Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. /_/
Yes /x/ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. /_/
Yes /x/ No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /x/ Yes /_/ No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post
such files). /_/Yes /x/ No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K./ x/
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 the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). /_/ Yes /x/ No
The aggregate market value of our common shares of voting stock
held by non-affiliates of our Company at December 31, 2016, computed by
reference to the price at which the common equity was last sold ($0.55), as of
the last business day of the registrant's most recently completed first fiscal
quarter (March 31, 2017), was $6,283,750.
As of April 14, 2017 there were 55,825,000 common shares, $.001 par
value, issued and outstanding.
PART I
FORWARD LOOKING STATEMENTS
This form 10-K contains forward-looking statements.
Forward-looking statements are projections of events, revenues, income, future
economic performance or management's plans and objectives for our future
operations. In some cases, you can identify forward-looking statements by
terminology such as "may", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled "Risk Factors" and the
risks set out below, any of which may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks include, by way of example and not in limitation:
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the uncertainty of profitability based upon our history of
losses;
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risks related to failure to obtain adequate financing on a
timely basis and on acceptable terms to continue as going concern;
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risks related to our operations and
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other risks and uncertainties related to our business plan and
business strategy.
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This list is not an exhaustive list of the factors that may affect
any of our forward-looking statements. These and other factors should be
considered carefully and readers should not place undue reliance on our
forward-looking statements. Forward looking statements are made based on
management's beliefs, estimates and opinions on the date the statements are
made and we undertake no obligation to update forward-looking statements if
these beliefs, estimates and opinions or other circumstances should change.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States dollars (US$)
and are prepared in accordance with United States Generally Accepted Accounting
Principles. All references to "common stock" refer to the common shares in our
capital stock.
ITEM 1. BUSINESS.
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 "our Company," "us," "we," "our," "BlackStar," or the "Company" are to
BlackStar Enterprise Group, Inc.
DESCRIPTION OF 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 ($1,154,285) since
January 1, 2016 through December 31, 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
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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
We are
subject to the reporting requirements of Section 12(g) of the Exchange Act, and
as such, we intend to file all required disclosures.
You may
read and copy any materials we file with the SEC in the SEC's Public Reference
Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Section by calling the SEC
at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, which can be found at
http://www.sec.gov.
Jumpstart
Our Business Startups Act
We
qualify as an "emerging growth company" as defined in Section 101 of the
Jumpstart our Business Startups Act ("JOBS Act") as we did not have more than
$1,000,000,000 in annual gross revenue and did not have such amount as of
December 31, 2016, 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").
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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.
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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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]
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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.
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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.
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.
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OUR APPROACH COMPARED TO TRADITIONAL SOURCES OF
VENTURE FINANCING
Emerging
companies traditionally seek financing for growth from three primary sources:
small private placements, independent private venture capital funds and
corporate strategic investors. Each of these sources has advantages but also
notable disadvantages for the emerging company. Small Private Placements are
often underfunded and untimely. Venture capital funds generally are established
for a limited term and their primary goal is to maximize their financial return
within a short time frame, often two years or less with severe terms for
extensions or additional funding.
A venture capital fund often
seeks to liquidate its investment in the emerging company by encouraging either
an early initial public offering or a sale. This often can jeopardize an
emerging company's chances for success especially if its business has not been
fully developed or its intellectual property fully safeguarded prior to its
debut into the market.
Corporate
strategic investors are typically large corporations that invest in emerging
companies to gain access to a promising product or technology without incurring
the initial cost of development or the diversion of managerial time and
attention necessary to develop new products or technologies. Often these
investments involve both financing support to the emerging company and an
arrangement under which the strategic investor obtains the right to use, and
intellectual property ownership of, the products or technology of the emerging
company. While strategic investors are generally able to provide business
development support, the rationale behind the investment of a strategic
investor may be incompatible with the development of the emerging company.
Strategic investors often discourage the emerging company from becoming a
public company, selling to competitors of the strategic investor or from
retaining the intellectual property rights to products developed jointly with
the strategic investor.
We may
be limited in our ability to fund 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.
