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.
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).
The aggregate market value of our common shares
of voting stock held by non-affiliates of our Company at December 31, 2017, computed by reference to the price at which the common
equity was last sold ($4.98), as of the last business day of the registrant’s most recently completed fiscal quarter (December
31, 2017), was $108,862,800.
As of March 29, 2018, there were
52,000,000 common shares, $0.001 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:
·
|
the uncertainty of profitability based upon our history of losses;
|
·
|
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern;
|
·
|
risks related to our operations and
|
·
|
other risks and uncertainties related to our business plan and business strategy.
|
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
We are engaged in Merchant Banking and
Finance and we have recognized net losses of ($116,138) in the year ended December 31, 2017. We have relied solely on sales of
our securities to fund our operations. To execute our business plan, our parent company, International Hedge Group, Inc., through
a Securities Purchase Agreement dated January 25, 2016, acquired 95% of the common stock and the Class A Super Majority Voting
Preferred Stock of our Company for $100,000 in August 2016, and for an additional $100,000 in October 2016. The Company recently
completed a private placement offering pursuant to the offering exemption under Rule 506 of Regulation D of the Securities Act
of 1933, raising $165,000. The Company intends to use the proceeds of this offering to fund operations of the merchant bank, including
exploratory efforts into how the Company can best expand its services into the blockchain and crypto-equity industry. 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:
|
-
|
A requirement to have only two years of audited financial statement and only two years of related Management Discussion and Analysis Disclosures:
|
|
-
|
Reduced disclosure about the emerging growth company’s executive compensation arrangements; and
|
|
-
|
No non-binding advisory votes on executive compensation or golden parachute arrangements.
|
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 Form 10-K, which are also available to us as a smaller reporting company as defined under Rule
12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As long as we qualify as an emerging
growth company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and
Section 14A(a) and (b) of the Securities Exchange Act of 1934.
In addition, Section 107 of the JOBS
Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards.
We are choosing to irrevocably opt out of the extended transition period for complying with new or revised accounting standards
under Section 102(b)(2) of the JOBS Act.
HISTORY
Our Company, BlackStar Enterprise Group,
Inc. (“BlackStar Enterprise,” “We,” or the “Company”) was originally formed on December 17,
2007 as NPI08, Inc. in the State of Delaware. Our name was changed in 2010 to BlackStar Energy Group, Inc. In August of 2016, our
name was changed to BlackStar Enterprise Group, Inc.
Our Company was divested from Kingsley
Capital, Inc. in a bankruptcy proceeding in 2008, in which Kingsley was the debtor. Our Company attempted to start up in the energy
business in 2010 without success, resulting in losses totaling $1,819,530 over a three-year period. Our Company was inactive until
2016 when new management and capital were introduced.
BlackStar Enterprise is engaged in Merchant
Banking and Finance. BlackStar Enterprise’s venue is private early stage companies throughout various industries that, in
our judgement, exhibit a potential for sustained growth. We are a publicly traded specialized merchant banking firm, facilitating
joint venture capital to early stage revenue companies. We are actively seeking opportunity for discussion with revenue generating
enterprises and emerging companies for financing. BlackStar intends to offer consulting and regulatory compliance services to crypto-equity
companies, and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for
opportunities in involvement in crypto-related ventures though our wholly-owned subsidiary, Crypto Energy Management Corp. (“CEMC”)
formed in September 2017. BlackStar Enterprise Group, Inc. is traded on the OTC QB 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 mission to engage in funding of start-up and developed business ventures using its stock for private
placement or public offerings. IHG and BlackStar are currently managed and controlled by the same individuals, but IHG and BlackStar
may each seek its funding from different and as yet, undetermined sources, with funding structures of different natures.
CORPORATE STRUCTURE
Our corporate structure is as follows:
INTERNATIONAL HEDGE GROUP, INC.
(Parent Company – a Colorado corporation)
|
|
|
BLACKSTAR ENTERPRISE GROUP, INC.
(a Delaware corporation)
|
|
|
|
|
|
|
Crypto Equity Management Corp.
(a Colorado corporation)
|
Crypto Industry SRO Inc.
(a Colorado non-profit corporation)
|
|
|
|
|
|
|
CURRENT BUSINESS
Our Company, BlackStar Enterprise Group,
Inc. (OTC QB: BEGI) is a publicly traded merchant banking firm seeking to facilitate venture capital to early stage revenue companies.
BlackStar intends to offer consulting and regulatory compliance services to crypto-equity companies and blockchain entrepreneurs
for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in crypto-related
ventures though our newly formed wholly-owned subsidiary, Crypto Equity Management Corp., (“CEMC”). BlackStar
intends to serve businesses in their early corporate lifecycles and may provide funding in the forms of ventures in which we control
the venture until divestiture or spin-off by developing the businesses with capital. We have only engaged in one transaction as
a merchant bank form to date.
Our investment strategy focuses primarily
on ventures with companies that we believe are poised to grow at above-average rates relative to other sectors of the U.S. economy,
which we refer to as "emerging growth companies." Under no circumstances does the company intend to become an investment
company and its activities and its financial statement ratios of assets and cash will be carefully monitored and other activities
reviewed by the Board to prevent being classified or inadvertently becoming an investment company which would be subject to regulation
under the Investment Company Act of 1940.
BlackStar is conducting a continuing
analysis for the Company’s involvement in Distributed Ledger Technology (“DLT”) related ventures. To pursue that
end, the Company formed a subsidiary, Crypto Equity Management Corp. (“CEMC”), on September 30, 2017. As a merchant
bank, BlackStar intends to seek to provide access to capital for companies and is specifically seeking out ventures involved in
DLT. BlackStar recognizes the similarities in the rapidly evolving DLT ecosystem today compared to the Dot Com era in the 90’s,
which present both challenges and opportunities. BlackStar intends to facilitate funding and management of DLT involved companies
through majority controlled joint ventures through its subsidiary Crypto Equity Management Corp. BlackStar, through CEMC,
intends to initially control and manage each venture.
IHG also may enter into management consulting
agreements with companies for which BlackStar provides funding to attempt to guide the companies in the complex business world
for the purpose of protecting and enhancing the venture investments made by BlackStar.
SERVICES
Crypto Equity Management Corp. is a
newly formed subsidiary of BlackStar and has no operating history or assets to date.
As BlackStar focuses its merchant banking
efforts on the crypto-equity and DLT industry, BlackStar intends to seek investments through joint ventures in private or public
emerging commercial-stage businesses within the blockchain ecosystem. BlackStar also intends to offer consulting and compliance
services to member crypto companies and blockchain entrepreneurs on securities and commodity futures.
The Company will seek targeted joint
ventures in the sector, primarily focusing on distributed ledger security features and technology, and the peer-to-peer (P2P) global
equity trading arena. BlackStar, through CEMC, will initially control and manage each venture into which it enters. While remaining
compliant with current SEC disclosure and reporting guidelines, BlackStar is conducting an in-depth analysis into the Company’s
involvement in crypto-equity and DLT related ventures.
In addition to the services described
above, BlackStar Enterprise formed a subsidiary nonprofit company, Crypto Industry SRO Inc., on December 31, 2017. Crypto Industry
SRO is in the beginning stages of organizing membership participation in the newly-formed nonprofit. Crypto Industry SRO is planned
to act as a self-regulatory membership organization for the crypto-equity industry and set guidelines and best-practice rules by
which industry members would abide. BlackStar will provide management of this entity under a services contract.
BlackStar Enterprise Group intends to
leverage its experience in the traditional world of public finance, including experience with securities, options, and SEC registration
and compliance, into working with select organizations supporting the development and implementation of new technologies in the
crypto-equity and DLT world. To facilitate this process, BlackStar plans to establish an advisory board in its subsidiary, Crypto
Industry SRO Inc., with applicable technical and practical experience.
The Company’s success will be
dependent upon the Company’s ability to analyze and manage the opportunities presented.
BlackStar’s Operating Principles:
|
·
|
Provide alternative joint
venture funding for entrepreneurs;
|
|
·
|
Require GAAP and SEC
accounting compliance for portfolio ventures;
|
|
·
|
Require competent and
efficient legal representation;
|
|
·
|
Require qualified managers
for portfolio ventures, and in some cases, help staff the client company while avoiding recruiting costs or attempts to bring in
high-price executives.
|
We seek venture investments in private,
or public emerging commercial-stage businesses with perceived strong growth prospects within certain industry sectors. Companies
that we work with may engage in consulting agreements with our parent company, International Hedge Group, Inc. (“IHG”),
to add additional monitoring as to their financial situations. We seek to invest up to $1 million per company in business
ventures. We may provide off-balance sheet financing to venture 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. 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.
