UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10/A
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
BlackStar Enterprise Group, Inc.
(Exact name of registrant as specified
in its charter)
DELAWARE
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27-1120628
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State or other jurisdiction of incorporation or organization
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IRS Identification No.
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4450 Arapahoe Ave., Suite 100
Boulder, CO 80303
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number: (303) 500-5073
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Securities to be registered under Section 12(b) of the Act:
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Title of each class to be so registered
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Name of each exchange on which each class is to be registered
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None
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None
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Securities to be registered under Section 12(g) of the Act:
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Common Stock, par value $0.001
(Title of class)
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Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check One).
Large accelerated filer
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[___]
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Accelerated filer
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[___]
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Non-accelerated filer
(Do not check if a smaller reporting company)
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[___]
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Smaller reporting company
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[_X_]
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TABLE OF CONTENTS
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Title
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Page Number
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Item 1
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BUSINESS
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3
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Item 1A
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RISK FACTORS
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19
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Item 2
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FINANCIAL INFORMATION
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29
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Item 3
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PROPERTIES
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37
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Item 4
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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38
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Item 5
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DIRECTORS AND EXECUTIVE OFFICERS
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41
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Item 6
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EXECUTIVE COMPENSATION
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44
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Item 7
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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46
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Item 8
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LEGAL PROCEEDINGS
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47
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Item 9
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MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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48
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Item 10
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RECENT SALES OF UNREGISTERED SECURITIES
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51
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Item 11
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DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED
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52
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Item 12
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
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52
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Item 13
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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53
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Item 14
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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54
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Item 15
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FINANCIAL STATEMENTS AND EXHIBITS
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54
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-2-
General
The following is
a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document
to “BlackStar Enterprise,” “BEGI,” “Company,” “We,” “Us”, or “Our”
are to BlackStar Enterprise Group, Inc. and our subsidiaries.
ITEM 1. BUSINESS
BlackStar Enterprise Group, Inc. is filing
this Form 10 on a voluntary basis in order to become a 12(g) registered company under the Securities Exchange Act of 1934. Sixty
60 days after the filing of this registration statement it will become effective and we will be automatically subject to future
reporting obligations. As of the date of this registration statement, we are engaged in Merchant Banking and Finance and we have
recognized net losses of ($37,930) since January 1, 2016 through September 30, 2016. We have relied solely on sales of our securities
to fund our operations. To execute our business plan, our parent company, International Hedge Group, Inc., through a Securities
Purchase Agreement dated January 25, 2016, acquired 95% of the common stock and the Class A Super Majority Voting Preferred Stock,
1,000,000 shares, of our Company funded for $100,000 in August 2016 and funded for an additional $250,000 in October 2016 for working
capital. To fund ongoing operations, we may raise funds in the future, which are not yet committed.
Reports to Security Holders
Once we are subject to the reporting requirements
of Section 12(g) of the Exchange Act, we intend to file all required disclosures.
You may read and copy any materials we file
with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains
an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC, which can be found at http://www.sec.gov.
Jumpstart Our Business Startups Act
We qualify as an “emerging growth company”
as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we did not have more than $1,000,000,000
in annual gross revenue and did not have such amount as of December 31, 2015, our last fiscal year.
We may lose our status as an emerging growth
company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,000,000,000 or (ii) we issue more
than $1,000,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company if at
any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of
our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective
registration statement.
As an emerging growth company, we may take advantage
of specified reduced reporting and other burdens that are otherwise applicable to generally reporting companies. These provisions
include:
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A requirement to have
only two years of audited financial statement and only two years of related Management Discussion and Analysis Disclosures:
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Reduced disclosure about
the emerging growth company’s executive compensation arrangements; and
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No non-binding advisory
votes on executive compensation or golden parachute arrangements.
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As an emerging growth company, we are exempt
from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Such sections
are provided below:
Section 404(b) of the Sarbanes-Oxley
Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal
controls.
Sections
14A(a) and (b) of the Securities and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold
shareholder advisory votes on executive compensation and golden parachute compensation.
We have already taken advantage of these reduced
reporting burdens in this registration statement, which are also available to us as a smaller reporting company as defined under
Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As long as we qualify as an emerging growth
company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section
14A(a) and (b) of the Securities Exchange Act of 1934.
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards.
We are choosing to irrevocably opt out of the extended transition period for complying with new or revised accounting standards
under Section 102(b)(2) of the JOBS Act.
HISTORY
Our Company, BlackStar Enterprise Group,
Inc. (“BlackStar Enterprise,” “We,” or the “Company”) was originally formed on December 17,
2007 as NPI08, Inc. in the State of Delaware. Our name was changed in 2010 to BlackStar Energy Group, Inc. In August of 2016, our
name was changed to BlackStar Enterprise Group, Inc.
Our Company was divested from Kingsley
Capital, Inc. in a bankruptcy proceeding in 2008 in which Kingsley was the debtor. Our Company attempted to start up in the energy
business in 2010 without success, resulting in losses totaling $1,819,530 over a three-year period. Our Company was inactive until
2016 when new management and capital were introduced.
BlackStar Enterprise Group, Inc. is engaged
in Merchant Banking and Finance. BlackStar Enterprise’s venue is private early stage companies throughout various industries
that exhibit a potential for sustained growth in our judgment. We are actively seeking opportunity for discussion with revenue
generating enterprises and emerging companies for financing. BlackStar Enterprise Group, Inc. is traded on the OTC Pink Sheets
under the symbol “BEGI.”
Our principal executive offices are located
at 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303 and our office telephone number is (303) 500-5073. We maintain a website at
www.blackstarenterprisegroup.com, and such website is not incorporated into or a part of this filing.
International Hedge
Group, Inc. (“IHG”), our parent company, contracted to acquire 95% of our outstanding stock in January 2016 and closed
on the purchase in summer of 2016. IHG is our controlling shareholder and is engaged in providing management services to companies,
and, on occasion, capital consulting. IHG’s strategy in investing in BlackStar Enterprise Group, Inc. is to own a controlling
interest in a publicly quoted company which has the legal ability and mission to do loan based funding of start-up and developed
business ventures using its stock for private placement or public offerings. IHG and BlackStar are managed and controlled by the
same individuals, but IHG may seek its funding from different and as yet, undetermined sources, with funding structures of different
natures.
-4-
CORPORATE STRUCTURE
Our corporate structure is as follows:
INTERNATIONAL HEDGE GROUP, INC.
(Parent Company – a Colorado
corporation)
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BLACKSTAR ENTERPRISE GROUP, INC.
(a Delaware corporation)
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We have no subsidiaries at this time.
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CURRENT BUSINESS
Our Company, BlackStar Enterprise Group, Inc. intends
to be a micro cap merchant banking and finance firm that serves clients in their early corporate lifecycles
and which may provide funding in the form of loans, factoring, convertible debt, equity, and joint ventures. We have only engaged
in one transaction in a merchant bank form to date.
Our investment strategy focuses primarily on making secured and unsecured debt
investments in or joint 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." We may also invest in equity or
equity-related
IHG intends to enter into management consulting
agreements with companies in which BlackStar provides funding to attempt to guide the companies in the complex business world for
the purpose of protecting and enhancing the loans made by BlackStar.
SERVICES
We seek debt investments in private, or public
emerging commercial-stage businesses with perceived strong growth prospects within certain industry sectors. We will not fund a
company unless our parent, International Hedge Group, Inc., has a consulting engagement so that our client companies can be monitored
as to their financial situations. We may, under our loan documents and certain circumstances, convert our debt to equity (in whole
or in part) and we may receive warrants in the borrower companies, for loans, factoring, or joint ventures.
Given our early-stage focus, our borrower companies
will typically have an estimated path to liquidity in a three-year +/- timeframe. We seek to invest up to $1 million per company
in senior debt securities. We may provide off-balance sheet financing to client companies, through joint ventures or limited liability
companies under structures we cannot now predict.
Our success will be dependent upon are our abilities
to analyze and manage the lending opportunities presented to us.
Our management may earn shares of our Company
under our Stock Option and Award Plan as incentives on the basis of achievement, and all are accountable to each other, as well
as the shareholders, and bonus awards are intended based upon individual performance, as well as team cooperation, and enterprise
building.
We intend to focus on making secured and unsecured
debt investments in emerging growth companies. We intend to primarily make debt investments in companies across various stages
of development, including early and growth stage companies, more established companies and lower middle market companies. We may
also very occasionally invest in equity and equity-related securities, and joint ventures.
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Our operating principles
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Participate in debt underwritings which
we feel we can support, with economics that reflect our relative value-add;
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Provide alternative debt and joint venture
funding for entrepreneurs; this could be in the form of debt convertible to equity, or warrants coupled with the loan, or could
be in the form of a joint venture structure where we co-own a limited liability company to fund a project for an emerging growth
company.
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Requirements for investees:
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(1)
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We require GAAP and SEC accounting compliance
from day one.
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(2)
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We require competent and efficient legal
representation of our-(the lender), side from day one.
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(3)
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Our management intends to choose borrower
companies with real managers in the borrower companies, without the excess costs of headhunting and unsuccessful attempts to bring
in “name” management which rarely succeeds and which dilutes the shareholders equity with overpaid and underperforming
execs.
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INVESTMENT OBJECTIVES
CAPITAL APPRECIATION. Our primary investment
objective is to provide our shareholders with long term capital appreciation by investing primarily in loans, convertible debt
or convertible preferred securities of small public or private companies or joint ventures with selective private companies seeking
to go public.
We believe that a typical loan will have a three-year window, and when applied over a number
of investments in loans with equity features, conversions or warrants will provide, in time, progressive capital returns and potential
profits, which in time gives capital appreciation over a long term. Our investment objective is to restrict our investments to
emerging growth companies we believe offer special opportunities and meet our loan criteria, and we intend to reduce the risks
associated with investments in startups. Our goal is to provide mezzanine and expansion loan capital to companies in order to assist
them in devising a comprehensive growth strategy, possibly involving a consolidation of similarly situated businesses or a geographic
expansion of existing product or service offerings.
CAPITAL PRESERVATION. A
second investment objective is to preserve investor capital through risk management and monitoring the management of our loan portfolio.
Among the risk management techniques which we expect to employ are: (i) limiting our investments in very early stage companies,
(ii) retaining minor equity interests in one or more borrower companies that have a positive cash flow; (iii) co-investing in borrower
companies with other professional venture capital. We will not provide significant services to our borrowers, but our parent company
may be so engaged (See “Conflicts of Interests”). Any single loan investment is risky. Many will not provide any gain,
and some will be complete losses.
OUR APPROACH COMPARED TO TRADITIONAL SOURCES
OF VENTURE FINANCING
Emerging companies traditionally seek financing
for growth from three primary sources: small private placements, independent private venture capital funds and corporate strategic
investors. Each of these sources has advantages but also notable disadvantages for the emerging company. Small Private Placements
are often underfunded and untimely. Venture capital funds generally are established for a limited term and their primary goal is
to maximize their financial return within a short time frame, often two years or less with severe terms for extensions or additional
funding.
A venture capital fund often seeks to liquidate
its investment in the emerging company
-6-
by encouraging either an early initial public offering or a sale. This often can
jeopardize an emerging company's chances for success especially if its business
has not been fully developed or its intellectual property fully safeguarded
prior to its debut into the market.
Corporate strategic investors are typically
large corporations that invest in emerging companies to gain access to a promising product or technology without incurring the
initial cost of development or the diversion of managerial time and attention necessary to develop new products or technologies.
Often these investments involve both financing support to the emerging company and an arrangement under which the strategic investor
obtains the right to use, and intellectual property ownership of, the products or technology of the emerging company. While strategic
investors are generally able to provide business development support, the rationale behind the investment of a strategic investor
may be incompatible with the development of the emerging company. Strategic investors often discourage the emerging company from
becoming a public company, selling to competitors of the strategic investor or from retaining the intellectual property rights
to products developed jointly with the strategic investor.
We may be limited in our ability to fund borrower
companies because we may not be successful in raising additional funds for any follow loans. Through the public market for our common stock,
we hope to have access to additional equity capital that may be needed for follow on loans.
We believe that our advantage over a strategic
investor is that our interests are more closely aligned with those of the emerging company. An initial public offering of the emerging
company, our borrower, often required to raise the additional capital investment necessary to fully develop a company's product
or technology, would also benefit us by creating repayment of our loan, and possibly in certain instances, an equity position.
OUR INVESTMENT POLICIES
We may loan to or invest in companies which
do not have any annual revenue, if we have determined that an investment in the securities of such company is reasonable and may
allow us to exit our investment.
Although we may seek to loan to or invest in
companies with existing positive EBITDA (earnings before interest, income taxes, depreciation and amortization), we may also consider
turn around situations where we can clearly identify the source(s) of financial distress. Through our investment, or through co-investment
with other private equity funding sources we may readily ascertain performance improvements. We will not change our investment
intent of investing in a diverse array of industries by restricting our investment criteria to any single industry or sector.
We expect to realize value for our shareholders
by obtaining loan repayment and, if applicable to the solution, selling any equity securities resulting from convertible debt or
warrants of our borrower companies for a profit, either to private investors or when the companies might become public. In the
shorter term, we do not anticipate paying any dividends or making other distributions but this may change in the future. We may
not always achieve full loan repayment from a borrower. We may not be successful in selling any equity securities of our borrower
companies for a profit at any time in the future.
UNLESS OTHERWISE STATED HEREIN, ALL OF THE FOLLOWING
POLICIES ARE SUBJECT TO CHANGE WITHOUT ANY VOTE OF THE HOLDERS OF A MAJORITY OF OUR VOTING SECURITIES.
Our borrowers loan will typically be negotiated
directly with the issuer in private transactions. Our borrower companies may be in the form of loans with stock and/or warrants
or in the form of preferred stock and/or debentures that are convertible into common stock under certain circumstances.
After our initial loan, we anticipate that we
may provide additional or follow on financing or introduce our borrower companies to other private equity funding sources for such
“follow on” funding.
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In selecting loan investments for our borrower,
we will endeavor to meet our guidelines, as established by our Board which include the following concepts. We may, however, make
investments that do not conform to one or more of these guidelines when deemed appropriate by our Board of Directors. Such investments
might be made if we believe that a failure to conform in one area is offset by exceptional strength in another or is compensated
for by a higher yield, favorable warrant issuance or other attractive terms or features.
LOAN CRITERIA
STAGE OF DEVELOPMENT CRITERIA.
We are a special situations Company. We will primarily look for opportunities with a core business which we believe will provide
us with a return of investment and on investment within a moderate period of time, typically targeting about thirty-six months.
Our objective is to invest in emerging corporations which meet our requirements as well as qualitative potential that we look for in each opportunity. In addition, we will look to invest in public corporations which have a small market
capitalization but which either have shifted in business direction, been subject to a reorganization or recapitalization or other
significant change. In such instances, we may relax our quantitative requirements with the view to assist such companies in developing
a strategic business plan which may include merger or acquisition of other private operating businesses which may be synergistic
to the existing business of the public corporation.
The stages of development are defined as follows:
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Seed capital companies represent the earliest stage of development.
These companies have raised relatively modest equity capital to prove a concept and qualify for start-up capital. Their activities
generally are limited to product development, scientific and market research, recruiting a management team and developing a business
plan. These companies likely do not have financial support from either venture capitalists or larger companies making strategic
investments.
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Start-up stage companies are completing or have recently completed
product development and initial marketing, but have not sold their products commercially. Generally such firms have made market
studies, assembled key management, developed a business plan and are ready to commence operations.
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Expansion stage companies have initiated or are about to initiate
full-scale operations and sales, but may not be showing a profit.
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Mezzanine stage companies are approaching or have attained break
even or profitability and are continuing to expand. An acquisition or initial public offering may be imminent.
Classification of a company by stage of development
necessarily involves our subjective judgment, and it is possible that other investors or market analysts would classify a company
differently than the classification used by our Company.
QUALITATIVE CRITERIA. All potential borrower
companies will first be evaluated and assessed based on their relative stage of development and the quality of an investment in
such borrower company based on the above criteria. Once our management team has determined that a potential borrower company satisfies
the above criteria and is suitable for investment, it will then be evaluated using the multi-step process described below. After
completion of the process, receipt and review of all internal and outside reports and evaluations of the potential borrower company,
the Board will submit the matter of investing in the potential borrower company to a vote. If the Board approves the investment,
we will then proceed with a written offer, establish a disbursement of proceeds schedule, and prepare appropriate documents to
reflect our loan and any management service contracts between the potential borrower company and our company.
We intend to follow the steps set forth below
in our lending process:
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(1) BUSINESS PLAN/ASSESSMENT . Business
plan description and complete resumes of management from all entrepreneurs. Members of our management team will meet with the best
of these entrepreneurs, attempting to identify key traits that have been associated with entrepreneurial success in the past, such
as high energy, a must-win attitude, intellectual brilliance, high personal integrity, relevant experience, a strong work ethic,
and the ability to prioritize and focus. A business plan submitted for evaluation to us should contain the following information:
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Overview of the business concept as well as the company's strategic
focus and direction.
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Discussion of competition including a discussion of specialized
expertise, intellectual property, patents, and/or other unique advantages held by either the company or its competitors.
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Sources and uses of cash with respect to investment capital sought.
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Pro forma financial projections for at least the current year and
two subsequent years including expected capital requirements from the time of the investment capital received through the two subsequent
years.
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Operating plan including current and projected staffing, equipment,
and space requirements.
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Discussion of minimum dollar proceeds necessary in order to implement
the business plan.
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Marketing plan.
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Discussion of conflicts of interest with investors together with
steps being taken by the borrower company to mitigate such conflicts of interest and to protect against future conflicts of interest.
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Resumes for all key officers/managers.
(2) EVALUATE POTENTIAL MARKET. We
have developed relationships with consultants, who represent a valuable source of information about a target investment's market.
We will call upon these contacts as well as create new ones in the markets of each company seeking funding. As we evaluate markets,
we must become confident that the company can attain a competitive market position over time.
(3) EXAMINE STRUCTURE OF BUSINESS
MODEL. We will examine the structure upon which the business plan is built. The Board has indicated a distinct bias toward business
models calling for high gross margins and relatively low capital intensiveness. Such businesses have the potential for higher internally
sustainable growth rates than average and superior return on equity invested. In addition, we will require, whenever possible,
implementation of the following policies into the articles, bylaws or operating agreements of its borrower companies:
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There can be only one class of common shares, all with equal voting
rights, and all distributions of capital or earnings can only be made to all members based upon their percentage interest without
preference;
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Compensation of the key officers/managers and their affiliates,
including, but not limited to, all salary, bonuses, commissions and/or fees, shall be limited based upon the success of the borrower
company in reaching predetermined milestones; and
-9-
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The primary responsibility of the management/officers of the entity
is to serve as fiduciaries charged with serving the best interests of the stockholders/members even when such interests may be
in conflict with the management, officers or other employees of the entity.
(4) CHECK REFERENCES. We will require
that each entrepreneur supply a list of references in order that we may get a better sense of the entrepreneur's past experience,
strengths, weaknesses, and work habits. We make it a point to get references outside of this list as well, in order to avoid only
"cherry-picked references." We believe that these checks are important to develop a more complete and accurate picture
of the team.
(5) CALL CUSTOMERS AND SUPPLIERS.
We intend to call a number of current and/or prospective customers and suppliers to get a sense of how they view the targeted investment
including its products and the market.