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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.
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:
Seed capital companies represent the earliest stage of development. These
companies have raised relatively modest equity capital to prove a concept and
qualify for start-up capital. Their activities generally are limited to product
development, scientific and market research, recruiting a management team and
developing a business plan. These companies likely do not have financial
support from either venture capitalists or larger companies making strategic
investments.
Start-up stage companies are completing or have recently completed product
development and initial marketing, but have not sold their products
commercially. Generally such firms have made market studies, assembled key
management, developed a business plan and are ready to commence operations.
Expansion stage companies have initiated or are about to initiate full-scale
operations and sales, but may not be showing a profit.
Mezzanine stage companies are approaching or have attained break even or
profitability and are continuing to expand. An acquisition or initial public
offering may be imminent.
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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:
(1)
BUSINESS PLAN/ASSESSMENT . Business plan description and complete resumes of
management from all entrepreneurs. Members of our management team will meet
with the best of these entrepreneurs, attempting to identify key traits that
have been associated with entrepreneurial success in the past, such as high
energy, a must-win attitude, intellectual brilliance, high personal integrity,
relevant experience, a strong work ethic, and the ability to prioritize and
focus. A business plan submitted for evaluation to us should contain the
following information:
Overview
of the business concept as well as the company's strategic focus and direction.
Discussion
of competition including a discussion of specialized expertise, intellectual
property, patents, and/or other unique advantages held by either the company or
its competitors.
Sources
and uses of cash with respect to investment capital sought.
Pro
forma financial projections for at least the current year and two subsequent
years including expected capital requirements from the time of the investment
capital received through the two subsequent years.
Operating
plan including current and projected staffing, equipment, and space
requirements.
Discussion
of minimum dollar proceeds necessary in order to implement the business plan.
Marketing
plan.
Discussion
of conflicts of interest with investors together with steps being taken by the
borrower company to mitigate such conflicts of interest and to protect against
future conflicts of interest.
Resumes
for all key officers/managers.
(2)
EVALUATE POTENTIAL MARKET. We have developed relationships with consultants,
who represent a valuable source of information about a target investment's
market. We will call upon these contacts as well as create new ones in the
markets of each company seeking funding. As we evaluate markets, we must become
confident that the company can attain a competitive market position over time.
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(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:
There
can be only one class of common shares, all with equal voting rights, and all
distributions of capital or earnings can only be made to all members based upon
their percentage interest without preference;
Compensation
of the key officers/managers and their affiliates, including, but not limited
to, all salary, bonuses, commissions and/or fees, shall be limited based upon
the success of the borrower company in reaching predetermined milestones; and
The
primary responsibility of the management/officers of the entity is to serve as
fiduciaries charged with serving the best interests of the stockholders/members
even when such interests may be in conflict with the management, officers or
other employees of the entity.
(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:
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;
Equipment
list and appraisal of equipment;
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Facilities,
current product descriptions;
Current
management resumes, employment contracts;
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;
Correspondence
with contracting parties regarding contract interpretation, claims, or threats
of contract litigation;
Documents
relating to the company's internal determinations as to whether it can, or
should, fulfill a particular contract;
Documents
relating to material acquisitions and divestitures for the immediately
preceding five years, particularly agreements involving covenants by or in
favor of the company;
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;
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;
All
agreements under which registration or preemptive-rights are granted to
shareholders of the company; and
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.
-13-
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 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 addition to lack
of capital, lack of reputation, lack of recognition, part-time management, lack
of financial history to raise money, and lack of equity in our company upon
which to base a capital raise.
Competitive
Factors impacting our ability to gain market share
Our
competition enjoys advantages which may prevent us from achieving a market
share due to our 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.
-14-
Company's 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
financial institutions or broker dealers engaged in the merchant bank industry.
One which is often omitted is the provision of experienced management by the
merchant to commercialize ideas, or technology.
Merchant
banking has been an occasionally lucrative but a highly risky-endeavor for the
small number of bank holding companies and banks that have engaged in it under
existing law, and for private equity investors. Banking law legislation has
expanded the merchant-banking activity that is permissible to commercial banks
and has spurred interest in this 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.