INVESTMENT OBJECTIVES
CAPITAL APPRECIATION. Our primary investment
objective is to provide our shareholders with long term capital appreciation by investing primarily in business ventures in which
we maintain majority control with selective private companies.
We believe that a typical new business venture will
have a five-year window. Our investment objective is to restrict our investments to emerging growth companies we believe offer
special opportunities and meet our growth criteria, and we intend to reduce the risks associated with investments in startups.
Our goal is to provide mezzanine and expansion capital to companies through legally formed joint venture entities through which
we control in order to develop a comprehensive growth strategy, possibly involving a consolidation of similarly situated businesses
or a geographic expansion of existing product or service offerings. We are currently exploring options for investments in companies
involved in the cryptocurrency and blockchain (DLT) technology industry.
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) holding majority ventures
interests in venture companies that have a positive cash flow; (iii) co-investing in venture companies with other professional
venture capital. Many ventures will not provide any gain, and some will be complete losses. BlackStar, through CEMC, will initially
control and manage each venture it enters into in the cryptocurrency and blockchain technology industry.
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 ventures
because we may not be successful in raising additional funds to fund ventures or growth. Through the public market for our
common stock, we hope to have access to additional equity capital that may be needed for growing our ventures. We hope to offer
to fill this opportunity on selected ventures.
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 venture, often required to raise the additional capital investment necessary to fully develop a venture company's
product or technology, would also benefit us by creating repayment of our loan, and possibly in certain instances, an equity position.
OUR VENTURE POLICIES
We may invest in ventures which do not have
any annual revenue, if we have determined that an investment may make of such company have growth capital.
Although we may seek to venture into 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 and see a possible solution. Through our investment,
or through co-investment with other private equity funding sources we will seek to achieve performance improvements.
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 a return on our venture
investment.
In selecting venture investments for our venture,
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.
VENTURE 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 to sixty 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 ventures with corporations. In some instances, we may relax our quantitative requirements
with the view to assist such venture 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. We may invest
in ventures with companies in any of the following stages. We will always have majority control and Board control of our venture
subsidiaries.
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.
QUALITATIVE CRITERIA. All potential ventures
will first be evaluated and assessed based on their relative stage of development and the quality of an investment in such venture
company based on the above criteria. Once our management team has determined that a potential venture 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 venture company, the Board will
consider the potential venture terms. If the Board approves the investment, we will then create appropriate legal documents to
reflect our venture and any management service contracts between the venture and our company.
We intend to follow the steps set forth below
in our venture 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 venture 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.
(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 venture 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 venture 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 venture’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 VENTURE TERMS. When
deciding on making a venture investment, we will draw up a term sheet for negotiation, and terms will be agreed upon.
(9) FINANCIALS AND CORPORATE INFORMATION.
We will, after formation of the
venture subsidiary, control all accounting and financials as a subsidiary of our Company.
RESERVES. We intend to retain reserves after
the venture investment in order to have sufficient funds for equity-oriented follow-on investments in venture companies. We intend
to sell additional common stock to meet the funding requirements for any follow-on venture 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.
AVERAGE INVESTMENT. The amount of funds committed
to a venture will vary depending on the funds available to us, the quality and completeness of the venture management team, the
perceived business opportunity, the capital required compared to existing capital, and the potential return. Although the venture
or investment amounts will vary considerably, we expect that the venture (excluding follow-on investments) will be between $250,000
and $500,000.
INDUSTRY ANALYSIS AND HISTORY
Barriers to Entry in the Merchant Banking
Industry
There is one major barrier to entry into the
Merchant Banking 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 competitors’ 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.
Registrant’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 include 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 specialty on the part of some institutions. However, limitations exist that 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 Modern Era Merchant Banking
Many banks entered merchant banking in the
1960s to take advantage of the economies of scope produced when private equity investing is added to other bank services, particularly
commercial lending. As lenders to small and medium-sized companies, banks become knowledgeable about individual firms' products
and prospects and consequently are natural providers of direct private equity investment to these firms.
In the middle to late 1980s, the decision to
enter merchant banking was thrust on other banks and bank holding companies by unforeseen events. In those years, as a result of
the LDC (less-developed-country) debt crisis, many banks received private equity from developing nations in return for their defaulted
loans. At that time, many of these banks set up merchant-banking subsidiaries to try to extract some value from this private equity.
Also, at about that time, most commercial banks
began refocusing their private equity investments to middle-market and public companies (often low-tech, already profitable companies)
and, rather than providing seed capital, financed expansion or changes in capital structure and ownership. Most particularly, they
took equity positions in LBOs, takeovers, or recapitalizations or provided subordinated debt in the form of bridge loans to facilitate
the transaction. Often, they did both. Commercial banks financed much of the LBO activity of the 1980s.
Then, in the mid-1990s, major commercial banks
began once again focusing on venture capital, where they had substantial expertise from their previous exposure to this kind of
investment. Some of these recent venture-capital
investments have been spectacularly successful.
For example, the Internet search engine Lycos was a 1998 investment of Chase Manhattan's venture-capital arm.
We do not compete in the area of these 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 may rule out.
Historical Track Records
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. Under no circumstances does the company intend to become an investment company and its activities
and its financial statement ratios of assets and cash will be carefully monitored and other activities reviewed by the Board to
prevent being classified or inadvertently becoming an investment company which would be subject to regulation under the Investment
Company Act of 1940.
As a 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, 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.
Markets.
Our market is highly competitive and constantly
changing. Commercial success is frequently dependent on capital availability, the effectiveness and sufficiency of which are very
difficult to predict accurately. It is one of the principal economic risks of mezzanine and expansion stage funding companies like
ours.
Federal Regulations.
Governmental Regulation.
We are subject to regulations by securities
laws as a public company. We do not intend to become an investment company under the Investment Company Act of 1940, but if we
exceed certain thresholds of certain assets or our business operations cease to fall within certain exemptions, we might inadvertently
become subject to the Act.
Compliance with Environmental Laws and Regulations
.
Certain states may require that we obtain a
Lender’s License prior to making a loan in that state. We intend to address this on an as needed basis.
State Regulations
.
We are not involved in operations with environmental
considerations for our business.
Title to Properties.
Not applicable.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
NUMBER OF PERSONS EMPLOYED
As of December 31, 2017, we have no full-time
employees and 2 independent consultants who act as our officers and directors on a part-time basis of about 30 hours per week.
DESCRIPTION OF PROPERTIES/ASSETS
Real Estate - None
Oil and Gas Properties
- None
Patents - None
Trademarks - None
PLAN OF OPERATIONS
We intend to expend funds over the next four quarters as follows:
1
st
Quarter 2018
|
|
- Ventures
|
-
$250,000
|
|
|
- Operations
|
- $50,000
|
|
|
|
|
2
nd
Quarter 2018
|
|
- Ventures
|
- $250,000
|
|
|
- Operations
|
- $50,000
|
|
|
|
|
3
rd
Quarter 2018
|
|
- Ventures
|
- $250,000
|
|
|
- Operations
|
- $50,000
|
|
|
|
|
4
th
Quarter 2018
|
|
- Ventures
|
- $250,000
|
|
|
- Operations
|
- $50,000
|
Our Budget for operations in the next year is as follows:
|
|
|
Working Capital – Ventures
|
|
$
|
1,000,000
|
|
Legal, Audit and Accounting
|
|
$
|
100,000
|
|
Fees, rent, travel and general & administrative expenses
|
|
$
|
100,000
|
|
|
|
$
|
1,200,000
|
|
The Company may change any or all of the budget
categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable. The Company
may need substantial additional capital to support its budget. We have not recognized revenues from our operational activities.
Based on our current cash reserves of approximately
$52,000 as of March 15, 2018, we have the cash for an operational budget of three months. We intend to offer a private
placement of stock or convertible Notes to investors in order to achieve $1,200,000 in funding in the next year. We intend to commence
this offering in late Spring of 2018. If we are unable to generate enough revenue,
to cover our operational costs,
we will need to seek additional sources of funds. Currently, we have
no
committed source for any funds as of date
hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised
if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
The independent registered public accounting
firm’s report on our financial statements as of December 31, 2017, includes a “going concern” explanatory paragraph
that describes substantial doubt about our ability to continue as a going concern.
While our cash reserves were only $52,000 in
March 2018, our parent company, IHG, has agreed to fund on an interim basis any shortfall in our cash reserves. We would use our
funds to pay legal, accounting, office rent and general and administrative expense. Our estimates were that $24,000 was adequate
for these items for the last quarter of 2017. We have estimated $50,000 per quarter in 2018 in operations costs which includes
legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. In early 2018, we completed a
private placement of units for $165,000 which increased our working capital.