(6) EVALUATE PRODUCTS/TECHNOLOGY.
As part of our analysis, we will evaluate the target borrower’s current products, development pipeline and underlying technology.
To evaluate technology, we will not rely on in-house expertise alone, but will contact and hire appropriate specialists and consultants.
(7) EVALUATE RISKS/REWARDS. Evaluate
the pro-forma financials, the likelihood of an exit after a 6 month to 24 month holding period.
(8) NEGOTIATE LOAN TERMS. When deciding
on making an investment, we will draw up a term sheet for negotiation, and terms will be agreed upon.
(9) FINANCIALS AND CORPORATE INFORMATION.
In addition, consideration of an
investment in mezzanine and growth stage companies will require a careful evaluation of their financial records, including an evaluation
of the following:
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Financial statements and notes to the financial statements including:
management discussion of operations and liquidity; details regarding all forms of actual compensation of management and affiliates
to compensation by the entity; number of shares outstanding at the beginning of the period and the end of the period and an explanation
of the difference, if any; and a detailed discussion of the entity's rights and obligations under any joint ventures entered into
along with a full discussion of any conflicts of interest management may have in entering into such joint ventures on behalf of
the entity;
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Equipment list and appraisal of equipment;
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Facilities, current product descriptions;
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Current management resumes, employment contracts;
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All material contracts (and amendments) currently in effect, including,
without limitation, leases, sales, purchase, financing, distribution, franchise, intellectual property, employment, insurance,
employee benefit, and joint venture contracts; currently outstanding contractual offers by and to the company;
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Correspondence with contracting parties regarding contract interpretation,
claims, or threats of contract litigation;
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Documents relating to the company's internal determinations as to
whether it can, or should, fulfill a particular contract;
-10-
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Documents relating to material acquisitions and divestitures for
the immediately preceding five years, particularly agreements involving covenants by or in favor of the company;
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Minute books of the company, including minutes of the meetings of
the board of directors, any committee (whether of the board or otherwise), and shareholders for the last five years to date;
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All stock option, bonus, incentive, or pension plans, and any other
agreements to issue shares of the company or any of its subsidiaries in the future;
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All agreements under which registration or preemptive-rights are
granted to shareholders of the company; and
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All agreements, offering circulars, letters of intent, written proposals,
or memoranda of any oral proposals for the disposition, acquisition, or distribution of any of the assets or shares of the company.
WARRANTS AND EQUITY SECURITIES. We expect to
acquire warrants to purchase equity securities and convertible debt of eligible borrower companies in connection with providing
loan financing. The terms of the warrants, including the expiration date, exercise price and terms of the equity security for which
the warrant may be exercised, will be negotiated individually with each eligible borrower company, and will likely be affected
by the price and terms of securities issued by the eligible borrower company to other venture capitalists and other holders. It
is anticipated that most warrants will be for a term of three to five years, and will have an exercise price related to the price
at which the eligible borrower company most recently issued equity securities or, if a new equity offering is imminent, will next
issue equity securities. The equity securities for which a warrant can be exercised generally will be common stock (of which there
may be one or more classes) or convertible preferred stock. Substantially all of the warrants and underlying equity securities
to be obtained by us will be restricted securities under the Securities Act at the time of their issuance. We intend to negotiate
registration rights with borrower companies such as (i) "piggyback" registration rights, which would permit us under
certain circumstances to include some or all of the securities owned by us in a registration statement filed by the eligible borrower
company, or (ii) in rare circumstances, "demand" registration rights permitting us under certain circumstances to require
the eligible borrower company to register the securities under the Securities Act (in some cases at our expense). We also intend
to request "cashless" provisions in the warrants, which would allow us to receive, upon exercise of the warrant without
payment of any cash, a net amount of shares determined by the increase in the value of the issuer's stock above the exercise price
stated in the warrant.
Each warrant or stock purchase is expected to
contain customary and negotiated representations, warranties, covenants and events of default to protect us.
LEVERAGE. We intend to borrow money from and
issue debt securities to investment funds. The use of leverage increases investment risk. Lenders may require that we pledge borrower
assets as collateral for loans. If we are unable to service the borrowings, we may risk the loss of such pledged assets. Lenders
are also expected to require that we agree to covenants limiting our ability to incur additional debt or otherwise limiting our
flexibility. Typically, such loan agreements provide for acceleration of the maturity of the indebtedness if certain financial
tests are not met.
RESERVES. We may retain reserves after the investment in order to have
sufficient funds for equity-oriented follow-on investments in borrower
companies. We intend to sell additional common stock to meet the funding
requirements for such follow on investments. If such sales are successful, we
expect to have cash reserves. In order to
-11-
enhance the rate of return on these reserves and increase the amounts ultimately
available for investments and our operating costs, we plan to engage in a
reserve management strategy that will include making secured loans to borrower
companies, potential borrower companies, or similar types of corporations.
AVERAGE LOAN OR INVESTMENT. The amount of funds
committed to a borrower company will vary depending on the funds available to us, the quality and completeness of the borrower
company's management team, the perceived business opportunity, the capital required compared to existing capital, and the potential
return. Although loan or investment amounts will vary considerably, we expect that the average loan (excluding follow-on investments)
will be between $250,000 and $2,000,000.
OTHER INVESTMENT POLICIES. We may sell securities
short or acquire significant amounts of equity securities within a single issuer. We will not purchase securities on margin (except
to the extent our permitted borrowings are deemed to constitute margin purchases), write puts or calls, purchase or sell commodities
or commodity contracts. We will not underwrite the securities of other companies, except to the extent we may be deemed an underwriter
upon the disposition of restricted securities acquired in the ordinary course of our business.
INDUSTRY ANALYSIS AND HISTORY
Barriers to Entry in the Industry
There is one major barrier to entry into the
Industry which is capital. We have very limited capital with which to compete in this industry. Many other competitors have been
in the business for many years and have very large capital resources and an established reputation. Our barriers to entry are in
additiona to lack of capital, lack of reputation, lack of recognition, part-time management, lack of financial history to raise
money, and lack of equity in our company upon which to base a capital raise.
Competitive Factors impacting our ability
to gain market share
Our competition enjoys advantages which may
prevent us from achieving a market share due to our competitions known reputations, large funding abilities, competent management,
and capital resources all of which will impede our abilities to achieve market share.
Competitive Factors in the Industry
There are numerous entities, Investments banks,
merchant banks, hedge funds, private equity, commercial banks and private investors which will compete for the same business in
which we intend to engage. We will be at a significant disadvantage to all of these other competitors for the foreseeable future.
All of our competitors should be considered to be far better capitalized than we are.
Registrants Competitive position in the Industry
Registrant is an insignificant participant in
the merchant banking industry and cannot be expected to obtain a market share even discernable percentage wise. Without a large
infusion of capital, it will remain a very small participant in the industry
.
Merchant Banking
The term merchant banking is generally understood
to mean negotiated private equity investment or financing through alternative methods by financial institutions in loans, convertible
debt or off balance sheet vehicles, or through unregistered securities of either privately or publicly held companies. Both investment
banks, commercial banks, and other companies engage in merchant banking, and the type of security in which they invest is diverse.
They may invest in securities with an equity participation feature; these may be convertible preferred stock or subordinated debt
with conversion privileges or warrants. Other investment bank services-raising capital from outside sources, advising on mergers
and acquisitions, and providing bridge loans while bond financing is being raised in a leveraged buyout (LBO)
and are also typically offered by
-12-
financial institutions or broker dealers engaged in the merchant bank industry.
One which is often omitted is the provision of experienced management by the
merchant to commercialize ideas, or technology.
Merchant banking has been an ocassionally lucrative
but a highly risky-endeavor for the small number of bank holding companies and banks that have engaged in it under existing law,
and for private equity investors. Banking law legislation has expanded the merchant-banking activity that is permissible to commercial
banks and has spurred interest in this lucrative specialty on the part of a some institutions, however, limitations exist and have
scared many banks away from the markets after the Lehman collapse and the resulting fallout with JP Morgan, Bank of America and
the big bank Wall Street bailout. Although for much of the past half-century commercial banks have been permitted (subject to certain
restrictions) to engage in merchant banking activities, their continued role is limited by the conservatism of the regulators and
their Boards.
Evolution of the Private Equity Market
Until the 1950s, U.S. investors in private equity
were primarily wealthy individuals and families. In the 1960s and 1970s, corporations and financial institutions joined them in
this type of investment. (In the 1960s, commercial banks were the major providers of one kind of private equity investing, venture-capital
financing.) Through the late 1970s, wealthy families, industrial corporations, and financial institutions, for the most part investing
directly in the issuing firms, constituted the bulk of private equity investors.
In the late 1970s, changes in the Employee Retirement
Income Security Act (ERISA) regulations, in tax laws, and in securities laws brought new investors into private equity. In particular,
the Department of Labor's revised interpretation of the "prudent man rule" spurred pension fund investment in private
equity capital. Currently, the major investors in private equity in the United States are pension funds, endowments and foundations,
corporations, and wealthy investors; financial institutions-both commercial banks and investment banks-represent significant segments
of total private equity capital.
The capital markets have been through a number
of cycles and the differentiation between investment banking and merchant banking has not been kept clear and statistics have been
difficult to collect for reliable data.
Typical Uses of Private Equity
Private equity financing is an alternative to
raising public equity, issuing public debt, or arranging a private placement of debt or bank loan. The reasons companies seek private
equity financing are varied. For example, other forms of financing may be unavailable or too expensive because the company's track
record is either nonexistent or poor (that is, the company is in financial distress). Or a private company may want to expand or
change its ownership but not go public. Or a firm may not want to take on the fixed cost of debt financing.
Public firms may seek private equity financing
when their capital needs are very limited and do not warrant the expense, time, and regulatory paperwork required for a public
issue. They also may seek private equity to keep a planned acquisition confidential or to avoid other public disclosures. They
may use the private equity market because the public market for new issues in general is bad or because the public equity market
is temporarily unimpressed with their industry's prospects. Finally, very often in recent years, managements of large public firms
have felt their firms will benefit from a change in capital structure and ownership and will choose to go private by means of a
leveraged buyout (LBO).
Although companies seek private equity for all
these reasons, most private equity funding has been used for one of two purposes: to fund start-up or early-stage companies (venture
capital) or to bring large public companies private in LBOs.
-13-
Forms Taken by Investments
Currently, many private equity investments (including
loans and convertible debt) are made by limited partnerships or limited liability companies, with professional private equity managers
acting on behalf of institutional investors. In a limited partnership, the professional equity managers serve as general partners,
and the institutional investors serve as limited partners. The general partners or managers manage the investment and contribute
an insignificant part of the investment, generally approximately 1 percent. These entities have a contractually fixed life, usually
five to ten years. The investments are often highly illiquid over the entity's life, with a return not expected until the entity's
later years, when the business is sold through a public offering or a private sale, or interest or the shares are repurchased by
the company.
Commercial Bank Involvement in Merchant Banking
Several very large bank holding companies have
come to participate in merchant banking, directing as much as 10 percent of their capital to these activities. Commercial banks
are competitors for very established companies, but generally refuse to lend to early stage companies needing loans, when still
in a negative cash flow position.
For years, a few very large Bank Holding Companies
have dominated large merchant banking, directing as much as 10 percent of their capital to these activities. Citigroup, Chase,
Bank of America, FleetBoston, J.P. Morgan, Goldman Sachs and Wells Fargo have had large presence in this area over the years. No
exact figures are available, but Chase, FleetBoston, Wells Fargo, and J.P. Morgan, have aggregate investment of many billions in
venture-capital investments, and they expect to continue to expand this area of their business.
Evolution of Modern Era Merchant Banking
Many banks entered merchant banking in the 1960s
to take advantage of the economies of scope produced when private equity investing is added to other bank services, particularly
commercial lending. As lenders to small and medium-sized companies, banks become knowledgeable about individual firms' products
and prospects and consequently are natural providers of direct private equity investment to these firms.
In the middle to late 1980s, the decision to
enter merchant banking was thrust on other banks and bank holding companies by unforeseen events. In those years, as a result of
the LDC (less-developed-country) debt crisis, many banks received private equity from developing nations in return for their defaulted
loans. At that time, many of these banks set up merchant-banking subsidiaries to try to extract some value from this private equity.
Also at about that time, most commercial banks
began refocusing their private equity investments to middle-market and public companies (often low-tech, already profitable companies)
and, rather than providing seed capital, financed expansion or changes in capital structure and ownership. Most particularly, they
took equity positions in LBOs, takeovers, or recapitalizations or provided subordinated debt in the form of bridge loans to facilitate
the transaction. Often they did both. Commercial banks financed much of the LBO activity of the 1980s.
Then, in the mid-1990s, major commercial banks
began once again focusing on venture capital, where they had substantial expertise from their previous exposure to this kind of
investment. Some of these recent venture-capital investments have been spectacularly successful. For example, the Internet search
engine Lycos was a 1998 investment of Chase Manhattan's venture-capital arm.
We do not compete in the area of these ultra
large merchant banks, or even large or mid-market banks. We are an insignificant participant in the total market and our focus
is on small investments, which larger banks rule out.
-14-
Historical Track Records
The merchant-banking subsidiaries of Chase,
Wells Fargo, J.P. Morgan, First Union, and FleetBoston reported in the aggregate $5 billion in net income for 1999. Chase's merchant-banking
subsidiary Chase Capital Partners reported $2.5 billion in net income in 1999-22 percent of Chase's total reported net income.
Wells Fargo's merchant-banking activities accounted for 13 percent of its 1999 reported income; J.P. Morgan's for 15 percent; First
Union's for 8 percent; and FleetBoston's for 9 percent, in 1999,
While reported earnings have been good over
time, earnings have been adversely affected when major melt downs occurred in the economy. With the long bull market in stocks-and a particularly
hot IPO market for technology stocks BHC merchant-banking subsidiaries have increased their venture-capital investments in recent
years. JP Morgan, Goldman Sachs, Tudor Pickering and
Holt are current examples of very large to small merchant Banks.
Our Company has no historical
track record and we should be deemed a pure start-up of earning or operating with all of the risks of an unproven company (see
“Risk Factors”).
COMPETITION, MARKETS, REGULATION AND
TAXATION
Competition.
There are a large number of companies and individuals
engaged in the Merchant Banking and Finance industry; accordingly, there is a high degree of competition. Almost all of the companies
and individuals so engaged have substantially greater technical and financial resources than we do.
We are an insignificant participant among the
firms which engage in the funding of business opportunities. There are many established venture capital and financial concerns
that have significantly greater financial and personnel resources and technical expertise than we have. In view of our limited
financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared
to our competitors.
Investment Company Act 1940
Although we will be subject to regulation
under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, we believe we will
not
be subject
to regulation under the Investment Company Act of 1940 (the "1940 Act") insofar as we will not be engaged in the business
of investing or trading in securities within the definitions and parameters which would make us subject to the “1940 Act.”
In the event we engage in business activities that result in us holding investment interests in a number of entities, we might
become subject to regulation under the 1940 Act. In such event, we would be required to register as an Investment Company and incur
significant registration and compliance costs.
As a fundamental concept,
the 1940 Act requires registration of companies that invest and manage funds to invest for others and trade in securities of other
companies. Those companies that cross a threshold of 40% of assets in cash and stock in other companies may be required to register.
Investment companies may issue face amount certificates, be a Unit Investment Trust, or be a mutual fund. We intend to do several
things to remain outside of the 1940 Act: a) we will not trade in securities of other companies or manage investments for others,
b) we intend to remain primarily in the merchant bank lending business recognized as exempt under Sections 3(c)(4) and (5) of the
1940 Act, c) we intend to carefully monitor our ratios of cash and securities to total assets to avoid crossing the 1940 Act threshold,
d) we intend to hold loans comprising 60% to 70% of our assets at any time, e) we intend to maintain secured loans to companies
as our primary business. We do not intend to provide managerial services to borrowers, f) we do not intend to issue face amount
certificates, g) we do not intend to distribute profits and dividends to our shareholders on an annual or shorter basis, if ever,
h) we do not pass through profits and losses to our shareholders on a tax basis, i)
smaller secured loans will be our primary business
-15-
and our primary profit center, which we intend will account for more than 50% of
our revenues; j) we will not issue Units in investment trusts, k) we will not
act as a mutual fund, and l) we will not invest funds on behalf of others.
We have obtained no formal determination
from the SEC as to our status under the 1940 Act and, consequently, any violation of the 1940 Act would subject us to material
adverse consequences. We believe that, currently, we are exempt under Regulation 3(c)(4) and (5) of the 1940 Act.
Markets.
Our market is highly competitive and constantly
changing. Commercial success is frequently dependent on capital availability, the effectiveness and sufficiency of which are very
difficult to predict accurately. It is one of the principal economic risks of mezzanine and expansion stage funding companies like
ours.
Federal Regulations.
Governmental Regulation.
We are subject to regulations by securities
laws as a public company. We do not intend to become an investment company under the Investment Company Act of 1940, but if we
exceed certain thresholds of certain assets or our business operations cease to fall within certain exemptions, we might inadvertently
become subject to the Act.
Compliance with Environmental Laws and
Regulations
.
Certain states may require that we obtain
a Lender’s License prior to making a loan in that state. We intend to address this on an as needed basis.
State Regulations
.
We are not involved in operations with
environmental considerations for our business.
Title to Properties.
Not applicable.
-16-
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
NUMBER OF PERSONS EMPLOYED
As of December 20, 2016, we have no full-time
employees and 3 independent consultants who act as our officers and directors on a part-time basis of about 20 hours per week.
DESCRIPTION OF PROPERTIES/ASSETS
Real Estate None
Oil and Gas Properties None
Patents None
Trademarks None
PLAN OF OPERATIONS
We intend to expend funds over the next four quarters as follows:
1
st
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
2
nd
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
3
rd
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
4
th
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
Our Budget for operations in the next year is as follows:
|
|
|
Working Capital – Loans
|
|
$1,000,000
|
Legal, Audit and Accounting
|
|
$100,000
|
Fees, rent, travel and general & administrative expenses
|
|
$100,000
|
|
|
$1,200,000
|
The Company may change any or all of
the budget categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable.
The Company may need substantial additional capital to support its budget. We have not recognized revenues from our operational
activities.
Based on our current cash reserves of
approximately $24,000 as of December 27, 2016, we have the cash for an operational budget of three months. We intend to offer a private placement of stock or convertible Notes to investors in order to achieve $1,200,000 in funding
in the next six months. We intend to commence this offering in late Spring of 2017. If we are unable to generate enough revenue,
to cover our operational costs, we will need to seek additional
-17-
sources of funds. Currently,
we have
no
committed source for any funds as of date hereof. No representation is made that any funds will be available
when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and
could fail in business as a result of these uncertainties.
The independent registered public accounting
firm’s report on our financial statements as of December 31, 2015, includes a “going concern” explanatory paragraph
that describes substantial doubt about our ability to continue as a going concern.
While our cash reserves were only $24,000 in
December 2016, our parent company, IHG, has agreed to fund on an interim basis any shortfall in our cash reserves. We would use
our funds to pay legal, accounting, office rent and general and administrative expense. Our estimates were that $24,000 was adequate
for these items for the last quarter of 2016. We have estimated $50,000 per quarter in 2017 in operations costs which includes
legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous.