-15-
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.
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.
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.
-16-
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.
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 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.
-17-
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.
REGULATION
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.
RESEARCH
AND DEVELOPMENT ACTIVITIES
We
have not spent, and currently do not plan to spend in the future, any funds on
research and development activities.
EMPLOYEES
As
of December 31, 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. Our officers and directors are responsible for planning,
development and operational duties, and will continue to do so throughout the
early stages of our growth. We have no intention of hiring additional employees
until we have sufficient, reliable revenue from our operations. We do not have
written employment agreements with any of our officers or directors at this
time.
REPORTS TO SECURITIES HOLDERS
We
provide an annual report that includes audited financial information to our
shareholders. We will make our financial information equally available to any
interested parties or investors through compliance with the disclosure rules
for a small business issuer under the Securities Exchange Act of 1934. We are
subject to disclosure filing requirements including filing Form 10K annually
and Form 10Q quarterly. In addition, we will file Form 8K and other proxy and
information statements from time to time as required. We do not intend to
voluntarily file the above reports in the event that our obligation to file
such reports is suspended under the Exchange Act. The public may read and copy
any materials that we file with the Securities and Exchange Commission,
("SEC"), at the SEC's Public Reference Room at 100 F Street NE, Washington, DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with
the SEC.
Item 1A. Risk Factors.
FORWARD LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING,
WITHOUT LIMITATION, STATEMENTS RELATING TO BLACKSTAR'S PLANS, STRATEGIES,
OBJECTIVES, EXPECTATIONS, INTENTIONS AND ADEQUACY OF RESOURCES. THESE
FORWARD-
-18-
LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND
OTHER FACTORS THAT MAY CAUSE OUR COMPANY'S 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: OUR ABILITY OF TO IMPLEMENT OUR
BUSINESS STRATEGY; ABILITY TO OBTAIN ADDITIONAL FINANCING; BLACKSTAR'S LIMITED
OPERATING HISTORY; UNKNOWN LIABILITIES ASSOCIATED WITH FUTURE ACQUISITIONS;
ABILITY TO MANAGE GROWTH; SIGNIFICANT COMPETITION; ABILITY TO ATTRACT AND
RETAIN TALENTED EMPLOYEES; AND FUTURE GOVERNMENT REGULATIONS; AND OTHER FACTORS
DESCRIBED IN THIS FILING OR IN OTHER OF BLACKSTAR'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. BLACKSTAR IS UNDER NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT
OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
RISKS
RELATED TO OUR COMPANY AND THE BUSINESS
OUR
SUCCESS WILL DEPEND, TO A LARGE DEGREE, ON THE EXPERTISE AND EXPERIENCE OF THE
MEMBERS OF OUR MANAGEMENT TEAM.
We will
rely exclusively on the skills and expertise of our management team in
conducting our business. Our management team has experience in identifying,
evaluating and acquiring prospective businesses for which we may ultimately
provide loans, but there is no assurance our managements assessments will be
successful in placing loans 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
-19-
would
rank "senior" to common stock in our capital structure, preferred stockholders
would have separate voting rights and might have rights, preferences, or
privileges more favorable than those of our common stockholders. If we raise
additional funds by issuing more common stock or senior securities convertible
into, or exchangeable for, our common stock, then the percentage ownership of
our stockholders at that time will decrease.
WE 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, 2016, we
did not recognize revenues. We recognized no revenues during the fiscal year
ended December 31, 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.
-20-
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.
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
-21-
determined that any such person shall not have
been entitled to indemnification. This indemnification policy could result in
substantial expenditures by us that we will be unable to recoup.
OUR
DIRECTORS' LIABILITY TO US AND STOCKHOLDERS IS LIMITED
Delaware
General Corporation Laws exclude personal liability of our directors and our
stockholders for monetary damages for breach of fiduciary duty except in
certain specified
circumstances. Accordingly, we will have a much more limited right of action
against our directors that otherwise would be the case. This provision does not
affect the liability of any director under federal or applicable state
securities laws.