We received the funding to loan the monies
to our first borrower company, Meshworks Media Corporation, from our parent, IHG, in the form of two loans to BlackStar for a total
of $500,000. The notes are three-year notes payable at 6% interest per year.
MATERIAL TERMS OF OUR LOANS TO MESHWORKS MEDIA
CORPORATION
Meshworks Media Corporation (“Meshworks”)
borrowed $250,000 from BlackStar Enterprise Group, Inc. on November 1, 2016, bearing Interest at the annual rate of 12 % and a
second loan was made for $250,000 in January 2017, with the following material terms:
1. Payment. Commencing January 2, 2017, the
venture shall issue payments to the lender(s) equal to 15% of the previous months’ revenue and said revenue payments, of
principal and interest, shall continue thereafter, to be issued on the first day of each month, until the principal and interest
have been paid in full to the lender(s) but in no case, later than January 1, 2019 (“Maturity Date”) when any unpaid
principle and interest shall be due in full.
2. Security. The Note is secured to us by a
security agreement covering all of Meshworks' assets and revenues.
3. Additional Consideration. We received, as
additional consideration, 2 shares of Series B Convertible Preferred stock (Series B Stock) for each one dollar ($1.00) loaned
to Meshworks. After repayment of the loan but no later than February 1, 2019 the Series B Stock, which we own is to receive dividends
from profit based on 15% of the previous months’ revenue which will continue until such time as we have received distributions
equal to the full amount of the loan. At that point, the Series B Preferred shall automatically convert to common stock of Meshworks
at the rate of one share of common for each share of preferred converted. Until such time as all dividends have been paid, Meshworks
shall not pay any dividends to or on its outstanding common stock.
Our Meshworks loan met our lending criteria
as follows:
Meshworks had spent over $1,000,000 in investment
in its software.
Meshworks had generated over $800,000 in income
in prior years.
Meshworks has a software product that appears
to be at the forefront to serve the real estate industry, with potential for a) repayment of the loan, and b) potential for equity
participation in the venture.
Update to the Meshworks Loan:
On September 27, 2017, the Company entered
into an Agreement to Settle Debt with International Hedge Group, Inc. (“IHG”). the majority stockholder of the Company.
Under the agreement, IHG agreed to compromise and settle the Principal Amount under the verbal working capital loan agreement of
BEGI, as of November 2016, in the amount of $400,000, by assignment, without recourse, of the MeshWorks Media Corp, Promissory
Notes together with all collateral agreements. Upon signing of the agreement, a promissory note was delivered for the difference
from IHG to BEGI in the amount of $145,000 for BEGI return of principal of $100,000 and all of the accrued interest to date under
the MeshWorks Media Corp. notes, payable in twelve-month with interest of 1% per quarter on the last day of each quarter until
paid. The assignment of the MeshWorks Media Corp. Promissory Note and the note from IHG to BEGI in the amount of $145,000 is full
and complete payment and consideration for the transaction referenced hereinabove. A copy of the agreement is available by accessing
the Form 8-K filed by the Company with the Securities and Exchange Commission (www.sec.gov) on September 27, 2017.
As a result of our Agreement to settle debt
we no longer have any loans to companies and we do not intend to make loans in the future. Under our revised business plan, we
will control all of our business ventures until divestiture, spin-off, or liquidation.
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-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.
RISK FACTORS RELATING TO OUR COMPANY
OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE,
ON THE EXPERTISE AND EXPERIENCE OF THE MEMBERS OF OUR MANAGEMENT TEAM.
We will rely exclusively on the skills and
expertise of our management team in conducting our business. Our management team has experience in identifying, evaluating and
acquiring prospective businesses for which we may ultimately provide loans, but there is no assurance our managements assessments
will be successful in placing loans which are repaid with interest.
Accordingly, there is only a limited basis upon
which to evaluate our prospects for achieving our intended business objectives.
We will be wholly dependent for the selection,
structuring, closing and monitoring of all of our investments on the diligence and skill of our management team, under the supervision
of our Board of Directors. There can be no assurance that we will attain our investment objective. The management team will have
primary responsibility for the selection of companies to which we will loan or finance, the terms of such loans and the monitoring
of such investments after they are made. However, not all of the management team will devote all of their time to managing us.
These factors may affect our returns.
We have limited resources and limited operating
history.
OUR OPERATIONS AS A MERCHANT BANK MAY AFFECT
OUR ABILITY TO, AND THE MANNER IN WHICH, WE RAISE ADDITIONAL CAPITAL, WHICH MAY EXPOSE US TO RISKS.
Our business will require a substantial amount
of capital. We may acquire additional capital from the issuance of senior securities, including borrowings or other indebtedness,
or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital in the future
on favorable terms or at all. We may issue debt securities, other evidences of indebtedness or preferred stock, and we may borrow
money from banks or other financial institutions, which we refer to collectively as "senior securities". If the value
of our businesses declines, we may be unable to satisfy loan requirements. If that happens, we may be required to liquidate a portion
of our ventures and repay a portion of our indebtedness at a time when such sales may be disadvantageous. As a
result of issuing senior securities, we would
also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred stock, the
preferred stock would rank "senior" to common stock in our capital structure, preferred stockholders would have separate
voting rights and might have rights, preferences, or privileges more favorable than those of our common stockholders. If we raise
additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then
the percentage ownership of our stockholders at that time will decrease.
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 VENTURES AND AS A RESULT OUR VENTURES MAY 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 large number of ventures. We intend to operate as a
diversified merchant bank. Prospective investors should understand that our venture 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, 2017, we did not recognize revenues. We are not profitable. We must be regarded
as a new venture with all of the unforeseen costs, expenses, problems, risks and difficulties to which such ventures are subject.
WE ARE NOT DIVERSIFIED, AND WE WILL BE DEPENDENT
ON ONLY ONE BUSINESS, MERCHANT BANKING.
Because of the limited financial resources
that we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities
into more than one area will subject us to economic fluctuations within the merchant banking industry and therefore increase the
risks associated with our operations due to lack of diversification.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY
TO OUR STOCKHOLDERS.
There is no assurance that we will ever operate
profitably. There is no assurance that we will generate revenues or profits, or that the market price of our common stock will
be increased thereby.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN
THE FUTURE WHICH COULD JEOPARDIZE OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of expenses
related to general and administrative and legal and accounting and could exceed $200,000 in the next twelve months. Such funds
are not currently committed, and we have cash of approximately $52,000 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 carry out 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 current officers and directors also currently serve our parent company, International Hedge Group, Inc., which may have consulting
agreements with some of our venture companies and as such is a direct conflict and such officers and directors may be paid by such
parent. We intend to diversify and/or expand our Board of Directors in the future.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS
AND DIRECTORS AS IS PROVIDED BY DELAWARE STATUTES.
Delaware General Corporation Laws provide for
the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees
and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities
our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such
person’s promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to
indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
OUR DIRECTORS’ LIABILITY TO US AND STOCKHOLDERS
IS LIMITED
Delaware General Corporation Laws exclude personal
liability of our directors and our stockholders for monetary damages for breach of fiduciary duty except in certain specified circumstances.
Accordingly, we will have a much more limited right of action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state securities laws.
We have no full-time employees which may impede
our ability to carry on our business. Our officers are independent consultants who devote up to 20 hours per week to Company business.
The lack of full-time employees may very well prevent the Company’s operations from being efficient, and may impair the business
progress and growth, which is a risk to any investor.
RISK FACTORS OF THE COMPANY
WE MAY NOT REALIZE RETURNS ON OUR INVESTMENTS
IN VENTURES 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 venture 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 venture 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 VENTURE COMPANIES.
Most emerging markets are highly competitive.
We anticipate that nearly all our venture companies will compete against firms with greater financial resources, more extensive
development, manufacturing, marketing, and service capabilities, and a larger number of qualified managerial and technical personnel.
ILLIQUID NATURE OF OUR INVESTMENTS.
We anticipate that substantially all of our
ventures (other than short-term investments) will consist of controlling interests in ventures that at the time of acquisition
are unmarketable, illiquid and for which no ready market will exist, if such a market does in fact exist. Our venture investments
are intended to be in companies in which we will have controlling interest and will be privately negotiated transactions. There
is not anticipated to be any market for the ventures until such until such have developed successful businesses.
Because of the illiquid nature of our venture
investments, a substantial portion of our assets will be carried on our books adjusted for accrued losses, depreciation and impairment
which could in some cases result in a write off. This value will not necessarily reflect the amount which could be realized upon
a sale, or payoff in the future.
RISKS OF OUR NEED FOR ADDITIONAL CAPITAL TO
FUND OUR VENTURE COMPANIES.