We received the funding to loan the monies to
Meshworks from our parent, IHG, in the form of two loans to BlackStar for a total of $500,000. The notes are three year notes payable
at 6% interest per year.
MATERIAL TERMS OF OUR FIRST LOAN TO MESHWORKS
MEDIA CORPORATION (“Meshworks”)
Meshworks Media Corporation, borrowed $250,000
from BlackStar Enterprise Group, Inc. on November 1, 2016, bearing Interest at the annual rate of 12 % and a second loan was made
for $250,000 in January 2017, with the following material terms:
1. PAYMENT. Commencing January 2, 2017, the
borrower shall issue payments to the lender(s) equal to 15% of the previous months’ revenue and said revenue payments, of
principal and interest, shall continue thereafter, to be issued on the first day of each month, until the principal and interest
have been paid in full to the lender(s) but in no case, later than January 1, 2019 (“Maturity Date”) when any unpaid
principle and interest shall be due in full.
2. SECURITY. The Note is secured to us by a
security agreement covering all of Meshworks' assets and revenues.
3. ADDITIONAL CONSIDERATION We received, as
additional consideration, 2 shares of Series B Convertible Preferred stock (Series B Stock) for each one dollar ($1.00) loaned
to Meshworks. After repayment of the loan but no later than February 1, 2019 the Series B Stock, which we own is to receive dividends
from profit based on 15% of the previous months’ revenue which will continue until such time as we have received distributions
equal to the full amount of the loan. At that point, the Series B Preferred shall automatically convert to common stock of Meshworks
at the rate of one share of common for each share of preferred converted. Until such time as all dividends have been paid, Meshworks
shall not pay any dividends to or on its outstanding common stock.
Our Meshworks loan met our lending criteria
as follows:
-
Meshworks had spendt over $1,000,000 in investment
in its software.
-
Meshworks had generated over $800,000 in
income in prior years.
-
Meshworks has a software product that appears
to be at the forefront to serve the real estate industry, with potential for a) repayment of the loan, and b) potential for equity
participation in the borrower.
-
If we convert any preferred stock (to common)
which we may receive, after payment to us of the loan, we would own less than 2% of the Meshworks common stock based upon the current
capital structure of Meshworks. We may divest any rights to future equity, prior to receipt thereof.
-18-
ITEM 1A. RISK FACTORS
FORWARD LOOKING STATEMENTS
This Registration
Statement includes forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives,
expectations, intentions and adequacy of resources. These forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause our actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. These factors include, among others, the following:
ability of us to implement our business strategy; ability to obtain additional financing; our limited operating history; ability
to manage growth; significant competition; ability to attract and retain talented employees; and future government regulations;
and other factors described in this Registration Statement or in other of our filings with the Securities and Exchange Commission.
We are under no obligation, to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
RISK FACTORS RELATING TO OUR COMPANY
OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE,
ON THE EXPERTISE AND EXPERIENCE OF THE MEMBERS OF OUR MANAGEMENT TEAM.
We will rely exclusively on the skills and expertise
of our management team in conducting our business. Our management team has experience in identifying, evaluating and acquiring
prospective businesses for which we may ultimately provide loans, but there is no assurance our managements assessments will be
successful in placing loans which are repaid with interest.
Accordingly, there is only a limited basis upon
which to evaluate our prospects for achieving our intended business objectives.
We will be wholly dependent for the selection,
structuring, closing and monitoring of all of our investments on the diligence and skill of our management team, under the supervision
of our Board of Directors. There can be no assurance that we will attain our investment objective. The management team will have
primary responsibility for the selection of companies to which we will loan or finance, the terms of such loans and the monitoring
of such investments after they are made. However, not all of the management team will devote all of their time to managing us.
These factors may affect our returns.
We have limited resources and limited operating
history.
OUR OPERATIONS AS A MERCHANT BANK MAY AFFECT
OUR ABILITY TO, AND THE MANNER IN WHICH, WE RAISE ADDITIONAL CAPITAL, WHICH MAY EXPOSE US TO RISKS.
Our business will require a substantial amount
of capital. We may acquire additional capital from the issuance of senior securities, including borrowings or other indebtedness,
or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital in the future
on favorable terms or at all. We may issue debt securities, other evidences of indebtedness or preferred stock, and we may borrow
money from banks or other financial institutions, which we refer to collectively as "senior securities". If the value
of our assets declines, we may be unable to satisfy loan requirements. If that happens, we may be required to liquidate a portion
of our investments and repay a portion of our indebtedness at a time when such sales may be disadvantageous. As a result of issuing
senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If
we issue preferred stock, the preferred stock would rank "senior" to common stock in our capital structure, preferred
stockholders would have separate voting rights and might have rights, preferences, or privileges more favorable than those of our
common stockholders. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable
for, our common stock, then the percentage ownership of our stockholders at that time will decrease.
-19-
WE ARE DEPENDENT UPON OUR PART-TIME MANAGEMENT
FOR OUR SUCCESS WHICH IS A RISK TO OUR INVESTORS.
Our lack of full-time management may be an impediment
to our business achievement. Without full-time officers, we may not have sufficient devoted time and effort to find successful
loan prospects, additional capital, or manage our loan portfolio, which could impair our ability to succeed in our business plan,
and could cause investment in our Company to lose value.
WE HAVE A LIMITED AMOUNT OF FUNDS AVAILABLE
FOR INVESTMENT IN LOANS OR OTHER FINANCIAL INSTRUMENTS TO BORROWER COMPANIES AND AS A RESULT OUR LOAN INVESTMENTS LACK DIVERSIFICATION.
Based on the amount of our existing available
funds, it is unlikely that we will be able to commit our funds to loans to, and the acquisition of debt or, securities of a large
number of companies. We intend to operate as a diversified merchant bank. Prospective investors should understand that our current
investments are not, and in the future may not be, substantially diversified. We may not achieve the same level of diversification
as larger entities engaged in similar activities. Therefore, our assets may be subject to greater risk of loss than if they were
more widely diversified. The loss of one or more of our limited number of investments could have a material adverse effect on our
financial condition.
WE HAVE A LACK OF REVENUE HISTORY AND STOCKHOLDERS
CANNOT VIEW OUR PAST PERFORMANCE SINCE WE HAVE A LIMITED OPERATING HISTORY.
We were incorporated on December 17, 2007 for
the purpose of engaging in any lawful business and have adopted a plan as a small and micro cap market merchant banking company.
During the period of inception through December 31, 2015, we did not recognize revenues. We recognized no revenues during the nine
months ended September 30, 2016. We are not profitable. We must be regarded as a new venture with all of the unforeseen costs,
expenses, problems, risks and difficulties to which such ventures are subject.
WE ARE NOT DIVERSIFIED AND WE WILL BE DEPENDENT
ON ONLY ONE BUSINESS, MERCHANT BANKING.
Because of the limited financial resources that
we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities into
more than one area will subject us to economic fluctuations within the merchant banking industry and therefore increase the risks
associated with our operations due to lack of diversification.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY
TO OUR STOCKHOLDERS.
There is no assurance that we will ever operate
profitably. There is no assurance that we will generate revenues or profits, or that the market price of our common stock will
be increased thereby.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN
THE FUTURE WHICH COULD JEOPARDIZE OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of expenses
related to general and administrative and legal and accounting and could exceed $200,000 in the next twelve months. Such funds
are not currently committed, and we have cash of approximately $24,000 as of the date of this filing.
WE WILL NEED ADDITIONAL FINANCING FOR WHICH
WE HAVE NO COMMITMENTS, AND THIS MAY JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not
be adequate to carryout our business plan in the small and micro cap market merchant banking industry. Our ultimate success depends
upon our ability to raise additional capital. We are investigating the availability, sources, and terms that might govern the acquisition
of additional capital.
-20-
We have no commitment at this time for additional capital. If we need additional capital,
we have no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable
to us. If not available, our operations will be limited to those that can be financed with our modest capital.
WE MAY IN THE FUTURE ISSUE MORE SHARES WHICH
COULD CAUSE A LOSS OF CONTROL BY OUR PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
We may issue further shares as consideration
for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority
of the voting power and equity of our Company. The result of such an issuance would be those new stockholders and management would
control our Company, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly
reduced percentage of ownership of our Company by our current stockholders, which could present significant risks to stockholders.
WE HAVE AUTHORIZED AND DESIGNATED A CLASS A
PREFERRED SUPER MAJORITY VOTING CONVERTIBLE STOCK, WHICH HAVING VOTING RIGHTS OF 60% TO OUR COMMON STOCK AT ALL TIMES.
Class A Preferred Super Majority Voting Convertible
Stock (the “Class A Preferred Stock”) of which 10,000,000 shares of preferred stock have been authorized for the class.
The Class A Preferred Stock are to have super majority voting rights over common stock voting 60% at all times. At this time, all
shares of the Class A Preferred Stock have been issued to International Hedge Group, Inc. which is controlled by Mr. Harris and
Mr. Kurczodyna, our officers and directors.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS
OF INTERESTS AS TO CORPORATE OPPORTUNITIES WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN AND MAY RECEIVE COMPENSATION FROM
OUR PARENT COMPANY.
Presently there is no requirement contained
in our Articles of Incorporation, Bylaws, or minutes which requires officers and directors of our business to disclose to us business
opportunities which come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to us to
disclose to us any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise.
Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director
of another company. We have no intention of merging with or acquiring a business opportunity from any affiliate or officer or director.
Our officers and directors also serve our parent company, International Hedge Group, Inc., which has and will have consulting agreements
with most or all of our loan borrower companies and such is a direct conflict and such officers and directors may be paid by such
parent.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS
AND DIRECTORS AS IS PROVIDED BY DELAWARE STATUTES.
Delaware General Corporation Laws provide for
the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees
and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities
our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such
person’s promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to
indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
OUR DIRECTORS’ LIABILITY TO US AND STOCKHOLDERS
IS LIMITED
Delaware General Corporation Laws exclude personal liability of our directors
and our stockholders for monetary damages for breach of fiduciary duty except in
certain
-21-
specified circumstances. Accordingly, we will have a much more limited right of
action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
We have no full-time employees which may impede
our ability to carry on our business. Our officers are independent consultants who devote up to 20 hours per week to Company business.
The lack of full-time employees may very well prevent the Company’s operations from being efficient, and may impair the business
progress and growth, which is a risk to any investor.
RISK FACTORS OF THE COMPANY
WE MAY NOT REALIZE RETURNS ON OUR LOANS IN BORROWER
COMPANIES FOR SEVERAL YEARS. THUS, AN INVESTMENT IN SHARES OF OUR COMMON STOCK IS ONLY APPROPRIATE FOR INVESTORS WHO DO NOT NEED
SHORT TERM LIQUIDITY IN THEIR MONEY.
We intend to make loans as quickly as possible
consistent with our business objectives in those investments that meet our criteria. However, it is likely that a significant period
of time will be required before we are able to achieve repayment and any additional value from warrants or stock conversions that
we hold in an eligible borrower company.
COMPETITION FOR LOANS AND INVESTMENTS.
We expect to encounter competition from other
entities having similar business objectives, some of whom may have greater resources than us. Historically, the primary competition
for venture capital investments has been from venture capital funds and corporations, venture capital affiliates of large industrial
and financial companies, small business investment companies, and wealthy individuals. Additional competition is anticipated from
foreign investors and from large industrial and financial companies investing directly rather than through venture capital affiliates.
Virtually all of our competitors will have a competitive advantage and are much larger. The need to compete for loans or investment
opportunities may make it necessary for us to offer borrower companies more attractive transaction terms than otherwise might be
the case. We anticipate being a co-investor with other venture capital groups, and these relationships with other groups may expand
our access to business opportunities.
RISKS OF COMPETITION FOR OUR BORROWER COMPANIES.
Most emerging markets are highly competitive.
We anticipate that nearly all our borrower companies will compete against firms with greater financial resources, more extensive
development, manufacturing, marketing, and service capabilities, and a larger number of qualified managerial and technical personnel.
ILLIQUID NATURE OF OUR INVESTMENTS.
We anticipate that substantially all of our borrower loans (other than
short-term investments) will consist of debt securities that at the time of
acquisition are unmarketable, illiquid and for which no ready market will exist,
or if such a market does in fact exist. If we receive Restricted securities as
part of a loan transaction such cannot be sold publicly without prior agreement
with the issuer to register the securities under the Securities Act, or by
selling such securities under Rule 144 or other provisions of the Securities Act
which permit only limited sales under specified conditions. Venture capital
investments in the securities of borrower companies are privately negotiated
transactions. There will be no established trading market in which such
securities, particularly debt, can be sold. In the case of warrants or equity
securities in private companies, we generally will realize the value of such
securities only if the issuer is able to make an initial public offering of its
shares, or enters into a business combination with another company which
purchases our warrants or equity securities or exchanges them for publicly
traded securities of the acquirer. The feasibility of such transactions depends
upon the borrower company's financial results as well as general economic and
equity market conditions. Furthermore, even if the restricted warrants or equity
securities owned become publicly-traded, our ability to sell such securities may
be limited by the lack of or limited nature of a trading market for such
-22-
securities. When restricted securities are sold to the public, under certain
circumstances we may be deemed an "underwriter" or a controlling person with
respect thereto for the purposes of the Securities Act, and be subject to
potential liabilities as such under that Act. Because of the illiquid nature of
our investments, a substantial portion of our assets will be carried on its
books at fair value as determined by the Board from time to time adjusted. This
value will not necessarily reflect the amount which could be realized upon a
sale, or payoff.
RISKS OF OUR NEED FOR ADDITIONAL CAPITAL TO
FUND LOANS OR EQUITY TO OUR BORROWER COMPANIES.
We expect that most borrower companies will
require additional financing to satisfy their working capital requirements. The amount of additional financing needed will depend
upon the maturity and objectives of the particular company. Each round of venture financing (whether from us or other investors)
is typically intended to provide a borrower company with enough capital to reach the next major valuation milestone. If the funds
provided are not sufficient, a company may have to raise additional capital at a price or at terms unfavorable to the existing
investors, including our Company. This additional financing or the availability of any form of equity or debt capital is generally
a function of capital market conditions that are beyond our control or any borrower company. Our management team may not be able
to predict accurately the future capital requirements necessary for success of our Company or borrower companies. Additional funds
may not be available from any source.
OUR LOAN PORTFOLIO IS AND MAY CONTINUE TO BE CONCENTRATED IN A LIMITED
NUMBER OF LOAN PORTFOLIO COMPANIES AND INDUSTRIES, WHICH WILL SUBJECT US TO A RISK OF SIGNIFICANT LOSS IF ANY OF THESE COMPANIES
DEFAULTS ON ITS OBLIGATIONS UNDER ANY OF ITS DEBT INSTRUMENTS OR BY A DOWNTURN IN THE PARTICULAR INDUSTRY.
Our loan portfolio is and may continue to be
concentrated in a limited number of borrower companies and industries. We do not have fixed guidelines for diversification, and
while we are not targeting any specific industries, our investments are, and could continue to be, concentrated in relatively few
industries. As a result, the aggregate returns we realize may be significantly adversely affected if a small number of investments
perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry
in which we are invested could also significantly impact the aggregate returns we realize.
WE WILL NOT CONTROL ANY OF OUR BORROWER COMPANIES.
We will not control any of our borrower companies,
even though we may have financial observation rights. As a result, we are subject to the risk that a borrower company in which
we invest may make business decisions with which we disagree, may take risks or otherwise act in ways that do not serve our interests.
WE MAY NOT REALIZE GAINS FROM OUR INVESTMENT
ASSETS.
Our goal is ultimately to dispose of any equity
interests we receive from our borrower companies to attempt to realize gains upon our disposition of such interests. However, any
equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to
realize gains from any equity interests, and any gains that we do realize on the disposition of any equity interests may not be
sufficient to offset any other losses we experience.
THE INABILITY OF OUR BORROWER COMPANIES TO COMMERCIALIZE
THEIR TECHNOLOGIES OR CREATE OR DEVELOP COMMERCIALLY VIABLE PRODUCTS OR BUSINESSES WOULD HAVE A NEGATIVE IMPACT ON OUR INVESTMENT
RETURNS.
The possibility that our borrower companies will not be able to commercialize
their technology, products or business concepts presents significant risks to
the value of our loans. Additionally, although some of our borrower companies
may already have a commercially successful product or product line when we
invest, technology related
-23-
products and services often have a more limited market or life span than have
products in other industries. Thus, the ultimate success of these companies
often depends on their ability to continually innovate in increasingly
competitive markets. Their inability to do so could affect our investment
return. We cannot assure you that any of our borrower companies will
successfully acquire or develop any new technologies, or that the intellectual
property the companies currently hold will remain viable. Even if our borrower
companies are able to develop commercially viable products, the market for new
products and services is highly competitive and rapidly changing. Neither our
borrower companies nor we have any control over the pace of technology
development. Commercial success is difficult to predict, and the marketing
efforts of our borrower companies may not be successful.
RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE
FUTURE LOSSES.
As of September 30, 2016, we had an accumulated
deficit of ($2,954,791).
Future losses are likely to occur until we are
able to receive returns on our loans and investments since we have no other sources of income to meet our operating expenses. As
a result of these, among other factors, we received from our registered independent public accountants in their report for the
financial statements for the years ended December 31, 2015 and 2014, an explanatory paragraph stating that there is substantial
doubt about our ability to continue as a going concern.
OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT
TO MEET OUR ONGOING OPERATING EXPENSES.
We have no sources of income at this time and
insufficient assets to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt and,
or, equity we shall be unable to meet our ongoing operating expenses. On a longer term basis, we intend to merge with another entity
with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders.
There can be no assurance that these events will be successfully completed.
BECAUSE INSIDERS CONTROL OUR ACTIVITIES, THAT
MAY CAUSE US TO ACT IN A MANNER THAT IS MOST BENEFICIAL TO THEM AND NOT TO OUTSIDE SHAREHOLDERS WHICH COULD CAUSE US NOT TO TAKE
ACTIONS THAT OUTSIDE INVESTORS MIGHT VIEW FAVORABLY
Our executive officers, directors, and holders
of 5% or more of our issued and outstanding common stock through International Hedge Group, Inc. beneficially own approximately
95% of our issued and outstanding common stock and the Super Majority Voting Class A Preferred Stock. As a result, they effectively
control all matters requiring director and stockholder approval, including the election of directors, the approval of significant
corporate transactions, such as mergers and related party transaction. These insiders also have the ability to delay or perhaps
even block, by their ownership of our stock, an unsolicited tender offer. This concentration of ownership could have the effect
of delaying, deterring or preventing a change in control of our company that you might view favorably.
OUR TWO OFFICERS AND DIRECTORS HAVE THE ABILITY
TO EFFECTIVELY CONTROL SUBSTANTIALLY ALL ACTIONS TAKEN BY STOCKHOLDERS.
Mr. Harris and Mr. Kurczodyna, the officers
and directors of the Company and of our parent, International Hedge Group, Inc. (“IHG”) control in excess of our 95%
of our issued and outstanding common stock through IHG and are able to effectively control substantially all actions taken by our
stockholders, including the election of directors. Such concentration of ownership could also have the effect of delaying, deterring
or preventing a change in control that might otherwise be beneficial to stockholders and may also discourage the market for our
stock due to the concentration.
-24-
WE MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY
NOT BE AVAILABLE ON REASONABLE TERMS AND AS NEEDED.