We have
no full-time employees which may impede our ability to carry on our business.
Our officers are independent consultants who devote up to 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.
CONFLICTS
OF INTEREST.
Certain
conflicts of interest may exist between our Company and our officers and
directors. They have other business interests to which they devote their
attention, and may be expected to continue to do so although management time
should be devoted to the business of our Company. As a result, conflicts of
interest may arise that can be resolved only through exercise of such judgment
as is consistent with fiduciary duties to our Company.
NO
ASSURANCE OF SUCCESS OR PROFITABILITY.
There
is no assurance that our Company will ever operate profitably. There is no
assurance that we will generate profits, or that the value of our Company's
Shares will be increased thereby.
LACK
OF DIVERSIFICATION.
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 our business or industry and therefore increase the risks associated
with our operations.
DEPENDENCE
UPON MANAGEMENT. LIMITED PARTICIPATION OF MANAGEMENT.
Our
Company will be heavily dependent upon our management skills, talents, and
abilities, as well as our consultants, to implement our business plan, and may,
from time to time, find that their inability to devote full time attention to
the business of our Company results in a delay in progress toward implementing
our business plan.
-22-
DEPENDENCE UPON OUTSIDE ADVISORS.
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 Company's management, 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 our Company. In the event our
Company considers it necessary to hire outside advisors, they may elect to hire
persons who are affiliates, if they are able to provide the required services.
Based
on our current cash reserves, we will have relatively small operational budget
for the operations that we cannot expand without additional raising capital.
If
we are unable to begin 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.
We
cannot give any assurances that we will be able to raise enough capital to fund
acquisitions and product development.
We
will need to raise additional funds to support not only our budget, but also
our expansion operations. We cannot make any assurances that we will be able to
raise such funds or whether we would be able to raise such funds with terms
that are favorable to us. We may seek to borrow monies from lenders at
commercial rates, but such lenders will probably be at higher than bank rates,
which higher rates could, depending on the amount borrowed, make the net
operating income insufficient to cover the interest.
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.
-23-
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
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.
-24-
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
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 December 31, 2016,
we had an accumulated deficit of ($2,993,815).
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, 2016 and 2015, 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.
-25-
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.
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.
-26-
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 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 RELATED TO
OUR COMMON STOCK
A LIMITED PUBLIC MARKET
EXISTS FOR OUR COMMON STOCK AT THIS TIME, AND THERE IS NO ASSURANCE OF A FUTURE
MARKET.
There is a limited
public market for our common stock, and no assurance can be given that a market
will continue or that a shareholder ever will be able to liquidate his
investment without considerable delay, if at all. If a market should continue,
the price may be highly volatile. Factors such as those discussed in the "Risk
Factors" section may have a significant impact upon the market price of the
shares offered hereby. Due to the low price of our securities, many brokerage
firms may not be willing to effect transactions in our securities. Even if a
purchaser finds a broker willing to effect a transaction in our shares, the
combination of brokerage commissions, state transfer taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of our shares as collateral for any loans.
OUR STOCK WILL, IN ALL
LIKELIHOOD, BE THINLY TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR
NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
The shares of our common
stock may be thinly-traded. We are a small company which is relatively unknown
to stock analysts, stock brokers, institutional stockholders and others in the
investment community that generate or influence sales volume, and that even if
we came to the attention of such persons, they tend to be risk-averse and would
be reluctant to follow an unproven, early stage company such as ours or
purchase or recommend the purchase of any of our securities until such time as
we became more seasoned and viable. As a consequence, there may be periods of
several days or more when trading activity in our securities is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without
an adverse effect on Securities price. We cannot give you any assurance that a
broader or more active public trading market for our common securities will
develop or be sustained, or that any trading levels will be sustained. Due to
these conditions, we can give stockholders no assurance that they will be able
to sell their shares at or near ask prices or at all if they need money or
otherwise desire to liquidate their securities.
OUR COMMON STOCK MAY BE
VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO
SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the possible
price volatility, you may not be able to sell your shares of common stock when
you desire to do so. The inability to sell your securities in a rapidly
declining market may substantially increase your risk of loss because of such
illiquidity and because the price for our securities may suffer greater
declines because of our price volatility.