We expect that most venture 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 opportunity. Each round of venture financing (whether from us or other investors)
is typically intended to provide a venture 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 venture company. Our management team may not be able
to predict accurately the future capital requirements necessary for success of our Company or venture companies. Additional funds
may not be available from any source.
OUR VENTURE PORTFOLIO IS AND MAY CONTINUE TO
BE CONCENTRATED IN A LIMITED NUMBER OF VENTURE COMPANIES AND INDUSTRIES, WHICH WILL SUBJECT US TO A RISK OF SIGNIFICANT LOSS IF
ANY OF THESE COMPANIES FAIL OR BY A DOWNTURN IN THE PARTICULAR INDUSTRY.
Our venture is and may continue to be concentrated
in a limited number of venture companies and industries. We do not have fixed guidelines for diversification, and since we are
targeting some specific industries, our venture investments could continue to be, concentrated in relatively few industries. As
a result, the aggregate returns we realize may be significantly adversely affected if our venture 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 INTEND TO CONTROL ALL OF OUR VENTURES.
We will control all of our venture companies,
and we will maintain financial supervision until divestiture, spin-off or liquidation.
WE MAY NOT REALIZE GAINS FROM OUR VENTURES.
Our goal is ultimately to dispose of our control
interests we receive from our venture companies to attempt to realize gains upon our disposition of such interests by sale, for
cash spin-off, or liquidation. However, any interests we hold may not appreciate in value and, in fact, may decline in value. Accordingly,
we may not be able to realize gains from any venture interests, and any gains that we do realize on the disposition of any venture
interests may not be sufficient to offset any other losses we experience.
THE INABILITY OF OUR VENTURE 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 venture companies
will not be able to commercialize their technology, products or business concepts presents significant risks to the value of our
ventures. Additionally, although some of our venture 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 venture 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 venture
companies will successfully acquire or develop any new technologies, or that the intellectual property the companies currently
hold will remain viable. Even if our venture companies are able to develop commercially viable products, the market for new products
and services is highly competitive and rapidly changing. Neither our venture companies nor we have any control over the pace of
technology development. Commercial success is difficult to predict, and the marketing efforts of our venture companies may not
be successful.
RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE
FUTURE LOSSES.
As of December 31, 2017, we had an accumulated
deficit of ($3,109,953).
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, 2017, 2016, 2015, and 2014, an explanatory paragraph stating that there is
substantial doubt about our ability to continue as a going concern.
OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT
TO MEET OUR ONGOING OPERATING EXPENSES.
We have no sources of income at this time and
insufficient assets to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt and,
or, equity we shall be unable to meet our ongoing operating expenses. On a longer-term basis, we intend to merge with another entity
with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders.
There can be no assurance that these events will be successfully completed.
BECAUSE INSIDERS CONTROL OUR ACTIVITIES, THAT
MAY CAUSE US TO ACT IN A MANNER THAT IS MOST BENEFICIAL TO THEM AND NOT TO OUTSIDE SHAREHOLDERS WHICH COULD CAUSE US NOT TO TAKE
ACTIONS THAT OUTSIDE INVESTORS MIGHT VIEW FAVORABLY
Our executive officers, directors, and holders
of 5% or more of our issued and outstanding common stock through International Hedge Group, Inc. beneficially own approximately
95% of our issued and outstanding common stock and the Super Majority Voting Class A Preferred Stock. As a result, they effectively
control all matters requiring director and stockholder approval, including the election of directors, the approval of significant
corporate transactions, such as mergers and related party transaction. These insiders also have the ability to delay or perhaps
even block, by their ownership of our stock, an unsolicited tender offer. This concentration of ownership could have the effect
of delaying, deterring or preventing a change in control of our company that you might view favorably.
OUR TWO OFFICERS AND DIRECTORS HAVE THE ABILITY
TO EFFECTIVELY CONTROL SUBSTANTIALLY ALL ACTIONS TAKEN BY STOCKHOLDERS.
Mr. Harris and Mr. Kurczodyna, the officers
and directors of the Company and of our parent, International Hedge Group, Inc. (“IHG”) control in excess of our 95%
of our issued and outstanding common stock through IHG and are able to effectively control substantially all actions taken by our
stockholders, including the election of directors. Such concentration of ownership could also have the effect of delaying, deterring
or preventing a change in control that might otherwise be beneficial to stockholders and may also discourage the market for our
stock due to the concentration.
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 VENTURE INVESTMENTS
THE INABILITY OF OUR VENTURE COMPANIES TO ADEQUATELY
EXECUTE THEIR GROWTH OR EXPANSION STRATEGIES WOULD HAVE A NEGATIVE IMPACT ON OUR LOAN OR INVESTMENT RETURNS.
The possibility that our venture companies
will not be able to fully carry out or execute on their expansion or growth plans presents significant risk. Our venture investments
success in our subsidiary companies will ultimately depend on the success of our ventures. If the intended expansion or growth
plan that was one of the main reasons we had originally formed the venture does not come to fruition or is otherwise impeded, the
value of the venture may negatively reflect this information, making our investment not profitable or may subject us to a substantial
loss. In such case, we may incur an entire loss of our investment.
OUR VENTURE 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 venture companies. These factors could affect
our investment returns.
OUR INVESTMENT RETURNS WILL DEPEND ON THE SUCCESS
OF OUR VENTURES AND, ULTIMATELY, THE ABILITIES OF THEIR KEY PERSONNEL.
Our success will depend upon the success of
our ventures. Their success, in turn, will depend in large part upon the abilities of their key personnel. The day-to-day operations
of our ventures 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 ventures may not be able to attract qualified managers and personnel. Any
inability to do so may negatively impact our financial picture.
SOME OF OUR VENTURE COMPANIES MAY NEED ADDITIONAL
CAPITAL, WHICH MAY NOT BE READILY AVAILABLE.
Ventures in which we make investments will
often require substantial additional financing to fully execute their growth strategies. Each round of venture financing is typically
intended to provide a company with only enough capital to reach the next stage of development, or in the case of our financings,
the turn-around stage or offering stage which might provide us with a liquidity event. We cannot predict the circumstances or market
conditions under which our ventures may seek additional capital. It is possible that one or more of our ventures will not be able
to raise additional financing or may be able to do so at a price or on terms which are unfavorable to us, either of which could
negatively impact our success.
RISKS RELATING TO OWNERSHIP OF
BLACKSTAR ENTERPRISE GROUP, INC. COMMON STOCK
A LIMITED PUBLIC MARKET EXISTS FOR OUR COMMON
STOCK AT THIS TIME, AND THERE IS NO ASSURANCE OF A FUTURE MARKET.
There is a limited public market for our common
stock, and no assurance can be given that a market will continue or that a shareholder ever will be able to liquidate his investment
without considerable delay, if at all. If a market should continue, the price may be highly volatile. Factors such as those discussed
in the “Risk Factors” section may have a significant impact upon the market price of the shares offered hereby. Due
to the low price of our securities, many brokerage firms may not be willing to effect transactions in our securities. Even if a
purchaser finds a broker willing to effect a transaction in our shares, the combination of brokerage commissions, state transfer
taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the
use of our shares as collateral for any loans.
OUR STOCK WILL, IN ALL LIKELIHOOD, BE THINLY
TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
The shares of our common stock may be thinly-traded.
We are a small company which is relatively unknown to stock analysts, stock brokers, institutional stockholders and others in the
investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend
to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase
of any of our securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several
days or more when trading activity in our securities is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price.
We cannot give you any assurance that a broader or more active public trading market for our common securities will develop or
be sustained, or that any trading levels will be sustained. Due to these conditions, we can give stockholders no assurance that
they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their
securities.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the possible price volatility, you
may not be able to sell your shares of common stock when you desire to do so. The inability to sell your securities in a rapidly
declining market may substantially increase your risk of loss because of such illiquidity and because the price for our securities
may suffer greater declines because of our price volatility.
The price of our common stock that will prevail
in the market after this offering may be higher or lower than the price you may pay. Certain factors, some of which are beyond
our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:
-
Variations in our quarterly operating results;
-
Loss of a key relationship or failure to complete significant transactions;
-
Additions or departures of key personnel;
-
Fluctuations in stock market price and volume;
-
Changes to the Distributed Ledger Technology industry; and
-
Regulatory developments, particularly those affecting cryptocurrency.
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 company’s common stock. If we become involved in this type of
litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could
have a further negative effect on your investment in our stock.
THE REGULATION OF PENNY STOCKS BY THE SEC AND
FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES.
We are a “penny stock” company,
as our stock price is less than $5.00 per share. If we are able to obtain an exchange listing for our stock, we cannot make an
assurance that we will be able to maintain a stock price greater than $5.00 per share and if the share price was to fall to such
prices, that we wouldn’t be subject to the Penny Stocks rules. None of our securities currently trade in any market and,
if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other than established customers or accredited stockholders.