To supplement the business experience of our
officers and directors, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants
or advisors. Our Board without any input from stockholders will make the selection of any such advisors. Furthermore, it is anticipated
that such persons may be engaged on an "as needed" basis without a continuing fiduciary or other obligation to us. In
the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able
to provide the required services.
RISKS RELATING TO OUR LOANS OR INVESTMENTS
THE INABILITY OF OUR BORROWER COMPANIES TO ADEQUATELY
EXECUTE THEIR GROWTH OR EXPANSION STRATEGIES WOULD HAVE A NEGATIVE IMPACT ON OUR LOAN OR INVESTMENT RETURNS.
The possibility that our borrower companies
will not be able to fully carry out or execute on their expansion or growth plans presents significant risk. Our loans or investment
in our borrower companies will ultimately depend on the success of our borrower company or our ability to be repaid loans or liquidate
securities acquired by us in the borrower company. If the intended expansion or growth plan that was one of the main reasons we
had originally loaned does not come to fruition or is otherwise impeded, loan market value of the borrower company's stock may
negatively reflect this information, making our investment not profitable or may subject us to a substantial loss. Further, we
may loan to or invest in borrower companies for which no market for its securities exists, in which case, the borrower companies
failure to complete or execute its expansion or growth plan may severely inhibit our repayment. In such case, we may incur an entire
loss of our investment.
OUR BORROWER COMPANIES WILL LIKELY HAVE SIGNIFICANT
COMPETITION FROM MORE ESTABLISHED COMPANIES AS WELL AS INNOVATIVE EARLY STAGE COMPANIES.
Emerging growth companies often face significant
competition, both from early stage companies and from more established companies. Early stage competitors may have strategic capabilities
such as an innovative management team or an ability to react quickly to changing market conditions, while more established companies
may possess significantly more experience and greater financial resources than our borrower companies. These factors could affect
our investment returns.
OUR INVESTMENT RETURNS WILL DEPEND ON THE SUCCESS
OF OUR BORROWER COMPANIES AND, ULTIMATELY, THE ABILITIES OF THEIR KEY PERSONNEL.
Our success will depend upon the success of
our borrower companies. Their success, in turn, will depend in large part upon the abilities of their key personnel. The day-to-day
operations of our borrower companies will remain the responsibility of their key personnel. The loss of one or a few key managers
can hinder or delay a company's implementation of its business plan. Our borrower companies may not be able to attract qualified
managers and personnel. Any inability to do so may negatively impact our investment returns.
SOME OF OUR BORROWER COMPANIES MAY NEED ADDITIONAL
CAPITAL, WHICH MAY NOT BE READILY AVAILABLE.
Companies in which we make expansion or mezzanine round loans 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 borrower
-25-
companies may seek additional capital. It is possible that one or more of our
borrower companies 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 investment returns.
RISKS RELATING TO OWNERSHIP OF BLACKSTAR ENTERPRISE
GROUP, INC. COMMON STOCK
A LIMITED PUBLIC MARKET EXISTS FOR OUR COMMON
STOCK AT THIS TIME, AND THERE IS NO ASSURANCE OF A FUTURE MARKET.
There is a limited public market for our common
stock, and no assurance can be given that a market will continue or that a shareholder ever will be able to liquidate his investment
without considerable delay, if at all. If a market should continue, the price may be highly volatile. Factors such as those discussed
in the “Risk Factors” section may have a significant impact upon the market price of the shares offered hereby. Due
to the low price of our securities, many brokerage firms may not be willing to effect transactions in our securities. Even if a
purchaser finds a broker willing to effect a transaction in our shares, the combination of brokerage commissions, state transfer
taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the
use of our shares as collateral for any loans.
OUR STOCK WILL, IN ALL LIKELIHOOD, BE THINLY
TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
The shares of our common stock may be thinly-traded.
We are a small company which is relatively unknown to stock analysts, stock brokers, institutional stockholders and others in the
investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend
to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase
of any of our securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several
days or more when trading activity in our securities is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price.
We cannot give you any assurance that a broader or more active public trading market for our common securities will develop or
be sustained, or that any trading levels will be sustained. Due to these conditions, we can give stockholders no assurance that
they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their
securities.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the possible price volatility, you
may not be able to sell your shares of common stock when you desire to do so. The inability to sell your securities in a rapidly
declining market may substantially increase your risk of loss because of such illiquidity and because the price for our securities
may suffer greater declines because of our price volatility.
The price of our common stock that will prevail
in the market after this offering may be higher or lower than the price you may pay. Certain factors, some of which are beyond
our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:
-
Variations in our quarterly operating results;
-
Loss of a key relationship or failure to complete significant
transactions;
-
Additions or departures of key personnel; and
-
Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, has experienced
extreme price and volume fluctuations. In some cases, these fluctuations are
unrelated or disproportionate to the operating performance of the underlying
company. These market and industry factors may materially and adversely affect
our stock price,
-26-
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
THE REGULATION OF PENNY STOCKS BY THE SEC AND
FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES.
We are a “penny stock” company,
as our stock price is less than $5.00 per share. If we are able to obtain an exchange listing for our stock, we cannot make an
assurance that we will be able to maintain a stock price greater than $5.00 per share and if the share price was to fall to such
prices, that we wouldn’t be subject to the Penny Stocks rules. None of our securities currently trade in any market and,
if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other than established customers or accredited stockholders.
For purposes of the rule, the phrase “accredited stockholders” means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000
(or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer
must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction
prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will
affect the ability of purchasers in this offering to sell their securities in any market that might develop therefore because it
imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission
has adopted a number of rules to regulate “penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4,
15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny
stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect
the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Stockholders should be aware that, according
to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter
or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
(iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Inventory in penny stocks have limited remedies
in the event of violations of penny stock rules. While the courts are always available to seek remedies for fraud against us, most,
if not all, brokerages require their customers to sign mandatory arbitration agreements in conjunctions with opening trading accounts.
Such arbitration may be through an independent arbiter. Stockholders may file a complaint with FINRA against the broker allegedly
at fault, and FINRA may be the arbiter, under FINRA rules. Arbitration rules generally limit discovery and provide more expedient
adjudication, but also provide limited remedies in damages usually only the actual economic loss in the account. Stockholders should
understand that if a fraud case is filed an against a company in the courts it may be vigorously defended and may take years and
great legal expenses and costs to pursue, which may not be economically feasible for small stockholders.
-27-
That absent arbitration agreements, specific
legal remedies available to stockholders of penny stocks include the following:
If a penny stock is sold to the investor in
violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the
purchase and receive a refund of the investment.
If a penny stock is sold to the investor in
a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.
The fact that we are a penny stock company will
cause many brokers to refuse to handle transactions in the stocks, and may discourage trading activity and volume, or result in
wide disparities between bid and ask prices. These may cause stockholders significant illiquidity of the stock at a price at which
they may wish to sell or in the opportunity to complete a sale. Stockholders will have no effective legal remedies for these illiquidity
issues.
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE
FUTURE.
We have not paid dividends on our common stock
and do not ever anticipate paying such dividends in the foreseeable future. Stockholders whose investment criteria are dependent
on dividends should not invest in our common stock.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE
EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock
are held by our present officers, directors, and affiliate stockholders as "restricted securities" within the meaning
of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the
Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted
securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares
that does not exceed the greater of 1.0% of a company's outstanding common stock or the average weekly trading volume during the
four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a non-affiliate
after the owner has held the restricted securities for a period of two years. A sale under Rule 144 or under any other exemption
from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have
a depressive effect upon the price of the common stock in any market that may develop.
OUR STOCKHOLDERS MAY SUFFER FUTURE DILUTION
DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to BlackStar
Enterprise Group, Inc. stockholders as a result of future decisions of the Board to issue shares without shareholder approval for
cash, services, or acquisitions.
WE ARE A REPORTING COMPANY UPON THE EFFECTIVENESS
OF THIS REGISTRATION STATEMENT
We are subject to the reporting requirements
under the Securities and Exchange Act of 1934, Section 13a, after the effectiveness of this Registration Statement under Section
12(g). As a result, stockholders will have access to the information required to be reported by publicly held companies under the
Exchange Act and the regulations thereunder. As a result, we will be subject to legal and accounting expenses that private companies
are not subject to and this could affect our ability to generate operating income.
-28-
WE HAVE NOT IDENTIFIED BUT ONE OF THE BORROWER
COMPANIES TO WHICH WE WILL LOAN OR IN WHICH WE MAY INVEST.
We
have only loaned money to one borrower company, Meshworks Media Corporation, and may take time to find another finance candidate.
ITEM 2. FINANCIAL INFORMATION
Managements’ Discussion and Analysis
The following discussion should be read in
conjunction with our unaudited and audited consolidated financial statements and notes thereto included herein.
This discussion contains forward-looking
statements, such as statements relating to our financial condition, results of operations, plans, objectives, future performance
and business operations. These statements relate to expectations concerning matters that are not historical facts. These forward-looking
statements reflect our current views and expectations based largely upon the information currently available to us and are subject
to inherent risks and uncertainties. Although we believe our expectations are based on reasonable assumptions, they are not guarantees
of future performance and there are a number of important factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. By making these forward-looking statements, we do not undertake to update
them in any manner except as may be required by our disclosure obligations in filings we make with the Securities and Exchange
Commission under the Federal securities laws. Our actual results may differ materially from our forward-looking statements.
The independent registered public accounting
firm’s report on our financial statements as of September 30, 2016 and December 31, 2015 includes a “going concern”
explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
PLAN OF OPERATIONS
We intend to expend funds over the next four quarters as follows:
1
st
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
2
nd
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
3
rd
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
4
th
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
Our Budget for operations in the next year is as follows:
|
|
|
Working Capital – Loans
|
|
$1,000,000
|
Legal, Audit and Accounting
|
|
$100,000
|
Fees, rent, travel and general & administrative expenses
|
|
$100,000
|
|
|
$1,200,000
|
-29-
The Company may change any or all of
the budget categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable.
The Company may need substantial additional capital to support its budget. We have not recognized revenues from our operational
activities.
Based on our current cash reserves of
approximately $24,000 as of December 27, 2016, we have the cash for an operational budget of three months. We intend
to offer a private placement of stock or Notes to investors in order to achieve $1,200,000 in funding in the next six months. We
intend to commence this offering in late Spring of 2017. If we are unable to generate enough revenue to cover our operational costs,
we will need to seek additional sources of funds. Currently, we have
no
committed source for any funds as of date
hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised
if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
The independent registered public accounting
firm’s report on our financial statements as of December 31, 2015, includes a “going concern” explanatory paragraph
that describes substantial doubt about our ability to continue as a going concern.
While our cash reserves were only $24,000, our
parent company, IHG, has agreed to fund on an interim basis any shortfall in our cash reserves. We would use our funds to pay legal,
accounting, office rent and general and administrative expense. Our estimates were that $24,000 was adequate for these items for
the last quarter of 2016. We have estimated $50,000 per quarter in 2017 in operations costs which includes legal, accounting, travel,
general and administrative, audit, rent, telephones and miscellaneous.
We received the funding to loan the monies to
Meshworks from our parent, IHG, in the form of two loans to BlackStar for a total of $500,000. The notes are three year notes payable
at 6% interest per year.
For the year ended December 31, 2015 as
compared to the year ended December 31, 2014.
Results of Operations
Revenues and Gross Profit.
We had
no operations and no business in 2014 and 2015. We realized revenues of $0 for the years ended December 31, 2015 and 2014.
Operating Expenses.
For the years ended
December 31, 2015 and 2014, our total operating expenses were none. General and administrative expenses were $2,800 in 2015 compared
to $6,658 in 2014. Interest expenses were $15,000 in each year.
Net Loss.
For the year ended
December 31, 2015, our net loss was $17,800 as compared to of $21,658 for the year ended December 31, 2014. Our net loss per share
was >($.01) per share.
Results of operations for the nine months
ended September 30, 2016, compared to the same period in 2015
We had minimal operations and no revenues in
2015 in the nine month period, incurring $1,940 in expenses resulting in a loss of ($1,940) for the period. In summer of 2016,
we achieved capital of $100,000, in our efforts to recapitalize the Company. We had no revenues during the nine month period in
2016. Due to startup and administrative expenses, stock issuances, warrant expenses of $1,328,000 and consulting fees, we incurred
a loss of ($1,378,583) for the period.
We had income (gain) on settlement of debt for
the period in 2016 of $270,822, which resulted in a net loss for the period of ($1,096,608) or >($0.01) per share. For the same
period in 2015, we had a net loss of ($4,238).
Liquidity and Capital Resources.
Our total assets were $53,562 as of September 30, 2016, consisting of cash of $51,188 and other assets.
-30-
By comparison, our total assets were $0
as of December 31, 2015. Our current liabilities as of December 31, 2015, totaled $343,681, which is comprised of accounts payable
of $26,423, notes payable of $200,000, to related parties, other liabilities of $50,000, and accrued interest of $67,258.
We intend to attempt
to raise capital through several sources: a) partner venture funds, b) private placements of our stock, c) loans from our parent
IHG.
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 make additional loans and would intend
to use the funds repaid from the loans to a) retire debt, and b) fund additional loans to 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 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 employee 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.
Material Contracts
Critical Accounting Policies
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States require management to
make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical
accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about
the effect of matters that are inherently uncertain.
Critical
accounting policies, including the assumptions and judgments underlying them. However, we do not believe that there are any alternative
methods of accounting for our operations that would have a material effect on our financial statements.
This summary of significant accounting
policies is presented to assist the reader in understanding and evaluating the Company’s financial statements. Critical accounting
policies are our management’s representations and require the most subjective and complex judgment, often involving the use
of estimates on the impact and effects related matters with a large degree of inherent uncertainty. The accompanying policies conform
to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation
of the consolidated financial statements.
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Principles of Consolidation
The accompanying consolidated financial
statements include our activities. All intercompany transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that
affect the 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 reported periods. Actual results could materially differ
from those estimates as the current economic environment increases the degree of uncertainly inherent in the estimates and uncertainty.
The more significant estimates and assumptions made my management include allowances for doubtful accounts, allowance for deferred
income, depreciation and amortization, fair market value of equity and embedded derivative instruments, fair market value of purchased
and sold assets, and impairment of intangible assets.
Identifiable Intangible Assets
In accordance with ASC 350
Intangibles –
intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually in the fourth
quarter, or when events indicate that impairment exists. As required by ASC 350, in the impairment tests for indefinite-lived intangible
assets, we compare the estimated fair value of the indefinite-lived intangible assets,using a combination of discounted cash flow
analysis and market value comparisons. If the carrying value exceeds the estimate of fair value, we calculate the impairment as
the excess of the carrying value over the estimate of fair value and accordingly record the loss.
Intangible assets that are determined to have
definite lives are amortized over the shorter of their legal lives or their estimated useful lives and are measured for impairment
only when events or circumstances indicate the carrying value may be impaired in accordance with ASC 360,
Property, Plant and
Equipment
discussed below.
Investments
Investments are classified as available for
sale and consist of marketable equity securities that we intend to hold for an indefinite period of time. Investments are stated
at fair value and unrealized holding gains and losses, net of the related tax effect, are reported as a component of accumulated
other comprehensive income until realized. Realized gains or losses on disposition of investments are computed on the “specific
identification” method and are reported as income or loss in the period of disposition on our consolidated statements of
operations.
Related Parties
A party is considered to be related to our Company
if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control
with our Company. Related parties also include principal owners of our Company, its management, members of the immediate families
of principal owners of our Company and its management and other parties with which our Company may deal if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or
operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests is also a related party.
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Fair Value
of Financial Instruments
Our Company applies the provisions of accounting
guidance, FASB Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value
of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
As of September 30, 2016 and 2015, the fair value of cash, accounts payable, related party payables, and notes payable approximated
carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market
rates.
Basic and
Diluted Earnings Per Share
Basic earnings (loss) per common share is computed
by dividing net earnings applicable to common stockholders by the weighted-average number of common shares outstanding during the
period. Diluted earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method, consisting of shares
that might be issued upon exercise of common stock warrants and conversion of convertible notes. In periods where losses are reported,
the weighted-average number of common stock outstanding excludes common shares equivalents, because their inclusion would be anti-dilutive.
Basic earnings per share are based on the weighted-average
number of shares of common stock outstanding. Diluted earnings per share is based on the weighted-average number of shares of common
stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially
dilutive instruments:
|
|
Warrants,
|
|
|
|
|
|
Employee stock options, and
|
|
|
|
|
|
Other equity awards, which include long-term incentive awards.
|
The FASB ASC Topic 260, “
Earnings Per
Share”
, requires our Company to include additional shares in the computation of earnings per share, assuming dilution.
The additional shares included in diluted earnings per share represents the number of shares that would be issued if all of the
Company’s outstanding dilutive instruments were converted into common stock.
Diluted earnings per share are based on the
assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options, and warrants are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used
to purchase common stock at the average market price during the period.
Basic and diluted earnings (loss) per share
are the same since our Company had net losses for all periods presented and including the additional potential common shares would
have an anti-dilutive effect.
Revenue Recognition
All revenues are recorded in accordance
with ASC 605,
Revenue Recognition.
Revenue is recognized when all the criteria have been met:
• When persuasive evidence of
an arrangement exists.
• The services have been provided to the
customer.
• The fee is fixed or determinable.
• Collectability is reasonably assured.
-33-
Cost of Revenue
Our cost of revenue consists primarily
of the direct expenses incurred in order to generate revenue. Such costs are recorded as incurred.
Employee Stock Based Compensation
We account for employee stock option grants
in accordance with ASC 718,
Compensation – Stock Compensation
. ASC 718 establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services. ASC 718 requires a public 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. 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).
The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
|
|
|
Dec. 31, 2015
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.75%
|
|
Expected volatility
|
|
|
172.00%
|
|
Expected option life (in years)
|
|
|
3.00
|
|
Expected dividend yield
|
|
|
0.00
|
The risk-free interest rate is based on the
implied yield currently available on U.S. Treasury zero coupon issues. The expected volatility is primarily based on historical
volatility levels of our public company peer group. The expected option life of each award granted was calculated using the “simplified
method” in accordance with ASC 718.
Non-employee Stock Based Compensation
We account for non-employee stock based compensation
in accordance with ASC 505-50,
Equity Payments to Non-Employees
. For awards with service or performance conditions, we generally
recognize expense over the service period or when the performance condition is met; however, there may be circumstances in which
we determine that the performance condition is probable before the actual performance condition is achieved. In such circumstances,
the amount recognized as expense is the pro rata amount, depending on the estimated progress towards completion of the performance
condition. Nonemployee share-based payments are measured at fair value, based on either the fair value of the equity instrument
issued. We determine the fair value of common stock grants based on the price of the common stock on the measurement date (which
is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached,
if there are sufficient disincentives to ensure performance, or the date at which the counterparty’s performance is complete).
We use historical data to estimate expected forfeiture rate. For awards that are recognized when a performance condition is probable,
the fair value is estimated at each reporting date. The cost ultimately recognized is the fair value of the equity award on the
date the performance condition is achieved. Accordingly, the expense recognized may change between interim reporting dates and
the date the performance condition is achieved.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability, in an orderly transaction
between market participants on the measurement date. Valuation techniques used
to measure fair value must maximize the
-34-
use of observable inputs and minimize the use of unobservable inputs. The fair
value hierarchy is based on three levels of inputs, of which the first two are
considered observable and the last unobservable, as follows:
Level 1 –
|
Quoted prices in active markets for identical assets or liabilities.