The price of our common
stock that will prevail in the market after this offering may be higher or
lower than the price you may pay. Certain factors, some of which are beyond our
control, that may cause our share price to fluctuate significantly include, but
are not limited to the following:
-
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.
-27-
Additionally, in recent
years the stock market in general, has experienced extreme price and volume
fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock
price, regardless of our operating
performance. In the past, class action litigation often has been brought
against companies following periods of volatility in the market price of those
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
-28-
usually only the actual economic loss in the account. Stockholders should
understand that if a fraud case is filed an against a company in the courts it
may be vigorously defended and may take years and great legal expenses and costs
to pursue, which may not be economically feasible for small stockholders.
That
absent arbitration agreements, specific legal remedies available to stockholders
of penny stocks include the following:
If a
penny stock is sold to the investor in violation of the requirements listed
above, or other federal or states securities laws, the investor may be able to
cancel the purchase and receive a refund of the investment.
If a
penny stock is sold to the investor in a fraudulent manner, the investor may be
able to sue the persons and firms that committed the fraud for damages.
The
fact that we are a penny stock company will cause many brokers to refuse to
handle transactions in the stocks, and may discourage trading activity and
volume, or result in wide disparities between bid and ask prices. These may
cause stockholders significant illiquidity of the stock at a price at which
they may wish to sell or in the opportunity to complete a sale. Stockholders
will have no effective legal remedies for these illiquidity issues.
WE WILL
PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE.
We have
not paid dividends on our common stock and do not ever anticipate paying such
dividends in the foreseeable future. Stockholders whose investment criteria are
dependent on dividends should not invest in our common stock.
RULE
144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of
the outstanding shares of common stock are held by our present officers,
directors, and affiliate stockholders as "restricted securities"
within the meaning of Rule 144 under the Securities Act of 1933, as amended. As
restricted shares, these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Act and as required under
applicable state securities laws. Rule 144 provides in essence that a person
who has held restricted securities for six months may, under certain
conditions, sell every three months, in brokerage transactions, a number of
shares that does not exceed the greater of 1.0% of a company's outstanding
common stock or the average weekly trading volume during the four calendar
weeks prior to the sale. There is no limit on the amount of restricted
securities that may be sold by a non-affiliate after the owner has held the
restricted securities for a period of two years. A sale under Rule 144 or under
any other exemption from the Act, if available, or pursuant to subsequent
registration of shares of common stock of present stockholders, may have a
depressive effect upon the price of the common stock in any market that may
develop.
OUR
STOCKHOLDERS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR VARIOUS
CONSIDERATIONS IN THE FUTURE.
There
may be substantial dilution to BlackStar Enterprise Group, Inc. stockholders as
a result of future decisions of the Board to issue shares without shareholder
approval for cash, services, or acquisitions.
WE 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.
-29-
FUTURE
DILUTION MAY OCCUR DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATION IN THE
FUTURE.
There
may be substantial dilution to our shareholders as a result of future decisions
of the Board to issue shares without shareholder approval for cash, services,
acquisitions, or pursuant to any future Employee/Consultant Stock Option Plan.
OUR
NEW INVESTORS WILL SUFFER A DISPROPORTIONATE RISK AND THERE WILL BE IMMEDIATE
DILUTION OF PURCHASERS' INVESTMENTS.
Our
present shareholders have acquired their securities at a cost significantly
less than that which the investors at which future purchasers in the market may
pay. Therefore, new investors will bear most of the risk of loss.
OUR
BUSINESS IS HIGHLY SPECULATIVE AND THE INVESTMENT IS THEREFORE HIGHLY RISKY.
Due
to the speculative nature of our business, it is probable that the investment
in shares offered hereby will result in a total loss to the investor. Investors
should be able to financially bear the loss of their entire investment.
Investment should, therefore, be limited to that portion of discretionary funds
not needed for normal living purposes or for reserves for disability and
retirement.