For purposes of the rule, the phrase “accredited stockholders” means, in general terms, institutions with assets in
excess of $5,000,000, or
individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000).
For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive
the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from
executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers in this offering to sell their securities
in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission
has adopted a number of rules to regulate “penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4,
15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny
stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect
the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Stockholders should be aware that, according
to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter
or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
(iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Inventory in penny stocks have limited remedies
in the event of violations of penny stock rules. While the courts are always available to seek remedies for fraud against us, most,
if not all, brokerages require their customers to sign mandatory arbitration agreements in conjunctions with opening trading accounts.
Such arbitration may be through an independent arbiter. Stockholders may file a complaint with FINRA against the broker allegedly
at fault, and FINRA may be the arbiter, under FINRA rules. Arbitration rules generally limit discovery and provide more expedient
adjudication, but also provide limited remedies in damages usually only the actual economic loss in the account. Stockholders should
understand that if a fraud case is filed an against a company in the courts it may be vigorously defended and may take years and
great legal expenses and costs to pursue, which may not be economically feasible for small stockholders.
That absent arbitration agreements, specific
legal remedies available to stockholders of penny stocks include the following:
If a penny stock is sold to the investor in
violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the
purchase and receive a refund of the investment.
If a penny stock is sold to the investor in
a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.
The fact that we are a penny stock company
will cause many brokers to refuse to handle transactions in the stocks, and may discourage trading activity and volume, or result
in wide disparities between bid and ask prices. These may cause stockholders significant illiquidity of the stock at a price at
which they may wish to sell or in the opportunity to complete a sale. Stockholders will have no effective legal remedies for these
illiquidity issues.
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE
FUTURE.
We have not paid dividends on our common stock
and do not ever anticipate paying such dividends in the foreseeable future. Stockholders whose investment criteria are dependent
on dividends should not invest in our common stock.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE
EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock
are held by our present officers, directors, and affiliate stockholders as "restricted securities" within the meaning
of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the
Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted
securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares
that does not exceed the greater of 1.0% of a company's outstanding common stock or the average weekly trading volume during the
four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a non-affiliate
after the owner has held the restricted securities for a period of two years. A sale under Rule 144 or under any other exemption
from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have
a depressive effect upon the price of the common stock in any market that may develop.
OUR STOCKHOLDERS MAY SUFFER FUTURE DILUTION
DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to BlackStar
Enterprise Group, Inc. stockholders as a result of future decisions of the Board to issue shares without shareholder approval for
cash, services, or acquisitions.
WE ARE A REPORTING COMPANY
We are subject to the reporting requirements
under the Securities and Exchange Act of 1934, Section 13a, due to the effectiveness of our Registration Statement on Form 10 under
Section 12(g) which became effective. As a result, stockholders will have access to the information required to be reported by
publicly held companies under the Exchange Act and the regulations thereunder. As a result, we will be subject to legal and accounting
expenses that private companies are not subject to and this could affect our ability to generate operating income.
WE HAVE NOT IDENTIFIED ANY OTHER VENTURES IN
WHICH WE MAY INVEST IN A VENTURE.
We have only loaned money to one company,
Meshworks Media Corporation, (and that loan has been assigned) and it may take time to find other ventures, none of which are identified.
RISK FACTORS RELATED TO CRYPTOEQUITY
AND DISTRIBUTIVE LEDGER TECHNOLOGY
The
further development and acceptance of cryptocurrency networks (AND DISTRIBUTIVE LEDGER TECHNOLOGY UPON WHICH IT RELIES), which
represents a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing
or stopping of the development or acceptance of digital currency systems may adversely affect our business.
Digital currencies may be used, among
other things, to buy and sell goods and services are a new and rapidly evolving industry. The growth of the digital currency industry
in general, and in particular the Bitcoin industry, Ethereum industry, and Litecoin industry, are subject to a high degree of uncertainty.
The factors affecting the further development of the digital currencies industry, as well as the Bitcoin, Ethereum and Litecoin
industries, include:
-
Continued worldwide growth in the
adoption and use of Bitcoins, Ethereum, and Litecoins, and other cryptocurrency;
-
Government and quasi-government regulation
of Bitcoin, Ethereum, and Litecoin, and other cryptocurrency and their use, or restrictions on or regulation of access to and operation
of cryptocurrency networks and system;
-
The maintenance and development of
the open-source software protocol of various cryptocurrency networks;
-
The availability and popularity of
other forms or methods of buying and selling goods and services, including new means of using fiat currencies; and
-
General economic conditions and the
regulatory environment relating to digital currencies.
A decline in the popularity or acceptance
of the Bitcoin Network, Ethereum Network, or Litecoin Network could adversely affect our business plan and an investment in us.
Currently,
there is relatively small use of cryptocurrency in the retail and commercial marketplace in comparison to relatively large use
by speculators, thus contributing to price volatility that could adversely affect OUR ABILITY TO DEVELOP BUSINESS IN DISTRIBUTIVE
LEDGER TECHNOLOGY WHICH IS OFTEN TIED TO CRYPTO CURRENCIES.
As relatively new products and technologies,
cryptocurrency has only recently become widely accepted as a means of payment for goods and services by many major retail and commercial
outlets and use of cryptocurrency by consumers to pay such retail and commercial outlets remains limited. Conversely, a significant
portion of cryptocurrency demand is generated by speculators and investors seeking to profit from the short- or long-term holding
of cryptocurrency. A lack of expansion by cryptocurrency into retail and commercial markets, or a contraction of such use, may
result in increased volatility or a reduction in the price of cryptocurrencies, either of which could adversely impact the clients
that we may service, and in turn affect our business plan and outcomes. It may restrict development of distributed ledger technology.
Intellectual
property rights claims may adversely affect the operation of cryptocurrency networks AND DISTRIBUTE LEDGER TECHNOLOGY.
Third parties may assert intellectual
property claims relating to the holding and transfer of digital currencies and their source code, including Distributed Ledger
Technology. Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence
in cryptocurrency networks’ long-term viability or the ability of end-users to hold and transfer cryptocurrency may adversely
affect an investment in us. Additionally, a meritorious intellectual property claim could prevent us, our ventures, and other end-users
from accessing cryptocurrency networks. As a result, an intellectual property claim against us or other large cryptocurrency network
participants could adversely affect an investment in us.
The
cryptocurrency exchanges on which cryptocurrency trade are relatively new and, in most cases, OPERATED IN AN unregulated MANNER
and may therefore HAVE BEEN more exposed to fraud and failure than established, regulated exchanges for other products. To the
extent that the cryptocurrency exchanges representing a substantial portion of the volume in cryptocurrency trading are involved
in fraud or experience security failures or other operational issues, such cryptocurrency exchanges’ failures may adversely
affect OUR PARTICIPATION IN THE INDUSTRY.
The cryptocurrency exchanges on which
cryptocurrency trade are new and, in most cases, operated as unregulated (even though the SEC and CFTC has now strongly asserted
regulatory oversight). Furthermore, many cryptocurrency exchanges do not provide the public with significant information regarding
their ownership structure, management teams, corporate practices, or regulatory compliance. These potential consequences of a cryptocurrency
exchange’s failure could reduce the demand and use of cryptocurrency, reduce the value of cryptocurrency, and/or adversely
affect an investment in us.
Over the past four years, many cryptocurrency
exchanges have been closed due to fraud, failure, or security breaches. Cryptocurrency relies entirely on distributive ledger technology
for trades and its asserted legitimacy.
A lack of stability in the cryptocurrency
exchange market and the closure or temporary shutdown of cryptocurrency exchanges due to fraud, business failure, hackers or malware,
or government-mandated regulation may reduce confidence in cryptocurrency networks and result in greater volatility in cryptocurrency
value. These potential consequences of cryptocurrency exchange failures could adversely affect an investment in our company.
Political
or economic crises AND REGULATION may motivate large-scale sales of cryptocurrency, which could result in a reduction in cryptocurrency
valueS and adversely affect OUR BUSINESS.
As an alternative to fiat currencies
that are backed by central governments, digital currencies such as Bitcoin, Ethereum, and Litecoin, which are relatively new, are
subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods
and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or
economic crises may motivate large-scale acquisitions or sales of Bitcoins, Ethereum, or Litecoins, either globally or locally.
Large-scale sales of Bitcoins, Ethereum, or Litecoins, would result in a reduction in the respective cryptocurrency value or failures
of cryptocurrencies, in part, and could adversely affect an investment in us.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is currently quoted on the
OTC QB under the symbol “BEGI”. Because we are quoted on the OTC QB, our securities may be less liquid, receive less
coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on
a national securities exchange.