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|
|
Level 2 –
|
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
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|
Level 3 –
|
Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
|
Our financial instruments include cash, accounts
receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate their fair value
due to their short maturities. The carrying amount of our debt approximates fair value because the interest rates on these instruments
approximate the interest rate on debt with similar terms available to us. Our derivative liability was adjusted to fair market
value at the end of each reporting period, using Level 3 inputs.
Income Taxes
The provision for income taxes, income taxes
payable and deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are
determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company
assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating all of the positive and
negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets
will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion of the deferred tax
assets which are not expected to be realized.
The Company reviews its filing positions for
all open tax years in all U.S. federal and state jurisdictions where the Company is required to file.
When there are uncertainties related to potential
income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely
than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities.
The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize
any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the
“more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being
realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood
of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts
and may affect our results of operations, financial position and cash flows.
The Company’s policy is to recognize interest
and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties for
years ended Dec. 31, 2015 and 2014, respectively and there are no material unrecognized tax benefits. Management believes no material
change to the amount of unrecognized tax benefits will occur within in the next 12 months.
The tax years subject to examination by major
tax jurisdictions include the years 2013 and forward by the U.S. Internal Revenue Service.
-35-
Recent Accounting Pronouncements
FASB ASU 2016-15 “Statement of Cash
Flows (Topic 231)” –
In August 2016, the FASB issued ASU 2016-15, which clarified the presentation of certain cash
receipts and cash payments on the statement of cash flows. Previous GAAP was either unclear or lacked specific guidance on the
presentation of the items addressed in ASU 2016-15, as a result a diversity of practice had developed. The amendment provides specific
guidance on the presentation of eight specific items on the statement of cash flows. This ASU is effective for annual periods beginning
after December 15, 2017, and the interim periods within those fiscal years. We are currently evaluating the potential impact this
standard will have on our consolidated financial statements and related disclosures.
FASB ASU 2015-17”Income Taxes (Topic
740)” –
In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets
and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets
into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets
be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December
15, 2017, and interim periods within annual periods beginning after December 15, 2018. We are currently evaluating the potential
impact this standard will have on our consolidated financial statements and related disclosures.
FASB ASU 2015-16 “Business Combinations
(Topic 805),” or ASU 2015-16
- In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. This ASU is effective for interim and annual reporting period beginning after December 15, 2016, including
interim periods within those fiscal years, with the option to early adopt for financial statements that have not been issued. We
are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.
FASB ASU 2015-11 “Inventory (Topic
331): Simplifying the Measurement of Inventory,” or ASU 2015-11
- In July 2015, the FASB issued ASU 2015-11, which
requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for
interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an
annual or interim period. We do not expect the adoption of this ASU to have a significant impact on our financial position, results
of operations and cash flows.
FASB ASU 2015-03 “Interest - Imputation
of Interest (Subtopic 835-31): Simplifying the Presentation of Debt Issuance Cost,” or ASU 2015-03
- In Dec.2015,
the FASB issued ASU 2015-03, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from
the associated debt liability. This ASU is effective for annual periods beginning after December 15, 2015, and the interim periods
within those fiscal years. We do not expect the adoption of this ASU to have a significant impact on our financial position, results
of operations and cash flows.
FASB ASU 2015-02 “Consolidation (Topic
810): Amendments to the Consolidation Analysis,” or ASU 2015-02
- In February 2015, the FASB issued ASU 2015-02,
which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal
entities. This ASU is effective for annual reporting periods beginning after December 15, 2015 and we are currently assessing the
impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
Financial Accounting Standards Board, or
FASB, Accounting Standards Update, or FASB ASU 2016-12 "Revenue from Contracts with Customers (Topic 606)"
-
In May 2016, the FASB issued 2016-12. The core principle of the guidance is
that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. ASU
2016-12 provides
-36-
clarification on assessing collectability, presentation of sales taxes, noncash
consideration, and completed contracts and contract modifications. This ASU is
effective for annual reporting periods beginning after December 15, 2017, with
the option to adopt as early as December 15, 2016. We are currently assessing
the impact of adoption of this ASU on our consolidated results of operations,
cash flows and financial position.
FASB ASU 2016-11 “Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815)”
– In May 2016, the FASB issued 2016-11, which clarifies
guidance on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether
an entity reports revenue on a gross or net basis. This ASU is effective for annual reporting periods beginning after December
15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU
on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-10 “Revenue from Contracts
with Customers (Topic 606)”
– In Dec.2016, the FASB issued ASU 2016-10, clarify identifying performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. This ASU is effective
for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are
currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-09 “Compensation –
Stock Compensation (Topic 718)”
– In March 2016, the FASB issued ASU 2016-09, which includes multiple provisions
intended to simplify various aspects of accounting for share-based payments. While aimed at reducing the cost and complexity
of the accounting for share-based payments, the amendments are expected to significantly impact net income, earnings per share,
and the statement of cash flows. Implementation and administration may present challenges for companies with significant
share-based payment activities. This ASU is effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. We are currently evaluating the potential impact this standard will have on our consolidated
financial statements and related disclosures.
FASB ASU 2016-02 “Leases (Topic 842)”
–
In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their
balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model,
requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely
similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to
the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This
ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We
are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.
ITEM 3. PROPERTIES
FACILITIES
The corporate headquarters for BlackStar
Enterprise Group, Inc. operates out of Boulder, Colorado and operates out of an office building that occupies approximately 1,000
square feet. The space is rented on a month-to-month basis. The address is 4450 Arapahoe Ave., Suite 100, Boulder, Colorado 80303
and the telephone number is (303) 500-5073.
-37-
ITEM 4. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table
sets forth information with respect to the beneficial ownership of our outstanding common stock by:
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·
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each person who is known
by us to be the beneficial owner of five percent (5%) or more of our common stock;
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·
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our executive officers,
and each director as identified in the “Management — Executive Compensation” section; and
|
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·
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all of our directors and
executive officers as a group.
|
Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants and convertible securities that are currently exercisable
or convertible within 60 days of the date of this document into shares of our common stock are deemed to be outstanding and to
be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage
ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other
person.
The information below is based on the number
of shares of our common stock that we believe was beneficially owned by each person or entity as of February 28, 2017.
OFFICERS AND DIRECTORS
Title of Class
|
Name of Beneficial Owner (1)
|
Amount and Nature of Beneficial Owner
|
Percent of Class Outstanding (2)(4)
|
Number of Shares & Warrants if fully exercised
|
Percent of Class including Warrants(5)(6)(7)
|
|
|
|
|
|
|
Common Stock
|
John Noble Harris,
Chief Executive Officer and Director (3)(4)
|
44,400,000
|
80%
|
48,900,000
|
54.4%
|
|
|
|
|
|
|
Class A Preferred Convertible Stock
|
John Noble Harris
Chief Executive Officer and Director (3)(4)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
Common Stock
|
Todd H. Lahr,
Former President and Former Director (3)(4)(8)
|
44,400,000
|
80%
|
58,100,000
|
64.7%
|
|
|
|
|
|
|
Class A Preferred Convertible Stock
|
Todd H. Lahr,
Former President and Former Director (3)(4)(8)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
Common Stock
|
Joseph E. Kurczodyna,
Chief Financial Officer and Director (3)(4)
|
44,400,000
|
80%
|
48,900,000
|
54.4%
|
|
|
|
|
|
|
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Class A Preferred Convertible Stock
|
Joseph E. Kurczodyna,
Chief Financial Officer and Director (3)(4)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
Common shares
|
All Directors and Executive Officers as a Group (2 persons) Common Shares
|
44,400,000
|
80%
|
58,100,000
|
64.7%
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (3 persons) Preferred Shares
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
(1)
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The address of each person listed above,
unless otherwise indicated, is c/o BlackStar Enterprise Group, Inc., 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303.
|
|
(2)
|
Based upon 55,825,000 common shares issued
and outstanding on a fully diluted basis. (Does not include conversion rights of Class A Preferred Super Majority Voting Convertible
Stock held by International Hedge Group, Inc.)
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|
(3)
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Mr. Harris, Mr. Lahr and Mr. Kurczodyna
are persons owning and controlling International Hedge Group, Inc. and deemed beneficial owners.
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(4)
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International Hedge Group, Inc. (“IHG”),
Mr. Harris, Mr. Lahr and Mr. Kurczodyna are shown collectively as they jointly control IHG. IHG also controls voting of the Class
A Super Majority Voting Preferred stock which votes 60% of the common at all times.
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(5)
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Assuming full exercise of all warrants
(34,000,000).
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(6)
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Including warrants held by International
Hedge Group, Inc., our parent, which are deemed beneficially owned by the other persons (Mr. Lahr, Mr. Harris & Mr. Kurczodyna).
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Including
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other affiliate companies of Mr. Lahr, Mr. Harris and Mr. Kurczodyna.
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(8)
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Resigned as an Officer and Director of
BlackStar Enterprise Group, Inc. on February 8, 2017 and as an Officer and Director of International Hedge Group, Inc. on February
9, 2017.
|
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GREATER THAN 5% STOCKHOLDERS
Title of Class
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Name of Beneficial Owner (1)
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Amount and Nature of Beneficial Owner
|
Percent of Class Outstanding (2)(4)
|
Number
of Shares & Warrants if fully exercised
|
Percent of Class including Warrants(5)(6)(7)
|
Common Stock
|
International Hedge Group, Inc. (4)
|
44,400,000
|
80%
|
58,100,000
|
100%
|
|
|
|
|
|
|
Class A Preferred Convertible Stock
|
International Hedge Group, Inc. (4)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
Common Stock
|
John Noble Harris,
Chief Executive Officer and Director (3)(4)
|
44,400,000
|
80%
|
48,900,000
|
54.4%
|
|
|
|
|
|
|
Class A Preferred Convertible Stock
|
John Noble Harris
Chief Executive Officer and Director (3)(4)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
Common Stock
|
Todd H. Lahr,
Former President and Former Director (3)(4)(8)
|
44,400,000
|
80%
|
58,100,000
|
64.7%
|
|
|
|
|
|
|
Class A Preferred Convertible Stock
|
Todd H. Lahr,
Former President and Former Director (3)(4)(8)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
Common Stock
|
Joseph E. Kurczodyna,
Chief Financial Officer and Director (3)(4)
|
44,400,000
|
80%
|
48,900,000
|
54.4%
|
|
|
|
|
|
|
Class A Preferred Convertible Stock
|
Joseph E. Kurczodyna,
Chief Financial Officer and Director (3)(4)
|
1,000,000
|
100%
|
N/A
|
N/A
|
|
|
|
|
|
|
|
(1)
|
The address of each person listed above,
unless otherwise indicated, is c/o BlackStar Enterprise Group, Inc., 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303.
|
|
(2)
|
Based upon 55,825,000 shares issued and
outstanding on a fully diluted basis. (Does not include conversion rights of Class A Preferred Super Majority Voting Convertible
Stock held by International Hedge Group, Inc.)
|
|
(3)
|
Mr. Harris, Mr. Lahr and Mr. Kurczodyna
are persons owning and controlling International Hedge Group, Inc. and deemed beneficial owners.
|
|
(4)
|
International Hedge Group, Inc. (“IHG”),
Mr. Harris, Mr. Lahr and Mr. Kurczodyna are shown collectively as they jointly control IHG. IHG also controls voting of the Class
A Super Majority Voting Preferred stock which votes 60% of the common at all times.
|
|
(5)
|
Assuming full exercise of all warrants
(34,000,000).
|
|
(6)
|
Including warrants held by International
Hedge Group, Inc., our parent, which are deemed beneficially owned by the other persons (Mr. Lahr, Mr. Harris & Mr. Kurczodyna).
|
|
(7)
|
Including other affiliate companies of
Mr. Lahr, Mr. Harris and Mr. Kurczodyna.
|
|
(8)
|
Resigned as an Officer and Director of
BlackStar Enterprise Group, Inc. on February 8, 2017 and as an Officer and Director of International Hedge Group, Inc. on February
9, 2017.
|
-40-
Rule 13d-3 under the Securities Exchange Act
of 1934 governs the determination of beneficial ownership of securities. That rule provides that a beneficial owner of a security
includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security.
Rule 13d-3 also provides that a beneficial owner of a security includes any person who has the right to acquire beneficial ownership
of such security within sixty days, including through the exercise of any option, warrant or conversion of a security. Any securities
not outstanding which are subject to such options, warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such person. Those securities are not deemed to be
outstanding for the purpose of computing the percentage of the class owned by any other person. Included in this table are only
those derivative securities with exercise prices that we believe have a reasonable likelihood of being “in the money”
within the next sixty days.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth
information as to persons who currently serve as our directors or executive officers, including their ages as of February 28, 2017.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
John Noble Harris
|
|
70
|
|
Chief Executive Officer and Director
|
Joseph E. Kurczodyna
|
|
63
|
|
Chief Financial Officer and Director
|
Todd H. Lahr (1)
|
|
56
|
|
Former President and Former Director
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Resigned as an Officer
and Director of BlackStar Enterprise Group, Inc. as of February 8, 2017
|
Our officers are elected by the board of directors
at the first meeting after each annual meeting of our stockholders and hold office until their successors are duly elected and
qualified under our bylaws.
The directors named above will serve until the
next annual meeting of our stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting.
Officers will hold their positions at the pleasure of the board of directors absent any employment agreement. There is no arrangement
or understanding between our directors and officers and any other person pursuant to which any director or officer was or is to
be selected as a director or officer.
BIOGRAPHICAL INFORMATION
John Noble Harris, Chief Executive Officer
and Director
Mr. Harris began his career in the securities
industry in 1971 with Newhart Cook & Co., a St. Louis based NYSE member firm. Licensed both as a broker and principal,
he ultimately managed brokerage offices for several regional NASD brokerage firms. Since 1985, he has been self- employed
as a business consultant and as a private investor. Mr. Harris brings to the Company experience in the public securities market.
Mr. Harris served as the president of Tombstone Technologies from 2005-2010 and eventually merged the public company with
Hunt Global Resources. In 2011, Mr. Harris became president of Rare Green, Inc., a private mineral exploration company. In
2014, Mr. Harris was one of the founders of International Hedge Group, Inc. (“IHG”). In 2016, IHG acquired 95% interest
in BlackStar Enterprise Group, Inc.
-41-
Joseph E. Kurczodyna, Chief Financial Officer
and Director
Working with various Commodity and Stock brokerage
firms in Chicago and Denver Mr. Kurczodyna began his career in 1977 trading Bonds and T-Bill futures In the 1980’s, he focused
on underwriting early stage companies. As a principle with Mills Financial, a registered Broker Dealer with the SEC and NASD,
he underwrote and syndicated the Western International Gold & Silver (WIGS) in 1984. In 1991, Mr. Kurczodyna purchased Mills
Financial and was the firm’s President and General Principle. While leading Mills Financial, he underwrote and funded several
private placements and IPO’s. In 1998, Mills was the lead underwriter for United Financial Mortgage Corp. (UFMC), which was
eventually listed on the American Stock Exchange. From 2004 to 2009, Mr. Kurczodyna was the CEO of Capital Merchant Bank
LLC, an independent investment banker. From 2006-2008 he acted as the CFO and Director of OnMedia International. In 2009, Mr. Kurczodyna
founded Patriot Mortgage Acceptance Corp. a private mortgage company. In 2014, Mr. Kurczodyna was one of the founders of International
Hedge Group Inc.(IHG). In 2016, IHG acquired 95% interest in BlackStar Enterprise Group Inc.
CONFLICTS OF INTEREST – GENERAL
There can be no assurance that management will
resolve all conflicts of interest in favor of the Company.
Our directors and officers are, or may become,
in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety
of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity,
involved in participation with such other entities. Consequently, there are potential inherent conflicts of interest in their acting
as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management
anticipates it will devote only up to approximately 20 hours per week to the Company's affairs.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles
of Incorporation, Bylaws, or minutes which requires officers and directors of our Company to disclose business opportunities which
come to their attention. Our officers and directors do, however, have a fiduciary duty of loyalty to our company to disclose to
it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded
from this duty would be opportunities which the person learns about through his involvement as an officer and director of another
company. We have no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate
or any client of any such person.
Our Board of Directors has adopted a policy
that the Company will not seek a fund of, any entity in which any officer or director serves as an officer or director or in which
they or their family members own or hold a controlling ownership interest. Although the Board of Directors could elect to change
this policy, the Board of Directors has no present intention to do so.
The members of the Board and management are
also the Board and Management of our parent, International Hedge Group, Inc. (“IHG”) and have ownership and compensation
through IHG. IHG will often be engaged by client borrowers of our Company to provide, consulting services, and such poses a risk
of financial conflict to our Company.
COMMITTEES OF THE BOARD OF DIRECTORS
We are managed under the direction of its board
of directors.
EXECUTIVE COMMITTEE
We do not have an executive committee, at this
time.
-42-
AUDIT COMMITTEE
We have formed a non-independent audit committee
in October 2016 to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the compliance
by the Company with legal and regulatory requirements and (3) the independence and performance of the Company's internal and external
auditors. Joe Kurczodyna, as Chairman, and John Harris act as the initial members of the Audit Committee.
The functions of the audit committee are to
review the scope of the audit procedures employed by our independent auditors, to review with the independent auditors our accounting
practices and policies and recommend to whom reports should be submitted, to review with the independent auditors their final audit
reports, to review with our internal and independent auditors our overall accounting and financial controls, to be available to
the independent auditors during the year for consultation, to approve the audit fee charged by the independent auditors, to report
to the board of directors with respect to such matters and to recommend the selection of the independent auditors.
In the absence of a separate audit committee
our board of directors functions as audit committee and performs some of the same functions of an audit committee, such as recommending
a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors
independence, the financial statements and their audit report; and reviewing management's administration of the system of internal
accounting control We expect that the selection of a business opportunity will be complex. Due to general economic conditions,
rapid technological advances being made in some industries and shortages of available capital, we believe that there are numerous
firms seeking the benefits of an issuer who has complied with the 1934 Act. Such benefits may include facilitating or improving
the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits
to key employees, providing liquidity (subject to restrictions of applicable statutes) for all stockholders and other factors.
Potentially, available business opportunities may occur in many different industries and at various stages of development, all
of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
We have, and will continue to have, essentially no assets to provide the owners of business opportunities. However, we will be
able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an issuer who has
complied with the 1934 Act without incurring the cost and time required to conduct an initial public offering.
ANNUAL MEETING
Our annual meeting of stockholders
is expected to be held at a future date about 6 months after the filing of this Form 10. This will be an annual meeting of stockholders
and will include the election of directors. The annual meeting will be held at our principal office or at such other place as permitted
by the laws of the State of Delaware and on such date as may be fixed from time to time by resolution of our board of directors.
PREVIOUS
"BLANK CHECK" OR "SHELL" COMPANY INVOLVEMENT
No members of our management have been involved
in private "blank-check" or "shell" companies.
-43-
ITEM 6. EXECUTIVE COMPENSATION
Executive and Directors Compensation
Summary of Executives and Director Compensation
Table
The
following table sets forth the compensation paid to our officers from the period of 2015 through December 31, 2016.