The
ongoing economic downturn and continued uncertainty in the financial markets and
other adverse changes in general economic or political conditions may adversely
affect our industry, business and results of operations.
The
global credit and financial markets have continued to experience disruptions,
including diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates, and
uncertainty about economic stability. There can be no assurance that there will
not be future deterioration in credit and financial markets and confidence in
economic conditions. These economic uncertainties affect businesses such as
ours in a number of ways, making it difficult to accurately forecast and plan
our future business activities. We are unable to predict the likely duration and
severity of the current disruptions in the credit and financial markets and
adverse global economic conditions, and if the current uncertain economic
conditions continue or further deteriorate, our business and results of
operations could be materially and adversely affected.
POTENTIAL
CHANGES IN ACCOUNTING PRACTICES AND/OR TAXATION MAY ADVERSELY AFFECT OUR
FINANCIAL RESULTS.
We
cannot predict the impact that future changes in accounting standards or
practices may have on our financial results. New accounting standards could be
issued that change the way we record revenues, expenses, assets and
liabilities. These changes in accounting standards could adversely affect our
reported earnings. Increases in direct and indirect income tax rates could affect
after tax income. Equally, increases in indirect taxes could affect our
products affordability and reduce our sales.
WE
WILL RELY ON THIRD PARTIES FOR SERVICES IN CONDUCTING OUR BUSINESS AND ANY
DISRUPTION OF THESE RELATIONSHIPS COULD ADVERSELY AFFECT OUR BUSINESS.
We
will have contracts with third parties. If these relationships are disrupted
for any reason our results of operation and financial condition could be
adversely affected.
REPORTING
INFORMATION.
Our
Company is subject to the reporting requirements under the Securities and
Exchange Act of 1934. As a result, shareholders will have ready access to the
information required to be reported by publicly held companies under the
Securities and Exchange Act and the regulations thereunder. Our Company intends
to provide our shareholders with annual reports containing financial
information prepared in accordance with Generally Accepted Accounting
Principles as required by
-30-
Sec. 13 of the Securities Exchange Act of 1934. 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.
LIMITED
FINANCING - LACK OF LOAN AVAILABILITY.
The
monies currently on hand may not be sufficient for the continued expanded
operations of our Company. There is no assurance that additional monies or
financing will be available in the future or, if available, will be at terms
favorable to our Company. (See "Business Summary")
Our
Company may borrow money to finance its operations on terms to be determined.
Any such borrowing will increase the risk of loss to the investor in the event
our Company is unsuccessful in repaying such loans.
CAPITAL
RESOURCES.
The
only capital resources of our Company are our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
REAL
ESTATE.
None.
OIL AND
GAS.
None.
PATENTS.
None.
ITEM 3. LEGAL PROCEEDINGS.
We are not currently involved in any litigation that we believe
could have a material adverse effect on our financial condition or results of
operations. There is no action, suite, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of
our company or any of our subsidiaries, threatened against or affecting our
company, our common stock, any of our subsidiaries or of our companies or our
subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a material adverse effect. We anticipate that we
(including current and 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.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
-31-
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
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.
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.
-41-
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.
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
-42-
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 previous
"blank-check" or "shell" companies.
Involvement in Legal Proceedings
No executive Officer or Director of our Company has been convicted
in any criminal proceeding (excluding traffic violations) or is the subject of
a criminal proceeding that is currently pending.
No executive Officer or Director of our Company is the subject of
any pending legal proceedings.
No Executive Officer or Director of our Company is involved in any
bankruptcy petition by or against any business in which they are a general
partner or executive officer at this time or within two years of any
involvement as a general partner, executive officer, or Director of any
business.
-43-
ITEM 11. EXECUTIVE 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.
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
-45-
he or she was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the Proceeding, unless such indemnity is limited by the corporation's articles
of incorporation. Our articles of incorporation do not contain any such
limitation.