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.
The following table sets forth the high and
low bid quotations for our common stock as reported on the OTC QB for the periods indicated.
Fiscal 2017
|
|
Low
|
|
|
High
|
|
First Quarter – ended March 31, 2017
|
|
$
|
.40
|
|
|
$
|
.55
|
|
Second Quarter – ended June 30, 2017
|
|
$
|
.70
|
|
|
$
|
1.25
|
|
Third Quarter – ended September 30, 2017
|
|
$
|
.45
|
|
|
$
|
.85
|
|
Fourth Quarter – ended December 31, 2017
|
|
$
|
.55
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
Low
|
|
|
High
|
|
First Quarter – ended March 31, 2016
|
|
$
|
.05
|
|
|
$
|
.06
|
|
Second Quarter – ended June 30, 2016
|
|
$
|
.04
|
|
|
$
|
.03
|
|
Third Quarter – ended September 30, 2016
|
|
$
|
.04
|
|
|
$
|
.55
|
|
Fourth Quarter – ended December 31, 2016
|
|
$
|
.35
|
|
|
$
|
1.15
|
|
Holders.
As of December 31, 2017, there are approximately
373 record holders of 52,000,000 shares of our common stock.
Dividends.
As of the filing of this Form 10-K, we have
not paid any dividends to stockholders. There are no restrictions which
would limit our ability to pay dividends on
common equity or that are likely to do so in the future. The Delaware General Corporation Laws, however, do prohibit us from declaring
dividends where, after giving effect to the distribution of the dividend; we would not be able to pay our debts as they become
due in the usual course of business; or our total assets would be less than the sum of the total liabilities plus the amount that
would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Class A Preferred Super Majority Voting
Convertible Stock
The Certificate of Incorporation of the Company
authorizes the issuance of up to ten million (10,000,000) shares of Preferred Stock, $0.001 par value per share (herein, “Preferred
Stock” or “Preferred Shares”), and expressly vests in the Board of Directors of the Company the authority provided
therein to issue any or all of the Preferred Shares in one (1) or more Class or classes and by resolution or resolutions to establish
the designation and number and to fix the relative rights and preferences of each Class to be issued. The Board authorized One
Million (1,000,000) of the Ten Million (10,000,000) authorized shares of Preferred Stock of the Company to be designated Class
A Preferred Convertible Stock, $0.001 par value per share, and shall possess the rights and preferences set forth below:
Rank
. The Class
A Preferred Convertible Stock shall rank: (i) senior to any other class or Class of outstanding Preferred Shares or Class of capital
stock of the Company; (ii) prior to all of the Company's Common Stock, ("Common Stock"); and (iii) prior to any other
class or Class of capital stock of the Company hereafter created "Junior Securities"); and in each case as to distributions
of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions").
Dividends
. The Class
A Preferred Convertible Stock shall bear no dividends, except that in the event dividends are declared for common stock, the same
rate of dividend per share shall be due and payable to the Class A Preferred shareholders on the same terms.
Liquidation / Merger
Preference
.
(a) So
long as a majority of the shares of Class A Preferred authorized are outstanding, the Company will not, without the written consent
of the holders of at least 51% of the Company’s outstanding Class A Preferred, either directly or by amendment, merger, consolidation,
or otherwise: (i) liquidate, dissolve or wind-up the affairs of the Company, or effect any Liquidation Event; (ii) amend,
alter, or repeal any provision of the Certificate of Incorporation or Bylaws in a manner adverse to the Class A Preferred (iii) create
or authorize the creation of, or issue any other security convertible into or exercisable for, any equity security, having rights,
preferences or privileges senior to the Class A Preferred, or (iv) purchase or redeem or pay any dividend on any capital stock
prior to the Class A Preferred, other than stock repurchased from former employees or consultants in connection with the cessation
of their employment/services.
(b) In
the event of any liquidation, merger, dissolution or winding up of the Company, either voluntary or involuntary, the holders of
shares of Class A Preferred Convertible Stock (each a “Holder” and collectively the “Holders”) shall be
entitled to receive, prior in preference to any distribution to Junior Securities, an amount per share equal to $.01 plus any allocable
and due dividends per share.
(c) Upon
the completion of the distribution required to Class A holders, if assets remain in the Company, they shall be distributed to holders
of Junior Securities in accordance with the Company's Certificate of Incorporation including any duly adopted Certificate(s) of
Designation.
Conversion Rights:
The Holders of the Class
A Preferred Convertible Stock shall, individually and collectively, have the right to convert all of their Class A Preferred Convertible
Stock, in one transaction, by electing, in writing, to convert the 1,000,000 shares of Class A Preferred Stock into shares of Common
Stock of the Company, on the basis of 100 common shares for each share of Class A Preferred Stock, subject to adjustment
Adjustment to Conversion
Rate. The conversion price will be subject to adjustments for stock dividends,
splits, combinations and similar events and
to Adjustment Due to Merger, Consolidation, Etc
.
If, prior to the conversion of all Class A Preferred Convertible Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result
of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity or there is a sale of all or substantially all the Company’s
assets, then the Holders of Class A Preferred Convertible Stock shall thereafter have the right to receive upon conversion of Class
A Preferred Convertible Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such stock, securities and/or other assets (“New Assets”) which
the Holder would have been entitled to receive in such transaction had the Class A Preferred Convertible Stock been convertible
into New Assets from the date hereof, at the market price of such New Assets on the date of conversion, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders of the Class A Preferred Convertible Stock to
the end that the provisions hereof (including, without limitation, provisions for the adjustment of the conversion price and of
the number of shares of Common Stock issuable or New Assets deliverable upon conversion of the Class A Preferred Convertible Stock)
shall thereafter be applicable, as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise
here.
Redemption by Company
.
The Company may, at its sole discretion redeem all or any portion of the Class A Preferred Convertible Stock by paying in cash
by wire transfer the stated value of US $50.00 per share, plus all accrued and unpaid dividends on the Class A Preferred Convertible
Stock to be redeemed, to the Holder pursuant to the Holder’s written instructions. The Holders may convert Class A Preferred
Convertible Stock into Common Stock of the Company until such cash has been transmitted to the Holder, at which time conversion
rights shall cease and the Holder shall surrender all redeemed Class A Preferred Certificates to the Company for cancellation.
Super Majority Voting
Rights
. The record Holders of the Class A Preferred Convertible Stock shall have the right to vote on any matter with holders
of Common Stock and may vote as required on any action, which Delaware law provides may or must be approved by vote or consent
of the holders of the specific Class of voting preferred shares and the holders of common shares. The Record Holders of the Class
A Preferred Shares shall have the right to vote on any matter with holders of common stock voting together as one (1) class. The
Record Holders of the Class A Preferred Shares shall have that number of votes (identical in every other respect to the voting
rights of the holders of other Class of voting preferred shares and the holders of common stock entitled to vote at any Regular
or Special Meeting of the Shareholders) equal to that number of common shares which is not less than 60% of the vote required to
approve any action, which Delaware law provides may or must be approved by vote or consent of the holders of other Class of voting
preferred shares and the holders of common shares or the holders of other securities entitled to vote, if any.
Securities Authorized for Issuance Under
Equity Compensation Plans.
None.
Recent Sales of Unregistered Securities.
We have sold securities in the past 2 years
without registering the securities under the Securities Act of 1933 as shown in the following summaries:
2018
On February 5, 2018, the Company completed
an unregistered private placement offering of units in accordance with and in reliance upon the exemption from securities registration
for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the United
States Securities and Exchange Commission (the “SEC”) under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The
Company raised $165,000 through the sale of restricted units at $0.50 each, with each unit consisting of one (1) share of restricted
common stock of BlackStar Enterprise Group, Inc. (“BlackStar”), one (1) warrant exercisable into one (1) Digital Equity
of BlackStar, (subject to and effective upon a registration statement) and one (1) warrant to purchase one (1) share of Crypto
Equity Management Corp. (“CEMC”) at $10.00 per share.
2017
On September 27, 2017, the Board of
Directors approved the issuance of 16,320,000 shares of restricted common stock underlying warrants exercised on June 14, 2017.
The warrants were issued to purchase up to 17,000,000 shares of restricted common stock at $0.05 per share and were exercised on
a cashless basis, netting 16,320,000 shares of restricted common stock.
On July 3, 2017, in consideration for
$30,000, BEGI sold 100,000 units, each unit consisting of one share of restricted common stock and one warrant to purchase common
stock, in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors
afforded, inter alia, by Rule 506 under Regulation D as promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act.