SUMMARY EXECUTIVES COMPENSATION TABLE
In Dollars
Name & Position
|
Year
|
Contract Payments
($)
|
Bonus
($)
|
Stock awards
($)
|
Option awards
($)
|
Non-equity incentive plan compensa-tion
($)(1)
|
Non-qualified deferred compensation earnings
($)
|
All other compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
John Noble Harris, CEO
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2016
|
$10,000
|
0
|
0
|
3,000,000
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
Joseph E. Kurczodyna, CFO
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2016
|
$10,000
|
0
|
0
|
3,000,000
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
Todd H. Lahr, Former President (2)
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2016
|
$10,000
|
0
|
0
|
6,500,000
|
0
|
0
|
0
|
0
|
|
(1)
|
International Hedge Group, of which these
persons are controlling parties, also own 2,700,000 Warrants to purchase @ $0.05 expiring August 2019.
|
|
(2)
|
Resigned as President of BlackStar Enterprise
Group, Inc. on February 8, 2017.
|
Employment Contracts and Termination of Employment
and Change-in-Control Arrangements
There are no employment contracts, compensatory
plans or arrangements, including payments to be received from us, with respect to any of our directors or executive officers which
would in any way result in payments to any such person because of his or her resignation, retirement or other termination of employment
with us. These agreements do not provide for payments to be made as a result of any change in control of us, or a change in the
person's responsibilities following such a change in control.
Compensation Committee
Interlocks and Insider Participation
Our board of directors in
our entirety acts as the compensation committee for BlackStar Enterprise Group, Inc.
-44-
DIRECTOR COMPENSATION
The following table sets forth certain information
concerning compensation paid to our directors for services as directors, but not including compensation for services as officers
reported in the "Summary Executives’ Compensation Table" during the year ended December 31, 2015 and 2016 :
Name
|
Year
|
Fees earned or paid in cash
($)
|
Stock awards
($)
|
Option awards ($)
|
Non-equity incentive plan compensation ($)
|
Non-qualified deferred compensation earnings
($)
|
All other compensation ($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
John Noble Harris
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
$0
|
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
$0
|
|
|
|
|
|
|
|
|
|
Joseph E. Kurczodyna,
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
$0
|
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
$0
|
|
|
|
|
|
|
|
|
|
Todd H. Lahr,
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
$0
|
Former Director (1)
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
$0
|
|
(1)
|
Mr. Lahr resigned as an Officer and Director
of BlackStar Enterprise Group, Inc. on February 8, 2017.
|
The term of office for each Director is one
(1) year, or until his/her successor is elected at our annual meeting and qualified. The term of office for each of our Officers
is at the pleasure of the Board of Directors.
The Board of Directors has no nominating, auditing
committee or a compensation committee. Therefore, the selection of person or election to the Board of Directors was neither independently
made nor negotiated at arm's length.
At this time, our Directors do not receive cash
compensation for serving as members of our Board of Directors.
-45-
Limitation on Liability
and Indemnification
We are a Delaware corporation.
The Delaware General Corporation Laws (DGCL) provides that the articles of incorporation of a Delaware corporation may contain
a provision eliminating or limiting the personal liability of a director to the corporation or our stockholders for monetary damages
for breach of fiduciary duty as a director, except that any such provision may not eliminate or limit the liability of a director
(i) for any breach of the director’s duty of loyalty to the corporation or our stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law, (iii) acts specified in Section 78 (concerning
unlawful distributions), or (iv) any transaction from which a director directly or indirectly derived an improper personal benefit.
Our articles of incorporation contain a provision eliminating the personal liability of directors to our company’ or our
stockholders for monetary damages to the fullest extent provided by the DGCL.
The DGCL provides that
a Delaware corporation must indemnify a person who was wholly successful, on the merits or otherwise, in defense of any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal
or informal (a “Proceeding”), in which he or she was a party because the person is or was a director, against reasonable
expenses incurred by him or her in connection with the Proceeding, unless such indemnity is limited by the corporation’s
articles of incorporation. Our articles of incorporation do not contain any such limitation.
The DGCL provides that
a Delaware corporation may indemnify a person made a party to a Proceeding because the person is or was a director against any
obligation incurred with respect to a Proceeding to pay a judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan) or reasonable expenses incurred in the Proceeding if the person conducted himself or
herself in good faith and the person reasonably believed, in the case of conduct in an official capacity with the corporation,
that the person’s conduct was in the corporation’s best interests and, in all other cases, his or her conduct was at
least not opposed to the corporation’s best interests and, with respect to any criminal proceedings, the person had no reasonable
cause to believe that his or her conduct was unlawful. Our articles of incorporation and bylaws allow for such indemnification.
A corporation may not indemnify a director in connection with any Proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or, in connection with any other Proceeding charging that the director derived
an improper personal benefit, whether or not involving actions in an official capacity, in which Proceeding the director was judged
liable on the basis that he or she derived an improper personal benefit. Any indemnification permitted in connection with a Proceeding
by or in the right of the corporation is limited to reasonable expenses incurred in connection with such Proceeding.
The DGCL, unless otherwise
provided in the articles of incorporation, a Delaware corporation may indemnify an officer, employee, fiduciary, or agent of the
corporation to the same extent as a director and may indemnify such a person who is not a director to a greater extent, if not
inconsistent with public policy and if provided for by our bylaws, general or specific action of our board of directors or stockholders,
or contract. Our articles of incorporation provide for indemnification of our directors, officers, employees, fiduciaries and agents
to the full extent permitted by Delaware law.
Our articles of incorporation
also provide that we may purchase and maintain insurance on behalf of any person who is or was a director or officer of our company
or who is or was serving at our request as a director, officer or agent of another enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not we would
have the power to indemnify him or her against such liability.
EQUITY COMPENSATION PLAN INFORMATION
Key Employees Stock Compensation Plan
Effective December 1, 2016, our Stock Option and Award Plan (the "Stock
Incentive Plan") was approved by our Board of Directors. Under the Stock
Incentive Plan, the Board of Directors may grant options or purchase rights to
purchase common stock to officers, employees, and other persons who provide
services to us or any related
-46-
company. The participants to whom awards are granted, the type of awards
granted, the number of shares covered for each award, and the purchase or
exercise price, conditions and other terms of each award are determined by the
Board of Directors, except that the term of the options shall not exceed 10
years. A total of 10 million shares of our common stock are subject to the Stock
Incentive Plan and maybe either a qualified or non-qualified stock option. The
shares issued for the Stock Incentive Plan may be either treasury or authorized
and unissued shares. As of December 20, 2016, we have granted no stock options
to purchase any shares of our common stock under the Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the stock transactions discussed
below, we have not entered into any transaction nor are there any proposed transactions in which any of our founders, directors,
executive officers, stockholders or any members of the immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
In 2016, we entered into an agreement whereby
our parent, International Hedge Group, Inc., acquired 44,000,000 shares of common stock and 1,000,000 shares of our Class A Preferred
Super Majority Voting Convertible Stock for capital infusion of $200,000 and 34,000,000 warrants to purchase common stock @ $0.05
per share expiring in 3 years (cashless). Our Directors and Officers own the control of International Hedge Group, Inc., which
in turn controls the voting stock of our Company, BlackStar.
Our officers and directors, listed below, who
also control our parent- International Hedge Group, Inc., and International Hedge Group, Inc., own warrants of our Company granted
in August 2016, which provide for an exercise price of $.05 per share, and which expire in three years, and provide for cashless
exercise. The warrants were issued for services in reorganizing the Company and settling the debts of the Company.
The warrants are as follows:
Todd H. Lahr, Former President
|
6,500,000 – Expiry August 2019
|
John Noble Harris, CEO
|
3,000,000 – Expiry August 2019
|
Joseph E. Kurczodyna, CFO
|
3,000,000 – Expiry August 2019
|
International Hedge Group, Inc.
|
2,700,000 – Expiry August 2019
|
In addition to those listed above, Messrs. Harris, Lahr,
and Kurcyodyna assigned warrants earned to affiliates of the following shareholders which held warrants in BlackStar Enterprise
Group, Inc. in the following amounts:
THL Holdings, LLC
|
Affiliate: Todd H. Lahr
|
4,000,000 Warrants
|
Rare Green, Inc.
|
Affiliate: John Noble Harris
|
1,500,000 Warrants
|
Patriot Mtg. Acceptance Corp.
|
Affiliate: Joseph E. Kurczodyna
|
1,500,000 Warrants
|
In 2016, Messrs. Harris, Lahr, and Kurcyodnya each were paid $10,000
for their consulting services. No further compensation arrangements exist at this time.
ITEM 8. LEGAL PROCEEDINGS
We anticipate that we (including any future
subsidiaries) will from time to time become subject to claims and legal proceedings arising in the ordinary course of business.
It is not feasible to predict the outcome of any such proceedings and we cannot assure that their ultimate disposition will not
have a materially adverse effect on our business, financial condition, cash flows or results of operations. As of the filing of
this Form 10, we are not a party to any pending legal proceedings, nor are we aware of any civil proceeding or government authority
contemplating any legal proceeding.
-47-
ITEM 9. MARKET PRICE OF AND DIVIDENDS
ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Currently there is a limited public trading
market for our stock. Our stock symbol is “BEGI.” The following information is from available sources and may not reflect
interdealer prices or mark-up or markdowns.
Market Information
|
|
|
|
|
Fiscal Year 2016 Year to Date:
|
|
High
|
|
Low
|
Quarter Ended March 31, 2016
|
|
$0.06
|
|
$0.05
|
Quarter Ended June 30, 2016
|
|
$0.05
|
|
$0.03
|
Quarter Ended September 30, 2016
|
|
$0.55
|
|
$0.04
|
Quarter Ended December 31, 2016
|
|
$1.15
|
|
$0.35
|
|
|
|
|
|
Fiscal Year Ended December 31, 2015:
|
|
High
|
|
Low
|
Quarter Ended March 31, 2015
|
|
$0.20
|
|
$0.06
|
Quarter Ended June 30, 2015
|
|
$0.08
|
|
$0.08
|
Quarter ended September 30, 2015
|
|
$0.08
|
|
$0.06
|
Quarter ended December 31, 2015
|
|
$0.06
|
|
$0.06
|
|
|
|
|
|
Fiscal Year Ended December 31, 2014:
|
|
High
|
|
Low
|
Quarter Ended March 31, 2014
|
|
$0.06
|
|
$0.06
|
Quarter Ended June 30, 2014
|
|
$0.06
|
|
$0.06
|
Quarter Ended September 30, 2014
|
|
$0.10
|
|
$0.06
|
Quarter Ended December 31, 2014
|
|
$0.06
|
|
$0.06
|
Rules Governing Low-price Stocks That May
Affect Our Stockholders' Ability to Resell Shares of Our Common Stock
We are a “penny stock” company,
as our stock price is less than $5.00 per share. If we are able to obtain an exchange listing for our stock, we cannot make an
assurance that we will be able to maintain a stock price greater than $5.00 per share and if the share price was to fall to such
prices, that we wouldn’t be subject to the Penny Stocks rules.
The penny stock rules require broker-dealers,
prior to a transaction in a penny stock not otherwise exempt from the rules, to make a special suitability determination for the
purchaser to receive the purchaser’s written consent to the transaction prior to sale, to deliver standardized risk disclosure
documents prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock. In addition,
the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure
schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt.
A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current
quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information
with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.
-48-
Holders
As of February 28, 2017, we have approximately
353 stockholders of record of our common stock.
Dividends
As of the filing of this registration statement,
we have not paid any dividends to stockholders. There are no restrictions which would limit our ability to pay dividends on common
equity or that are likely to do so in the future. The Delaware General Corporation Laws, however, do prohibit us from declaring
dividends where, after giving effect to the distribution of the dividend; we would not be able to pay our debts as they become
due in the usual course of business; or our total assets would be less than the sum of the total liabilities plus the amount that
would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Class A Preferred Super Majority Voting Convertible
Stock
The Certificate of Incorporation of the Company
authorizes the issuance of up to ten million (10,000,000) shares of Preferred Stock, $0.001 par value per share (herein, “Preferred
Stock” or “Preferred Shares”), and expressly vests in the Board of Directors of the Company the authority provided
therein to issue any or all of the Preferred Shares in one (1) or more Class or classes and by resolution or resolutions to establish
the designation and number and to fix the relative rights and preferences of each Class to be issued. The Board authorized One
Million (1,000,000) of the Ten Million (10,000,000) authorized shares of Preferred Stock of the Company to be designated Class
A Preferred Convertible Stock, $0.001 par value per share, and shall possess the rights and preferences set forth below:
Rank
. The Class A Preferred Convertible
Stock shall rank: (i) senior to any other class or Class of outstanding Preferred Shares or Class of capital stock of the Company;
(ii) prior to all of the Company's Common Stock, ("Common Stock"); and (iii) prior to any other class or Class of capital
stock of the Company hereafter created "Junior Securities"); and in each case as to distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary (all such distributions being referred to collectively
as "Distributions").
Dividends
.
The Class A Preferred
Convertible Stock shall bear no dividends, except that in the event dividends are declared for common stock, the same rate of dividend
per share shall be due and payable to the Class A Preferred shareholders on the same terms.
Liquidation / Merger Preference
.
(a) So
long as a majority of the shares of Class A Preferred authorized are outstanding, the Company will not, without the written consent
of the holders of at least 51% of the Company’s outstanding Class A Preferred, either directly or by amendment, merger, consolidation,
or otherwise: (i) liquidate, dissolve or wind-up the affairs of the Company, or effect any Liquidation Event; (ii) amend,
alter, or repeal any provision of the Certificate of Incorporation or Bylaws in a manner adverse to the Class A Preferred (iii) create
or authorize the creation of, or issue any other security convertible into or exercisable for, any equity security, having rights,
preferences or privileges senior to the Class A Preferred, or (iv) purchase or redeem or pay any dividend on any capital stock
prior to the Class A Preferred, other than stock repurchased from former employees or consultants in connection with the cessation
of their employment/services.
(b) In
the event of any liquidation, merger, dissolution or winding up of the Company, either voluntary or involuntary, the holders of
shares of Class A Preferred Convertible Stock (each a “Holder” and collectively the “Holders”) shall be
entitled to receive, prior in preference to any distribution to Junior Securities, an amount per share equal to $.01 plus any allocable
and due dividends per share.
-49-
(c) Upon
the completion of the distribution required to Class A holders, if assets remain in the Company, they shall be distributed to holders
of Junior Securities in accordance with the Company's Certificate of Incorporation including any duly adopted Certificate(s) of
Designation.
Conversion Rights:
The Holders of the Class A Preferred Convertible
Stock shall, individually and collectively, have the right to convert all of their Class A Preferred Convertible Stock, in one
transaction, by electing, in writing, to convert the 1,000,000 shares of Class A Preferred Stock into shares of Common Stock of
the Company, on the basis of 100 common shares for each share of Class A Preferred Stock, subject to adjustment
Adjustment to Conversion Rate. The conversion
price will be subject to adjustments for stock dividends, splits, combinations and similar events and to Adjustment Due to Merger,
Consolidation, Etc
.
If, prior to the conversion of all Class A Preferred Convertible Stock, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the
Company shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities
of the Company or another entity or there is a sale of all or substantially all the Company’s assets, then the Holders of
Class A Preferred Convertible Stock shall thereafter have the right to receive upon conversion of Class A Preferred Convertible
Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities and/or other assets (“New Assets”) which the Holder would
have been entitled to receive in such transaction had the Class A Preferred Convertible Stock been convertible into New Assets
from the date hereof, at the market price of such New Assets on the date of conversion, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the Holders of the Class A Preferred Convertible Stock to the end that
the provisions hereof (including, without limitation, provisions for the adjustment of the conversion price and of the number of
shares of Common Stock issuable or New Assets deliverable upon conversion of the Class A Preferred Convertible Stock) shall thereafter
be applicable, as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise here.
Redemption by Company
. The Company
may, at its sole discretion redeem all or any portion of the Class A Preferred Convertible Stock by paying in cash by wire transfer
the stated value of US $50.00 per share, plus all accrued and unpaid dividends on the Class A Preferred Convertible Stock to be
redeemed, to the Holder pursuant to the Holder’s written instructions. The Holders may convert Class A Preferred Convertible
Stock into Common Stock of the Company until such cash has been transmitted to the Holder, at which time conversion rights shall
cease and the Holder shall surrender all redeemed Class A Preferred Certificates to the Company for cancellation.
Super Majority Voting Rights
.
The record Holders of the Class A Preferred Convertible Stock shall have the right to vote on any matter with holders of Common
Stock and may vote as required on any action, which Delaware law provides may or must be approved by vote or consent of the holders
of the specific Class of voting preferred shares and the holders of common shares. The Record Holders of the Class A Preferred
Shares shall have the right to vote on any matter with holders of common stock voting together as one (1) class. The Record Holders
of the Class A Preferred Shares shall have that number of votes (identical in every other respect to the voting rights of the holders
of other Class of voting preferred shares and the holders of common stock entitled to vote at any Regular or Special Meeting of
the Shareholders) equal to that number of common shares which is not less than 60% of the vote required to approve any action,
which Delaware law provides may or must be approved by vote or consent of the holders of other Class of voting preferred shares
and the holders of common shares or the holders of other securities entitled to vote, if any.
-50-
ITEM 10. RECENT SALES OF UNREGISTERED
SECURITIES
We have sold securities in the past 2 years
without registering the securities under the Securities Act of 1933 as shown in the following tables:
Shares Issued in Private Offering
44,400,000 Common shares and 1,000,000 Class
A Preferred Super Majority Voting Convertible Shares were issued to International Hedge Group, Inc., for $200,000 in cash consideration
and 34,000,000 (cashless) warrants exercisable in 3 years @ $0.05 per share were issued to officers, and directors and seven individuals.
250,000 shares of common were issued to William Brand for services, and 162,579 shares of common were issued to Shelly D. Williams
for services.
Exemption from Registration Claimed
Sales and issuances by us of the unregistered
securities listed above were made by us in reliance upon Rule 506 of Regulation D to the individuals listed above. All of the individuals
and/or entities listed above that purchased the unregistered securities were all known to us and our management, through pre-existing
business relationships, as long standing business associates, friends, and employees. All purchasers were provided access to all
material information, which they requested, and all information necessary to verify such information and were afforded access to
our management in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment
and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities
that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise exempt from registration in any further resale or
disposition. Each purchaser made written representation under Rule 506 of Regulation D, including net worth and sophistication.
We required written representation that each purchaser who was not an accredited investor, either alone or with his purchaser representative,
had such knowledge and experience in financial and business matters that he/she was capable of evaluating the merits and risks
of the prospective investment, and the issuer reasonably believed (based on written representations) immediately prior to making
any sale that the purchaser came within this description.
Shares or Warrants Issued for Compensation
or Services
Since January 1, 2014 through December 20, 2016,
we have issued shares and Warrants of our common stock in exchange for services to the individuals and the amounts set forth below.
William Brand (1)
|
250,000 shares of common stock
|
Shelly D. Williams (2)
|
162,579 shares of common stock
|
M.A. Littman
|
800,000 Warrants exercisable @ $0.05 per share for $20,000 receivable waiver
|
MATERIAL RELATIONSHIPS
|
(1)
|
Former Director/Officer
|
|
(2)
|
Non-Executive Secretary
|
Exemption from Registration Claimed
All of the sales by us of the unregistered securities
listed immediately above were made by us in reliance upon Section 4(a)(2) of the Act. All of the individuals and/or entities listed
above that purchased the unregistered securities were all known to us and our management, through pre-existing business relationships,
as long standing business associates, friends, and employees. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information and were afforded access to our management in connection
with their purchases. All purchasers of the unregistered securities acquired such securities for investment and not with a view
toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from registration in any further resale or disposition.
