amount of principal and interest will required to be paid. In the event that the Company is unable to make payment on the due date the default interest rate will continue at 11% but the Company is obligated to issue 500,000 shares of its common stock to each lender. As additional consideration for entering into the loans, each individual shall be issued 200,000 shares of common stock, an aggregate 400,000 shares. The shares are valued at $0.02 per share, the closing price of the Company’s common stock as of the date of the loan. The $8,000 value ascribed to the shares has been capitalized as prepaid interest and is being
amortized over the six month term of the loans. As of June 30, 2020, then underlying shares have not been issued and the $8,000 value is included in Common Stock to be Issued. The proceeds of the loans will be used for operational expenses.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
Not Applicable.None.
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 |
| 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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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: | By: | /s/ John Noble Harris |
| John Noble Harris | ||
| (Chief Executive Officer, Principal Executive | ||
| Officer) | ||
| Dated: | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer, Principal Accounting Officer) | ||