The DGCL provides that a Delaware corporation may indemnify a
person made a party to a Proceeding because the person is or was a director
against any obligation incurred with respect to a Proceeding to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employee benefit plan) or reasonable expenses incurred in the Proceeding if the
person conducted himself or herself in good faith and the person reasonably
believed, in the case of conduct in an official capacity with the corporation,
that the person's conduct was in the corporation's best interests and, in all
other cases, his or her conduct was at least not opposed to the corporation's
best interests and, with respect to any criminal proceedings, the person had no
reasonable cause to believe that his or her conduct was unlawful. Our articles
of incorporation and bylaws allow for such indemnification. A corporation may
not indemnify a director in connection with any Proceeding by or in the right
of the corporation in which the director was adjudged liable to the corporation
or, in connection with any other Proceeding charging that the director derived
an improper personal benefit, whether or not involving actions in an official
capacity, in which Proceeding the director was judged liable on the basis that
he or she derived an improper personal benefit. Any indemnification permitted
in connection with a Proceeding by or in the right of the corporation is
limited to reasonable expenses incurred in connection with such Proceeding.
The DGCL, unless otherwise provided in the articles of
incorporation, a Delaware corporation may indemnify an officer, employee,
fiduciary, or agent of the corporation to the same extent as a director and may
indemnify such a person who is not a director to a greater extent, if not
inconsistent with public policy and if provided for by our bylaws, general or
specific action of our board of directors or stockholders, or contract. Our
articles of incorporation provide for indemnification of our directors,
officers, employees, fiduciaries and agents to the full extent permitted by
Delaware law.
Our articles of incorporation also provide that we may purchase
and maintain insurance on behalf of any person who is or was a director or
officer of our company or who is or was serving at our request as a director,
officer or agent of another enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of
his or her status as such, whether or not we would have the power to indemnify
him or her against such liability.
EQUITY COMPENSATION PLAN INFORMATION
Key Employees Stock Compensation Plan
Effective December
1, 2016, our Stock Option and Award Plan (the "Stock Incentive Plan")
was approved by our Board of Directors. Under the Stock Incentive Plan, the
Board of Directors may grant options or purchase rights to purchase common
stock to officers, employees, and other persons who provide services to us or
any related company. 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 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth information with respect to the beneficial ownership
of our outstanding common stock by:
|
|
each
person who is known by us to be the beneficial owner of five percent (5%) or
more of our common stock;
|
|
|
our
executive officers, and each director as identified in the "Management -
Executive Compensation" section; and
|
|
|
all
of our directors and executive officers as a group.
|
-46-
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%
|
|
|
|
|
|
|
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)
|
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.)
|
-47-
|
(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).
|
|
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.
|
-48-
GREATER THAN 5% STOCKHOLDERS
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
|
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).
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(7)
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Including 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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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.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
We adopted a Stock Option and Award Plan on December 1, 2016. We
have authorized 10,000,000 shares of common stock to be available for the Plan.
We have granted no options exercisable for shares of our common stock under the
Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
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
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6,500,000 - Expiry August 2019
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John Noble Harris, CEO
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3,000,000 - Expiry August 2019
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Joseph E. Kurczodyna, CFO
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3,000,000 - Expiry August 2019
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International Hedge Group, Inc.
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2,700,000 - Expiry August 2019
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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
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Affiliate: Todd H. Lahr
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4,000,000 Warrants
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Rare Green, Inc.
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Affiliate: John Noble Harris
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1,500,000 Warrants
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Patriot Mtg. Acceptance Corp.
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Affiliate: Joseph E. Kurczodyna
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1,500,000 Warrants
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In 2016, Messrs. Harris, Lahr, and Kurcyodnya each were paid
$10,000 for their consulting services. No further compensation
arrangements exist at this time.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
We incurred approximately $10,000 in audit fees to our principal
independent accountants for professional services rendered in connection with
the audit of financial statements for the fiscal year ended December 31, 2016. We
incurred approximately $12,960 in audit fees to our principal independent
accountants for professional services rendered in connection with the audit of
financial statements for the fiscal year ended December 31, 2015.
During the fiscal years ended December 31, 2016 and 2015, we did
not incur any other fees for professional services rendered by our principal
independent accountants for all other non-audit services which may include, but
not limited to, tax related services, actuarial services or valuation services.