-51-
ITEM 11. DESCRIPTION OF REGISTRANT’S
SECURITIES TO BE REGISTERED
Common
Stock
We are presently authorized to issue two hundred
million (200,000,000) common shares of our $0.001 par value stock. A total of 55,825,000 common shares are deemed issued and outstanding
as of February 28, 2017
All shares, when issued, will be fully paid
and non-assessable. All shares are equal to each other with respect to voting, liquidation, and dividend rights. Special Stockholders'
meetings may be called by our Officers or Directors, or upon the request of holders of at least one-tenth (1/10th) of the outstanding
shares. Holders of shares are entitled to one vote at any Stockholders' meeting for each share they own as of the record date set
by our Board of Directors. There is no quorum requirement for Stockholders’ meetings. Therefore, a vote of the majority of
the shares represented at a meeting will govern even if this is substantially less than a majority of the shares outstanding. Holders
of shares are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available therefore,
and upon liquidation are entitled to participate pro rata in a distribution of assets available for such a distribution to Stockholders.
There is no conversion, pre-emptive or other subscription rights or privileges with respect to any shares. Reference is made to
our Articles of Incorporation and our By-Laws as well as to the applicable statutes of the State of Delaware for a more complete
description of the rights and liabilities of holders of shares. It should be noted that the Board of Directors without notice to
the Stockholders may amend the By-Laws. Our shares do not have cumulative voting rights, which means that the holders of more than
fifty percent (50%) of the shares voting for election of Directors may elect all the Directors if they choose to do so. In such
event, the holders of the remaining shares aggregating less than fifty percent (50%) of the shares voting for election of Directors
may not be able to elect any Director.
Employees Stock Compensation Plan
We adopted a Stock Option and Award Plan on
December 1, 2016. We have authorized 10,000,000 shares of common stock to be available for the Plan. We have granted no options
exercisable for shares of our common stock under the Plan.
Stockholders
Each Stockholder has sole investment power and
sole voting power over the shares owned by such Stockholder. No Stockholder has entered into or delivered any lock up agreement
or letter agreement regarding shares or options thereon. Under Delaware laws, no lock up agreement is required regarding our shares
as it might relate to an acquisition.
Transfer
Agent and Registrar
Our transfer agent for our securities is Corporate
Stock Transfer at 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209/ Phone: (303) 282-4800.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Under our Articles of Incorporation and By-Laws,
we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if
he acted in good faith and in a manner he reasonably believed to be in our best interest. No officer or director may be may be
indemnified, however, where the officer or director acted committed intentional misconduct, fraud, or an intentional violation
of the law.
-52-
We may advance expenses incurred in defending
a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified,
we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity
may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged
liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of
Delaware.
Regarding the indemnification for liabilities
arising under the Securities Act of 1933, which may be permitted to officers and directors under Delaware law, we are informed
that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by our officer(s),
director(s), or controlling person(s) in connection with the securities being registered, we will, unless in the opinion of our
legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against
public policy to a court of appropriate jurisdiction. We will then be governed by the court's decision.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following is a complete list of the
financial statements filed as a part of this Report.
·
Audited financial statements of BlackStar Enterprise Group, Inc.
for the period January 1, 2014 through December 31, 2015 (pages F-1 through F-11)
·
Unaudited financial statements for the three and nine months ended
September 30, 2016 and for the nine month period ended September 30, 2015 (pages F-12 through F-23)
-53-
BLACKSTAR ENTERPRISE GROUP, INC.
FINANCIAL STATEMENTS
FOR THE PERIOD OF JANUARY 1, 2014 THROUGH
DECEMBER 31, 2015
(AUDITED)
-F-1-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of BlackStar Enterprise
Group, Inc.:
We have audited the accompanying balance sheets
of BlackStar Enterprise Group, Inc. (“the Company”) as of December 31, 2015 and 2014 and the related statements of
operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinions.
In our opinion, the financial statement referred
to above present fairly, in all material respects, the financial position of BlackStar Enterprise Group, Inc., as of December 31,
2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted
accounting principles in the United States of America.
The company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the Company's internal control over financial reporting. Accordingly, we express
no such opinion.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s
significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
/s/ B F Borgers CPA PC
B F Borgers CPA PC
Lakewood, CO
December 28, 2016
-F-2-
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash in trust account
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
Total Current assets
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
$ 26,423
|
|
$ 23,623
|
|
|
|
Accrued interest payable
|
|
|
|
|
|
|
|
|
67,258
|
|
52,258
|
|
|
|
Loan payable
|
|
|
|
|
|
|
|
|
50,000
|
|
50,000
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
200,000
|
|
200,000
|
|
|
|
Total current liabilties
|
|
|
|
|
|
|
|
|
343,681
|
|
325,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with $0.001 par value. No Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares issued or outstanding
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
Common stock, 200,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with $0.001 par value. 11,112,421 issued and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding at each period respectively
|
|
|
|
|
|
|
|
|
11,112
|
|
11,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
|
|
|
|
|
1,484,737
|
|
1,484,737
|
|
|
|
Common stock subscribed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
(1,839,530)
|
|
(1,821,730)
|
|
|
|
Total Stockholders' Deficit
|
|
|
|
|
|
|
|
|
(343,681)
|
|
(325,881)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
F-3
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
GROSS PROFIT
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
Legal and professional
|
|
|
|
|
|
|
|
|
-
|
|
4,533
|
|
General and administrative
|
|
|
|
|
|
|
|
|
2,800
|
|
2,125
|
|
Total operating expenses
|
|
|
|
|
|
|
|
|
2,800
|
|
6,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
(2,800)
|
|
(6,658)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(15,000)
|
|
(15,000)
|
|
Other income (expense) net
|
|
|
|
|
|
|
|
|
(15,000)
|
|
(15,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision
|
|
|
|
|
|
|
|
|
(17,800)
|
|
(21,658)
|
|
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for income tax
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
$ (17,800)
|
|
$ (21,658)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
(Basic and fully diluted)
|
|
|
|
|
|
|
|
|
$ (0.00)
|
|
$ (0.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
common shares outstanding
|
|
|
|
|
|
|
|
|
11,112,421
|
|
11,112,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
|
F-4
BLACKSTAR ENTERPRISE GROUP, INC.
|
STATEMENT OF STOCKHOLDER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Amount
|
|
Paid in
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
|
|
|
Shares
|
|
($0.001 Par)
|
|
Shares
|
|
($0.001 Par)
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2014
|
|
11,112,421
|
|
$ 11,112
|
|
-
|
|
$ -
|
|
$1,484,737
|
|
$ (1,821,730)
|
|
$ (325,881)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
(17,800)
|
|
(17,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2015
|
|
11,112,421
|
|
$ 11,112
|
|
-
|
|
$ -
|
|
$1,484,737
|
|
$ (1,839,530)
|
|
$ (343,681)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
F-5
BLACKSTAR ENTERPRISE GROUP, INC.
|
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
$ (17,800)
|
|
$ (21,658)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
-
|
|
-
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
-
|
|
-
|
|
Increase in accounts payable
|
|
|
|
|
|
|
|
2,800
|
|
6,658
|
|
Increase in accrued expenses
|
|
|
|
|
|
|
|
15,000
|
|
15,000
|
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subscribed
|
|
|
|
|
|
|
|
|
|
|
|
Subscription receivable
|
|
|
|
|
|
|
|
-
|
|
-
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash At The Beginning Of The Period
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash At The End Of The Period
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
Cash paid for income taxes
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
-F-6-
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015
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”). 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.
The Company is a Delaware corporation organized for the purpose of
engaging in any lawful business. The Company intends to act as a merchant bank as at the date of these financial statements. It
currently trades on the Pink Sheets under the symbol “BEGI”.
The Company’s fiscal year end is December 31
st
.
The Company’s financial statements are presented on the accrual basis of accounting.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue recognition
The Company has realized minimal revenues from operations. The Company
recognizes revenues when the sale and/or distribution of products is complete, risk of loss and title to the products have transferred
to the customer, there is persuasive evidence of an agreement, acceptance has been approved by the customer, the fee is fixed or
determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable. Net
sales will be comprised of gross revenues less expected returns, trade discounts, and customer allowances that will include costs
associated with off-invoice markdowns and other price reductions, as well as trade promotions and coupons. The incentive costs
will be recognized at the later of the date on which the Company recognized the related revenue or the date on which the Company
offers the incentive.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance with “ASC-260,”
“Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement
of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number
of outstanding common share during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding
during the period. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive.
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.
-F-7-
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 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.
-F-8-
Long Lived Assets
In accordance with ASC 350 the Company regularly reviews the carrying
value of intangible and other long lived assets for the existence of facts or circumstances both internally and externally that
suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if
the carrying amount of a long lived asset exceeds its fair value.
Stock-based Compensation
The Company accounts for stock-based compensation issued to employees
based on FASB accounting standard for Share Based Payment. It requires an entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for the award –
the requisite service period (usually the vesting period). It requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability
instruments issued. The scope of the FASB accounting standard includes a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
Recent pronouncements
Management has evaluated accounting standards and interpretations
issued but not yet effective as of March 31, 2016, and does not expect such pronouncements to have a material impact on the Company’s
financial position, operations, or cash flows.
NOTE 3 – GOING CONCERN
As of the date of these financial statements our auditors have expressed
a qualification as to the ability of the Company to continue as a going concern. The Company has had no operations or income since
2011. It has accrued expenses for services but has not been able to raise money through loans or other financing activities to
pay these expenses. The Company must necessarily rely on these sources for raising funds to support operations.
The reader is referred to Note 10 – Subsequent Events for further
information as it pertains to this topic.
NOTE 4 ACCOUNTS PAYABLE
The Company is indebted to its transfer agent and for delinquent
filing fees with the State of Delaware..
NOTE 5 – ACCRUED INTEREST PAYABLE
The Company has been accruing interest on a note of $200,000 dated
July 11, 2011 and an advance of $50,000 dated June 23, 2011. Each has been accrued at a rate of 6% simple interest. For further
detail the reader is advised to refer to the note “
NOTES PAYABLE”.
NOTE 6 – STOCKHOLDER’S DEFICIT
The total number of common shares authorized that may be issued by
the Company is 200,000,000 shares with a par value of $0.001 per share. The Company is authorized to issue 10,000,000 shares of
preferred stock with a par value of $0.001 per share. As at June 30, 2016 there are no preferred shares issued or outstanding.
As at December 31, 2015 the total number of common shares outstanding
was 11,112,421. The Company has an ongoing program of private placements to raise funds to support the operations.
Super Majority Voting Rights.
The record Holders of the Class A Preferred Convertible Stock shall have the
right to vote on any matter with holders of Common Stock and may vote as
required on any action, which Delaware law provides may or must be approved by
vote or consent of the holders of the specific Class of voting preferred shares
and the holders of common shares. The Record Holders of the Class A Preferred
Shares shall have the right to vote on any matter with holders of common stock
-F-9-
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 Regula 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.
NOTE 7 – INCOME TAXES
A reconciliation of the provision for income taxes at the United
States federal statutory rate of 34% and a Colorado state rate of 5% compared to the Company’s income tax expense as reported
is as follows:
|
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
$
|
15,000
|
$
|
21,658
|
Income tax rate
|
|
|
|
39%
|
|
39%
|
Income tax recovery
|
|
|
|
5,850
|
|
8,450
|
Valuation allowance change
|
|
|
|
(5,850)
|
|
(8,450)
|
Provision for income taxes
|
|
|
$
|
-
|
$
|
-
|
The significant components of deferred income tax assets at December
31, 2015 and 2014 are as follows:
|
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
|
$
|
1,838,530
|
$
|
1,821,730
|
Valuation allowance
|
|
|
|
(1,838,530)
|
|
(1,821,730)
|
Net deferred income tax asset
|
|
|
$
|
0
|
$
|
0
|
The Company’s policy for classifying interest and penalties
associated with unrecognized income tax benefits is to include such items as tax expense. No interest or penalties have been recorded
during the years ended December 31, 2015 and 2014. As of December 31, 2015 and 2014 the Company did not have any amounts recorded
pertaining to uncertain tax positions.
As at December 31, 2015 the current management of the Company has
been unable to ascertain when the last corporation income tax returns were filed. Management will use its best efforts to bring
current all the necessary filings. The Company is currently not under examination by the Internal Revenue Service or any other
taxing authorities.
NOTE 8 – NOTES PAYABLE
On June 23, 2011 the Company received $50,000 in the form of cash
as a temporary loan from a director of the Company. The Company has elected to accrue interest at the rate of 6% per annum non-compounding.
The Company has not received any notice of default and has continued to accrue interest on its books at the rate of 6% each year.
On July 11, 2011 the Company received $200,000 in the form of cash
in exchange for a promissory note bearing interest at the rate of 6% per annum. The; note does not specify that the interest is
compounding therefore the Company is accruing the expense at a simple interest rate of 6%. The Company has not received any notice
of default and has continued to accrue interest on its books at the rate of 6% each year.
-F-10-
NOTE 9 – GENERAL AND ADMINISTRATIVE EXPENSES
Components of General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
Consulting Fees
|
|
|
-
|
|
-
|
Transfer Agent
|
|
|
2,275
|
|
1,515
|
Office expense
|
|
|
-
|
|
-
|
Filing fees
|
|
|
|
525
|
|
610
|
|
|
|
|
$ 2,800
|
|
$ 2,125
|
NOTE 10 - SUBSEQUENT EVENTS
On January 25, 2016 the Company received and agreed to a purchase
of its common stock from International Hedge Group, Inc.(IHG) to purchase a 95% controlling interest in the Company. At the closing
IHG was to provide the Company with a promissory note in the amount of $200,000 payable over a 180 day period in increments as
the buyer is able to achieve funding. As at the date of these financial statements the Company has received $100,000 in cash which
is in a trust account under the name of International Hedge Group. The shares associated with this purchase agreement are to be
held in escrow until the obligation is satisfied.
Subsequent to the signing of the agreement between International
Hedge Group, Inc. and the Company six major stockholders have agreed to surrender a total of 4,825,000 shares of common stock.
In addition, the two note holders have agreed to accept stock in exchange for their notes and all accrued interest that is due.
International Hedge Group received 1,000,000 shares of convertible preferred stock convertible at the rate of 100 common shares
for each preferred share, and 44,400,000 shares of common stock of the Company pursuant to the purchase agreement. This took effect
in August of 2016. A total of $200,000 has been paid on the purchase note by October 5, 2016
.
-F-11-
BLACKSTAR ENTERPRISE GROUP, INC.
FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER
30, 2016
-F-12-
BLACKSTAR
ENTERPRISE GROUP, INC.
|
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash in trust account
|
|
|
|
|
|
|
|
$ 51,188
|
|
$ -
|
|
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
830
|
|
-
|
|
|
|
Total Current assets
|
|
|
|
|
|
|
|
52,018
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
|
|
|
|
|
|
1,659
|
|
-
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
(115)
|
|
-
|
|
|
|
Total fixed asset
|
|
|
|
|
|
|
|
1,544
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
$ 53,562
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
$ -
|
|
$ 26,423
|
|
|
|
Accrued interest payable
|
|
|
|
|
|
|
|
-
|
|
67,258
|
|
|
|
Loan payable
|
|
|
|
|
|
|
|
-
|
|
50,000
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
-
|
|
200,000
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
-
|
|
343,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with $0.001 par value. 1,000,000 Preferred A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares issued and outstanding
|
|
|
|
|
|
|
|
1,000
|
|
-
|
|
|
|
Common stock, 200,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with $0.001 par value. 55,825,000 and 11,112,421 issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and outstanding at each period respectively
|
|
|
|
|
|
|
|
55,825
|
|
11,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
|
|
|
|
1,691,528
|
|
1,484,737
|
|
|
|
Additional paid in capital - Warrants
|
|
|
|
|
|
|
|
1,360,000
|
|
-
|
|
|
|
Stock subscription receivable
|
|
|
|
|
|
|
|
(100,000)
|
|
-
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
(2,954,791)
|
|
(1,839,530)
|
|
|
|
Total Stockholders' Equity(Deficit)
|
|
|
|
|
|
|
|
53,562
|
|
(343,681)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
$ 53,562
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
F-13
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
|
|
Ended
|
|
Ended
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$ -
|
|
Cost of revenues
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
GROSS PROFIT
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
-
|
|
|
|
6,250
|
|
|
|
Depreciation
|
|
|
|
115
|
|
|
|
115
|
|
|
|
Management consulting - related parties
|
|
|
|
22,500
|
|
|
|
22,500
|
|
|
|
Legal and accounting
|
|
|
|
8,500
|
|
|
|
8,500
|
|
|
|
Transfer agent
|
|
|
|
3,096
|
|
|
|
3,899
|
|
1,415
|
|
Warrant expense
|
|
|
|
1,328,000
|
|
|
|
1,328,000
|
|
|
|
General and administrative
|
|
|
|
5,219
|
|
488
|
|
9,319
|
|
525
|
|
Total operating expenses
|
|
|
|
1,367,430
|
|
488
|
|
1,378,583
|
|
1,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
(1,367,430)
|
|
(488)
|
|
(1,378,583)
|
|
(1,940)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of debt
|
|
|
|
270,822
|
|
|
|
270,822
|
|
|
|
Interest expense
|
|
|
|
-
|
|
(3,750)
|
|
(7,500)
|
|
(11,250)
|
|
Other income (expense) net
|
|
|
|
270,822
|
|
(3,750)
|
|
263,322
|
|
(11,250)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision
|
|
|
|
(1,096,608)
|
|
(4,238)
|
|
(1,115,261)
|
|
(13,190)
|
|
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for income tax
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
$(1,096,608)
|
|
$ (4,238)
|
|
$(1,115,261)
|
|
$ (13,190)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
(Basic and fully diluted)
|
|
|
|
$ (0.03)
|
|
$ (0.00)
|
|
$ (0.08)
|
|
$ (0.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
common shares outstanding
|
|
|
|
33,468,711
|
|
11,112,421
|
|
14,093,260
|
|
11,112,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
|
F-14
BLACKSTAR ENTERPRISE GROUP, INC.
|
STATEMENT OF STOCKHOLDER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
|
|
Common
|
|
|
|
Stockholders'
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Amount
|
|
Paid in
|
|
Stock
|
|
Accumulated
|
|
Equity
|
|
|
|
|
|
|
Shares
|
|
($0.001 Par)
|
|
Shares
|
|
($0.001 Par)
|
|
Capital
|
|
Subscribed
|
|
Deficit
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2014
|
|
|
|
11,112,421
|
|
$ 11,112
|
|
-
|
|
$ -
|
|
$1,484,737
|
|
$ -
|
|
$ (1,821,730)
|
|
$ (325,881)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,800)
|
|
(17,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2015
|
|
|
|
11,112,421
|
|
11,112
|
|
-
|
|
-
|
|
1,484,737
|
|
-
|
|
(1,839,530)
|
|
(343,681)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares cancelled
|
|
|
|
(1,000,000)
|
|
(1,000)
|
|
|
|
|
|
1,000
|
|
|
|
|
|
-
|
|
|
Shares exchanged for debt
|
|
|
|
1,312,579
|
|
1,313
|
|
|
|
|
|
51,191
|
|
|
|
|
|
52,504
|
|
|
Shares issued for cash
|
|
|
|
44,400,000
|
|
44,400
|
|
1,000,000
|
|
1,000
|
|
154,600
|
|
|
|
|
|
200,000
|
|
|
Stock subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,000)
|
|
|
|
(100,000)
|
|
|
Warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
1,328,000
|
|
|
|
|
|
1,328,000
|
|
|
Warrants issued for debt
|
|
|
|
|
|
|
|
|
|
|
|
32,000
|
|
|
|
|
|
32,000
|
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,115,261)
|
|
(1,115,261)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - September 30, 2016
|
|
|
|
55,825,000
|
|
$ 55,825
|
|
1,000,000
|
|
$ 1,000
|
|
$3,051,528
|
|
$ (100,000)
|
|
$ (2,954,791)
|
|
$ 53,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
F-15
BLACKSTAR ENTERPRISE GROUP, INC.
|
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
$ (1,115,261)
|
|
$ (13,190)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
115
|
|
-
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
-
|
|
-
|
|
Increase (decrease) in accounts payable
|
|
|
|
|
|
|
|
(27,253)
|
|
1,940
|
|
Increase (decrease) in accrued expenses
|
|
|
|
|
|
|
|
(67,257)
|
|
11,250
|
|
Advance payable
|
|
|
|
|
|
|
|
(50,000)
|
|
-
|
|
|
|
|
|
|
|
|
|
-
|
|
-
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
(1,259,656)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
|
|
|
|
|
(1,659)
|
|
$ -
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
(1,659)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable (decrease)
|
|
|
|
|
|
|
|
(200,000)
|
|
-
|
|
Preferred stock issuances
|
|
|
|
|
|
|
|
1,000
|
|
-
|
|
Common stock issuances
|
|
|
|
|
|
|
|
251,503
|
|
-
|
|
Payment on Stock subscription receivable
|
|
|
|
|
|
|
|
(100,000)
|
|
-
|
|
Additional paid in capital - Warrants
|
|
|
|
|
|
|
|
1,360,000
|
|
-
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
1,312,503
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash
|
|
|
|
|
|
|
|
51,188
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash At The Beginning Of The Period
|
|
|
|
|
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash At The End Of The Period
|
|
|
|
|
|
|
|
$ 51,188
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and accrued interest exchanged for common stock and/or warrants
|
|
|
$ 337,510
|
|
$ -
|
|
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
Cash paid for income taxes
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
-F-16-
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
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”). 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. The name was changed to BlackStar Enterprise Group, Inc. in August of 2016.