2016
Shares Issued in Private Offering
44,400,000 Common shares and 1,000,000 Class
A Preferred Super Majority Voting Convertible Shares were issued to International Hedge Group, Inc., for $200,000 in cash consideration
and 34,000,000 (cashless) warrants exercisable in 3 years @ $0.05 per share were issued to officers, and directors and seven individuals.
250,000 shares of common were issued to William Brand for services, and 162,579 shares of common were issued to Shelly D. Williams
for services.
Exemption from Registration Claimed
Sales and issuances by us of the unregistered
securities listed above were made by us in reliance upon Rule 506 of Regulation D to the individuals listed above. All of the individuals
and/or entities listed above that purchased the unregistered securities were all known to us and our management, through pre-existing
business relationships, as long-standing business associates, friends, and employees. All purchasers were provided access to all
material information, which they requested, and all information necessary to verify such information and were afforded access to
our management in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment
and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities
that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise exempt from registration in any further resale or
disposition. Each purchaser made written representation under Rule 506 of Regulation D, including net worth and sophistication.
We required written representation that each purchaser who was not an accredited investor, either alone or with his purchaser representative,
had such knowledge and experience in financial and business matters that he/she was capable of evaluating the merits and risks
of the prospective investment, and the issuer reasonably believed (based on written representations) immediately prior to making
any sale that the purchaser came within this description.
Shares or Warrants Issued for Compensation
or Services
Since January 1, 2014 through December 31,
2017, we have issued shares and Warrants of our common stock in exchange for services to the individuals and the amounts set forth
below.
William Brand (1)
|
250,000 shares of common stock
|
Shelly D. Williams (2)
|
162,579 shares of common stock
|
M.A. Littman
|
800,000 Warrants exercisable @ $0.05 per share for $20,000 receivable waiver
|
MATERIAL RELATIONSHIPS
|
(1)
|
Former Director/Officer
|
|
(2)
|
Non-Executive Secretary
|
Exemption from Registration Claimed
All of the sales by us of the unregistered
securities listed immediately above were made by us in reliance upon Section 4(a)(2) of the Act. All of the individuals and/or
entities listed above that purchased the unregistered securities were all known to us and our management, through pre-existing
business relationships, as long standing business associates, friends, and employees. All purchasers were provided access to all
material information, which they requested, and all information necessary to verify such information and were afforded access to
our management in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment
and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities
that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise exempt from registration in any further resale or
disposition.
ISSUER PURCHASES OF EQUITY SECURITIES
We did not repurchase any shares of our common
stock during the year ended December 31, 2017, however, on September 29, 2017, International Hedge Group, Inc. (our parent company)
retired 17,420,000 shares to treasury and exercised warrants.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements and
Associated Risks.
This form 10-K contains certain statements
that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements
contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”,
“estimate, or “continue” or comparable terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions
generally and in the industries in which we may participate; competition within our chosen industry, including competition from
much larger competitors; technological advances and failure to successfully develop business relationships.
Based on our financial history since
inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying
financial statements, as of December 31, 2017, we had an accumulated deficit totaling $3,109,953. This raises substantial doubts
about our ability to continue as a going concern.
Plan of Operation
We intend to expend funds over the next four quarters as follows:
1
st
Quarter 2018
|
|
- Ventures
|
-
$250,000
|
|
|
- Operations
|
- $50,000
|
|
|
|
|
2
nd
Quarter 2018
|
|
- Ventures
|
- $250,000
|
|
|
- Operations
|
- $50,000
|
|
|
|
|
3
rd
Quarter 2018
|
|
- Ventures
|
- $250,000
|
|
|
- Operations
|
- $50,000
|
|
|
|
|
4
th
Quarter 2018
|
|
- Ventures
|
- $250,000
|
|
|
- Operations
|
- $50,000
|
Our Budget for operations in the next year is as follows:
|
|
|
Working Capital – Ventures
|
|
$
|
1,000,000
|
|
Legal, Audit and Accounting
|
|
$
|
100,000
|
|
Fees, rent, travel and general & administrative expenses
|
|
$
|
100,000
|
|
|
|
$
|
1,200,000
|
|
The Company may change any or all of the budget
categories in the execution of its business model. None of the line items are to be considered fixed or unchangeable. The Company
may need substantial additional capital to support its budget. We have not recognized revenues from our operational activities.
Based on our current cash reserves of approximately
$52,000 as of March 15, 2018, we have the cash for an operational budget of three months. We intend to offer a private
placement of stock or convertible Notes to investors in order to achieve $1,200,000 in funding in the next year. We intend to commence
this offering in late Spring of 2018. If we are unable to generate enough revenue,
to cover our operational costs,
we will need to seek additional sources of funds. Currently, we have
no
committed source for any funds as of date
hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised
if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
The independent registered public accounting
firm’s report on our financial statements as of December 31, 2017, includes a “going concern” explanatory paragraph
that describes substantial doubt about our ability to continue as a going concern.
While our cash reserves were only $52,000 in
March 2018, our parent company, IHG, has agreed to fund on an interim basis any shortfall in our cash reserves. We would use our
funds to pay legal, accounting, office rent and general and administrative expense. Our estimates were that $24,000 was adequate
for these items for the last quarter of 2017. We have estimated $50,000 per quarter in 2018 in operations costs which includes
legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. In early 2018, we completed a
private placement of units for $165,000 which increased our working capital.
We received the funding to loan the monies
to our first borrower company, Meshworks Media Corporation, from our parent, IHG, in the form of two loans to BlackStar for a total
of $500,000. The notes are three-year notes payable at 6% interest per year.
MATERIAL TERMS OF OUR LOANS TO MESHWORKS MEDIA
CORPORATION
Meshworks Media Corporation (“Meshworks”)
borrowed $250,000 from BlackStar Enterprise Group, Inc. on November 1, 2016, bearing Interest at the annual rate of 12 % and a
second loan was made for $250,000 in January 2017, with the following material terms:
1. Payment. Commencing January 2, 2017, the
venture shall issue payments to the lender(s) equal to 15% of the previous months’ revenue and said revenue payments, of
principal and interest, shall continue thereafter, to be issued on the first day of each month, until the principal and interest
have been paid in full to the lender(s) but in no case, later than January 1, 2019 (“Maturity Date”) when any unpaid
principle and interest shall be due in full.
2. Security. The Note is secured to us by a
security agreement covering all of Meshworks' assets and revenues.
3. Additional Consideration. We received, as
additional consideration, 2 shares of Series B Convertible Preferred stock (Series B Stock) for each one dollar ($1.00) loaned
to Meshworks. After repayment of the loan but no later than February 1, 2019 the Series B Stock, which we own is to receive dividends
from profit based on 15% of the previous months’ revenue which will continue until such time as we have received distributions
equal to the full amount of the loan. At that point, the Series B Preferred shall automatically convert to common stock of Meshworks
at the rate of one share of common for each share of preferred converted. Until such time as all dividends have been paid, Meshworks
shall not pay any dividends to or on its outstanding common stock.
Our Meshworks loan met our lending criteria
as follows:
Meshworks had spent over $1,000,000 in investment
in its software.
Meshworks had generated over $800,000 in income
in prior years.
Meshworks has a software product that appears
to be at the forefront to serve the real estate industry, with potential for a) repayment of the loan, and b) potential for equity
participation in the venture.
As a result of our Agreement to settle debt
we no longer have any loans to companies and we do not intend to make loans in the future. Under our revised business plan, we
will control all of our business ventures until divestiture, spin-off, or liquidation.
Results of Operations
We had minimal operations and no revenues in
2016, incurring $91,138 in expenses resulting in a loss of ($1,154,285) for the year ended December 31, 2016. In 2017, we achieved
capital of $90,000, in our efforts to recapitalize the Company. We had no revenues during the year ended December 31, 2017. Due
to startup and administrative expenses, stock issuances, warrant expenses of $70,000 and consulting fees, we incurred a loss of
($116,138) for the period.
We had income (gain) on settlement of debt
for the year ended December 31, 2017, or $132,500, which resulted in a net loss for the period of ($116,138) or ($0.01) per share.
For the year ended December 31, 2016, we had a net loss of ($1,154,285)
Liquidity and Capital Resources.
Our total assets were $180,307 as of
December 31, 2017, consisting of cash of $34,454 and other assets. By comparison, our total assets were $265,604 as of December
31, 2016. Our current liabilities as of December 31, 2017 and 2016, respectively, totaled $21,907 and $161,066, which is comprised
of accounts payable of $3,407 and $1,066, notes payable of $0 and $0, to related parties, loan payable of $0 and $0, and accrued
interest payable of $0 and $0.
We intend to attempt to raise capital
through several sources: a) partner venture funds, b) private placements of our stock, c) loans from our parent, IHG.