The Company is a Delaware corporation organized for the purpose of
engaging in any lawful business.
The Company intends to act as a merchant bank as at the date of these
financial statements. It currently trades on the Pink Sheets under the symbol “BEGI”.
The Company’s fiscal year end is December 31
st
.
The Company’s financial statements are presented on the accrual basis of accounting.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue recognition
The Company has realized minimal revenues from operations. The Company
recognizes revenues when the sale and/or distribution of products is complete, risk of loss and title to the products have transferred
to the customer, there is persuasive evidence of an agreement, acceptance has been approved by the customer, the fee is fixed or
determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable. Net
sales will be comprised of gross revenues less expected returns, trade discounts, and customer allowances that will include costs
associated with off-invoice markdowns and other price reductions, as well as trade promotions and coupons. The incentive costs
will be recognized at the later of the date on which the Company recognized the related revenue or the date on which the Company
offers the incentive.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance with “ASC-260,”
“Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement
of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number
of outstanding common share during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding
during the period. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive.
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
-F-17-
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 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.
-F-18-
Long Lived Assets
In accordance with ASC 350 the Company regularly reviews the carrying
value of intangible and other long lived assets for the existence of facts or circumstances both internally and externally that
suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if
the carrying amount of a long lived asset exceeds its fair value.
Stock-based Compensation
The Company accounts for stock-based compensation issued to employees
based on FASB accounting standard for Share Based Payment. It requires an entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for the award –
the requisite service period (usually the vesting period). It requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability
instruments issued. The scope of the FASB accounting standard includes a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
Recent pronouncements
Management has evaluated accounting standards and interpretations
issued but not yet effective as of March 31, 2016, and does not expect such pronouncements to have a material impact on the Company’s
financial position, operations, or cash flows.
NOTE 3 – CASH IN TRUST ACCOUNT
In Summer of 2016,
due to the Company's inability to open a bank account in its own name,
International Hedge Group opened a trust account on behalf of the Company and
paid various bills both current and previously outstanding for the Company. The
Company opened its own accounts in its own name in October 2016.
NOTE 4 – PREPAID EXPENSES
In the course of paying vendors there were overpayments to transfer
agent in the amount of $217 and the accounting service in the amount of $613 that are being carried on the books of the Company
as “Prepaid Expenses”. These amounts will be cleared in the subsequent quarter’s activity.
NOTE 5 – STOCK SUBSCRIPTION RECEIVABLE
When the Company signed the Stock Purchase Agreement, (see Note 13)
it included a payment of $200,000 as a condition of the agreement. As at September 30, 2016 International Hedge Group had paid
a total of $100,000 towards this obligation. This receivable reflects the balance to be received by the Company from International
Hedge Group and is shown on these financial statements as “Stock Subscription Receivable.”
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
During the quarter ended September 30, 2016 the Company purchased
certain office equipment for a total of $1,659. This equipment is being depreciated over a three year life and the Company has
recorded a depreciation expense of $115 for the current quarter.
NOTE 7 – ACCRUED INTEREST PAYABLE
The Company has been accruing interest on a note of $200,000 dated
July 11, 2011 and an advance of $50,000 dated September 23, 2011. Each has been accrued at a rate of 6% simple interest. For further
detail the reader is advised to refer to the note “
NOTES PAYABLE”.
-F-19-
NOTE 8 – STOCKHOLDER’S DEFICIT
The total number of common shares authorized that may be issued by
the Company is 200,000,000 shares with a par value of $0.001 per share. The Company is authorized to issue 10,000,000 shares of
preferred stock with a par value of $0.001 per share.
On August 25, 2016 the Company issued 1,000,000 shares of its preferred
series A stock to IHG in fulfillment of the purchase agreement. As at September 30, 2016 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.
As at September 30, 2016 the total number of common shares outstanding
was 55,825,000. The Company has an ongoing program of private placements to raise funds to support the operations. During the period
ended March 31, 2016 the Company entered into a purchase agreement with International Hedge Group, Inc. (“IHG”) whereby
certain existing stockholders would surrender their stock and IHG would acquire a 95% working interest in the Company. As at the
date of these financial statements only one of the stockholders had completed the transaction. IHG’s commitment was to provide
at least $200,000 in working capital within 6 months of the date of the agreement. As at the date of these financial statements
IHG has provided $100,000 of the commitment. On June 30, 2016 the Company signed an extension agreement allowing for an extension
to October 30, 2016 for fulfillment of this obligation. During the month of October 2016 International Hedge Group fulfilled the
commitment by paying the remaining $100,000.
During the quarter ended September 30, 2016 the Company issued 1,322,579
shares of its common stock to satisfy certain accounts payable and notes payable plus accrued interest. The stock was valued at
$0.04 per share which valued the total debt relief at $52,903. The debts discharged in these transactions were valued at $335,072.
These transactions were with unrelated parties giving the Company a net gain of $282,569 as gain on debt relief.
During the quarter ended September 30, 2016 the Company issued 34,000,000
warrants for the purchase of its common stock at $0.05 per share. Using the Black-Scholes valuation model the Company assigned
a value of $1,360,000 to these warrants. The Company recorded an expense of $1,328,000 on the operating statement for the quarter
ended September 30, 2016. The Company also used 800,000 of these warrants to satisfy an account payable to a service provider.
The value of the debt discharged in this transaction was $20,253. This transaction was with an unrelated party giving the Company
a net loss of $11,747 on the debt relief.
Total net gain on all debt relief transactions was $270,822.
Super Majority Voting Rights.
The record Holders of the Class
A Preferred Convertible Stock shall have the right to vote on any matter with holders of Common Stock and may vote as required
on any action, which Delaware law provides may or must be approved by vote or consent of the holders of the specific Class of voting
preferred shares and the holders of common shares. The Record Holders of the Class A Preferred Shares shall have the right to vote
on any matter with holders of common stock voting together as one (1) class. The Record Holders of the Class A Preferred Shares
shall have that number of votes (identical in every other respect to the voting rights of the holders of other Class of voting
preferred shares and the holders of common stock entitled to vote at any Regula 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.
NOTE 9 – WARRANTS
At the time of the
issuance of stocks referenced in Note 8 the Company issued 34,000,000 warrants
to purchase the Company's common stock at an exercise price of $0.05 These
warrants have an exercise price of $0.05 per share and an expiration date that
is three years from the date of issuance. The warrants were issued to the
existing shareholders of International Hedge Group. There are 15 stockholders in
IHG and 6 of these represent owners of greater than 5% of IHG stock. These 6
-F-20-
stockholders
received 57.35% of the warrants issued. 800,000 of these warrants were issued to
satisfy outstanding accounts payable. The payable amounted to $20,253 and the
warrants were valued at $32,000 giving rise to a loss of $11,747 on the
settlement of debt.
Using the Black-Scholes valuation model a value of $1,328,000 is
assigned to these warrants. The parameters used in the Black-Scholes model were as follows: stock price $0.04; strike price $0.05;
volatility 172%; risk free rate 1.75% and time to expiration of 3 years. This expense is recorded on the books of the Company as
“Warrant expense” with an offsetting entry in the Stockholder’s Deficit section as “Additional paid in
capital – Warrants.”
As at September 30, 2016 the Company has not received any notifications
with respect to any exercise of any outstanding warrants
|
Shares Under Warrant
|
Exercise Price
|
Remaining Life
|
Balance at December 31, 2015
|
0
|
0
|
0
|
Granted
|
34,000,000
|
$ 0.05
|
3.00
|
Exercised
|
0
|
0
|
0
|
Expired
|
0
|
0
|
0
|
Balance at September 30, 2016
|
34,000,000
|
$ 0.05
|
3.00
|
A summary of warrant activity for the periods indicated is as follows:
NOTE 10 – INCOME TAXES
A reconciliation of the provision for income taxes at the United
States federal statutory rate of 34% and a Colorado state rate of 5% compared to the Company’s income tax expense as reported
is as follows:
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net loss before income taxes
|
$
|
(1,115,261)
|
$
|
(15,000)
|
$
|
(15,000)
|
Adjustments to net loss
|
|
|
|
|
|
|
Warrant expense
|
|
1,328,000
|
|
-
|
|
-
|
Gain on exchange of debt for stock
|
|
(270,822)
|
|
-
|
|
-
|
Net taxable income (loss)
|
|
(58,083)
|
|
(15,000)
|
|
(15,000)
|
Income tax rate
|
|
39%
|
|
39%
|
|
39%
|
Income tax recovery
|
|
22,650
|
|
5,850
|
|
5,850
|
Valuation allowance change
|
|
(22,650)
|
|
(5,850)
|
|
(5,850)
|
Provision for income taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
The significant components of deferred income tax assets at September
30, 2016, December 31, 2015 and 2014 are as follows:
|
|
September 30, 2016
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
$
|
58,083
|
$
|
0
|
$
|
0
|
Valuation allowance
|
|
(58,083)
|
|
0
|
|
0
|
Net deferred income tax asset
|
$
|
0
|
$
|
0
|
$
|
0
|
As of September 30, 2016, the Company has no unrecognized income
tax benefits. Based on management’s understanding of IRC Sec 383 the substantial change in ownership and change in business
activities precludes any carryforward of the accumulated net operating losses. The Company’s policy for classifying interest
and penalties associated with unrecognized income tax benefits is to include such items as tax expense. No interest or penalties
have been recorded during the years ended December 31, 2015 and 2014, and no interest or penalties have been accrued as of September
30, 2016. As of December 31, 2015 and 2014 the Company did not have any amounts recorded pertaining to uncertain tax positions.
-F-21-
As at September 30, 2016 the current management of the Company has
been unable to ascertain when the last corporation income tax returns were filed. Management will use its best efforts to bring
current all the necessary filings. The Company is currently not under examination by the Internal Revenue Service or any other
taxing authorities. The Company has not recorded any liability for an uncertain tax position related to the lack of return filings
since the Company records show a continuing pattern of losses for the periods in question. Since penalties are commonly assessed
based on tax amounts owed management has deemed in unnecessary to record any liability.
NOTE 11 – NOTES PAYABLE
On September 23, 2011 the Company received $50,000 in the form of
cash as a temporary loan from a director of the Company. The Company has elected to accrue interest at the rate of 6% per annum
non-compounding. The Company has not received any notice of default and has continued to accrue interest on its books at the rate
of 6% each year. During the month of August 2016 the Company agreed to issue 200,000 shares of its common stock in satisfaction
for this indebtedness along with all accrued interest, and authorized the shares conditioned upon receipt of a release.
On July 11, 2011 the Company received $200,000 in the form of cash
in exchange for a promissory note bearing interest at the rate of 6% per annum. The; note does not specify that the interest is
compounding therefore the Company is accruing the expense at a simple interest rate of 6%. The Company has not received any notice
of default and has continued to accrue interest on its books at the rate of 6% each year. During the month of August 2016 the Company
issued 700,000 shares of its common stock in exchange for this indebtedness along with all accrued interest.
NOTE 12 – GENERAL AND ADMINISTRATIVE EXPENSES
Components of General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
Year Ended
|
|
|
Ended
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
Bank service charges
|
84
|
|
-
|
|
-
|
Contract services
|
3,175
|
|
|
|
|
Meals & entertainment
|
295
|
|
2,275
|
|
1,515
|
Office expense
|
4,812
|
|
-
|
|
-
|
Filing fees
|
|
953
|
|
525
|
|
610
|
|
|
$ 9,319
|
|
$ 2,800
|
|
$ 2,125
|
|
|
|
|
|
|
|
|
|
NOTE 13 – STOCK PURCHASE AGREEMENT
On January 25, 2016 the Company received and agreed to a purchase
of its common stock from International Hedge Group, Inc.(IHG) to purchase a 95% controlling interest in the Company. At the closing
IHG was to provide the Company with a promissory note in the amount of $200,000 payable over a 180 day period in increments as
the buyer is able to achieve funding. As at the date of these financial statements the Company has received $100,000 in cash of
which $48,812 has been disbursed to accomplish the purposes of the Company and the remainder of $51,188 is in a trust account under
the name of International Hedge Group. The shares associated with this purchase agreement are to be held in escrow until the obligation
is satisfied. On June 30, 2016 the Company signed an extension agreement allowing for an extension to October 30, 2016 for fulfillment
of this obligation. During the month of October 2016 International Hedge Group fulfilled the commitment by paying the remaining
$100,000.
-F-22-
NOTE 14 - SUBSEQUENT EVENTS
Subsequent to the signing of the agreement between International
Hedge Group, Inc. and the Company six major stockholders have agreed to surrender a total of 4,825,000 shares of common stock.
As of the date of these financial statements a total of 1,000,000 shares have been surrendered. During the month of October 2016
the Company received the certificates for 3,825,000 shares to be submitted to the transfer agent for official cancellation.
During the month of October 2016 International Hedge Group fulfilled
the commitment by paying the remaining balance of the $100,000 subscription receivable.
During the month of October 2016 the Company received an advance
of $150,000 from International Hedge Group for working capital. It is the intention of the Company (Blackstar Enterprise Group,
Inc.) to act as a merchant banking company. As a merchant banking company it will provide mid-term financial support (loans of
less than 5 years duration). These funds along with others in hand were used to facilitate a loan to a borrower company, Meshworks
Media Corp. The note carries an interest rate of 12% with periodic payments based on the company’s revenues with a final
due date of January 1, 2019. In addition the Company is to receive shares of convertible preferred stock in the client company.
-F-23-
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a)
·
Audited financial statements of BlackStar Enterprise Group, Inc.
for the period January 1, 2014 through December 31, 2015 (pages F-1 through F-11)
·
Unaudited financial statements for the three and nine months ended
September 30, 2016 and for the nine month period ended September 30, 2015 (pages F-12 through F-23)
|
|
|
|
(b)
|
Exhibit No.
|
Description
|
|
|
|
|
|
|
3(i).1
|
Certificate of Incorporation of NPI08, Inc. – filed December 17, 2007
|
*
|
|
|
|
|
|
3(i).2
|
Certificate of Amendment of BlackStar Energy Group, Inc. – name change to BlackStar Enterprise Group, Inc. filed July 14, 2016
|
*
|
|
|
|
|
|
3(i).3
|
Certificate of Amendment filed August 25, 2016
|
*
|
|
|
|
|
|
3(i).4
|
Certificate of Correction filed August 25, 2016
|
*
|
|
|
|
|
|
3(ii).1
|
Bylaws of BlackStar Enterprise Group, Inc.*
|
*
|
|
|
|
|
|
10.1
|
Warrant Form
|
*
|
|
|
|
|
|
10.2
|
Amended Certificate of Designation of Class A Preferred Convertible Super Majority Voting Stock
|
*
|
|
|
|
|
|
10.3
|
Stock Option Plan
|
*
|
|
|
|
|
|
10.4
|
Executed Meshworks Media Corp. Promissory Note – October 2016 and Extension
|
Filed Herewith
|
|
|
|
|
|
10.5
|
Agreement and Plan of Merger – NPI08, Inc. and BlackStar Energy Group, Inc.
|
*
|
|
|
|
|
|
10.6
|
Securities Purchase Agreement, dated January 25, 2016
|
Filed Herewith
|
|
|
|
|
|
10.7
|
Executed Loan & Security Agreement and Promissory Note
|
Filed Herewith
|
|
|
|
|
|
23.1
|
Consent of Independent Registered Public Accounting Firm
|
Filed Herewith
|
|
|
|
|
|
|
|
|
*
Incorporated by reference from the exhibits included in the Company’s Registration Statement No. 000-55730
on
Form
10-12g
filed
with the Securities and Exchange Commission (www.sec.gov), dated
December
28, 2016
.
-54-
SIGNATURES:
Pursuant to the requirements of Section
12 of the Securities Exchange Act of 1934, the Registrant has duly caused this amended registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
BLACKSTAR ENTERPRISE GROUP, INC.
|
|
|
/s/ John Noble Harris
|
|
March
7, 2017
|
John Noble Harris
|
|
|
(Chief Executive Officer/Principal Executive Officer/ Principal Accounting Officer
|
|
|
|
|
|
|
|
|
/s/ Joseph E. Kurczodyna
|
|
March
7, 2017
|
Joseph E. Kurczodyna
|
|
|
(Chief Executive Officer/Principal Executive Officer/ Principal Accounting Officer
|
|
|
In accordance with the
requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities
and on the dates stated.
|
|
|
|
|
|
/s/ John Noble Harris
|
|
March
7, 2017
|
John Noble Harris, Director
|
|
|
|
|
|
|
|
|
/s/ Joseph E. Kurczodyna
|
|
March
7, 2017
|
Joseph E. Kurczodyna, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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