We do not have terms or committed sources
of capital of any type at this time. If we are able to raise additional capital, we intend to make additional loans and would intend
to use the funds repaid from the loans to a) retire debt, and b) fund additional loans to companies, and c) to provide operational
funds.
We have been, and intend to continue,
working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining
additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing
stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely
include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have
a negative impact on our business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available,
we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic
partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such
financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability
to fund our continued operations and our expansion efforts.
We do not anticipate that we will purchase
any significant equipment over the next twelve months.
We do not anticipate any significant
changes in the number of employee unless we significantly increase the size of our operations. We believe that we do not require
the services of additional independent contractors to operate at our current level of activity. However, if our level of operations
increases beyond the level that our current staff can provide, we may need to supplement our staff in this manner.
Our auditor has expressed substantial
doubt as to whether we will be able to continue to operate as a “going concern” due to the fact that the Company has
an accumulated deficit of $3,109,953 as of December 31, 2017 and has not yet established an ongoing source of revenues sufficient
to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern
is dependent on the Company obtaining the adequate capital to fund operating losses until it becomes profitable. If the Company
is unable to obtain adequate capital, it could be forced to cease operations.
Financing Activities
On September 27, 2017, the Board of
Directors approved the issuance of 16,320,000 shares of restricted common stock underlying warrants exercised on June 14, 2017.
The warrants were issued to purchase up to 17,000,000 shares of restricted common stock at $0.05 per share and were exercised on
a cashless basis, netting 16,320,000 shares of restricted common stock.
On July 3, 2017, in consideration for
$30,000, BEGI sold 100,000 units, each unit consisting of one share of restricted common stock and one warrant to purchase common
stock, in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors
afforded, inter alia, by Rule 506 under Regulation D as promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act..
On January 25, 2016, the Company received
and agreed to a purchase of its common stock from International Hedge Group, Inc. (IHG) to purchase a 95% controlling interest
in the Company. At the closing, IHG was to provide the Company with a promissory note in the amount of $200,000 payable over a
180-day period in increments as the buyer is able to achieve funding. As at the date of this 10-K, the Company has received $200,000
in cash.
During the year ended December 31, 2016,
the Company received $200,000 in private placement subscriptions for the Company’s common stock and issued 44,400,000 shares
of common stock and 1,000,000 shares of preferred stock. During the year ended December 31, 2016, the Company issued 1,312,549
to consultants for services rendered and in exchange for debt, with the shares valued at $52,504.
During the year ended December 31, 2016,
the Company received $216,580 in shareholder contributions to be used in the Company’s regular activities.
As
of December 31, 2016, the Company has used these proceeds on the Company’s operations and purchases.
Investing Activities
The Company used $105,000 in investing
activities for the year ended December 31, 2017, with $0 going to fixed assets and $105,000 being used on Notes Receivable.
Operating Activities
During the year ended December 31, 2017,
the Company used cash in the amount of $113,221 in operating activities, compared to $1,296,670 over the previous year. The increased
operating expenses are due to the Company’s startup of operations.
Off Balance Sheet Arrangements
None
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
BLACKSTAR ENTERPRISE GROUP, INC.
FINANCIAL STATEMENTS
For the years ended December 31, 2017 and
2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM – BF BORGERS CPA PC
|
|
|
F-1
|
|
|
|
|
|
|
BALANCE SHEETS
|
|
|
F-2
|
|
|
|
|
|
|
STATEMENTS OF OPERATIONS
|
|
|
F-3
|
|
|
|
|
|
|
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
|
|
|
F-4
|
|
|
|
|
|
|
STATEMENTS OF CASH FLOWS
|
|
|
F-5
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
|
F-6
|
|
Report
of Independent Registered Public Accounting Firm
To
the shareholders and the board of directors of Blackstar Enterprise Group, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Blackstar Enterprise Group, Inc. (the "Company") as of December 31,
2017 and 2016, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended,
and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results
of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
Substantial
Doubt about the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
BF Borgers CPA PC
BF
Borgers CPA PC
We
have served as the Company's auditor since 2016.
Lakewood,
CO
March
29, 2018
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
34,454
|
|
|
$
|
14,175
|
|
|
|
|
—
|
|
|
|
—
|
|
Total current assets
|
|
|
34,454
|
|
|
|
14,175
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
|
1,659
|
|
|
|
1,659
|
|
Accumulated depreciation
|
|
|
(806
|
)
|
|
|
(230
|
)
|
Total fixed assets
|
|
|
853
|
|
|
|
1,429
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
145,000
|
|
|
|
250,000
|
|
Total other assets
|
|
|
145,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
180,307
|
|
|
$
|
265,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,407
|
|
|
$
|
1,066
|
|
Loan payable - related party
|
|
|
18,500
|
|
|
|
150,000
|
|
Total current liabilities
|
|
|
21,907
|
|
|
|
151,066
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
with $0.001 par value. 1,000,000 and Nil
|
|
|
|
|
|
|
|
|
shares issued and outstanding respectively
|
|
|
1,000
|
|
|
|
1,000
|
|
Common stock, 200,000,000 shares authorized
|
|
|
|
|
|
|
|
|
with $0.001 par value. 52,000,000 and 55,825,000
|
|
|
|
|
|
|
|
|
issued and outstanding at each period respectively
|
|
|
52,000
|
|
|
|
55,825
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
1,725,353
|
|
|
|
1,691,528
|
|
Subscription offering receipts
|
|
|
60,000
|
|
|
|
—
|
|
Additional paid in capital - warrants
|
|
|
1,430,000
|
|
|
|
1,360,000
|
|
Accumulated deficit
|
|
|
(3,109,953
|
)
|
|
|
(2,993,815
|
)
|
Total Stockholders' Deficit
|
|
|
158,400
|
|
|
|
114,538
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
180,307
|
|
|
$
|
265,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost
of revenues
|
|
|
—
|
|
|
|
—
|
|
GROSS PROFIT
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Consulting
fees
|
|
|
—
|
|
|
|
6,250
|
|
Depreciation
|
|
|
575
|
|
|
|
230
|
|
Legal and professional
|
|
|
39,580
|
|
|
|
31,190
|
|
Management consulting
|
|
|
25,000
|
|
|
|
30,000
|
|
General
and administrative
|
|
|
25,983
|
|
|
|
21,937
|
|
Total
operating expenses
|
|
|
91,138
|
|
|
|
89,607
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(91,138
|
)
|
|
|
(89,607
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Gain on debt
settlement
|
|
|
—
|
|
|
|
270,822
|
|
Warrant expense
|
|
|
(70,000
|
)
|
|
|
(1,328,000
|
)
|
Interest
income/(expense)
|
|
|
45,000
|
|
|
|
(7,500
|
)
|
Other
income (expense) net
|
|
|
(25,000
|
)
|
|
|
(1,064,678
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision
|
|
|
(116,138
|
)
|
|
|
(1,154,285
|
)
|
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for income tax
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(116,138
|
)
|
|
$
|
(1,154,285
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
(Basic and fully diluted)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
common shares outstanding
|
|
|
19,220,608
|
|
|
|
11,112,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLACKSTAR
ENTERPRISE GROUP, INC.
|
STATEMENT
OF STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Amount
|
|
Paid in
|
|
Stock
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
($
|
0.001
|
Par)
|
|
|
Shares
|
|
|
($
|
0.001
|
Par)
|
|
|
Capital
|
|
|
|
Subscribed
|
|
|
|
Deficit
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2015
|
|
|
11,112,421
|
|
|
$
|
11,112
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,484,737
|
|
|
$
|
—
|
|
|
$
|
(1,839,530
|
)
|
|
$
|
(343,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares cancelled
|
|
|
(1,000,000
|
)
|
|
|
(1,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Shares exchanged for debt
|
|
|
1,312,549
|
|
|
|
1,313
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51,191
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52,504
|
|
Shares issued for cash
|
|
|
44,400,000
|
|
|
|
44,400
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
154,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
Warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,328,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,328,000
|
|
Warrants issued for debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,000
|
|
Net loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,154,285
|
)
|
|
|
(1,154,285
|
)
|
Balances - December 31, 2016
|
|
|
55,824,970
|
|
|
|
55,825
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
3,051,528
|
|
|
|
—
|
|
|
|
(2,993,815
|
)
|
|
|
114,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares cancelled
|
|
|
(3,825,000
|
)
|
|
|
(3,825
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,825
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Adjust to transfer agent list
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Warrants exercised
|
|
|
16,320,000
|
|
|
|
16,320
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,320
|
|
Shares surrendered
|
|
|
(16,320,000
|
)
|
|
|
(16,320
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,320
|
)
|
New shares issued
|
|
|
100,000
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
Shares surrendered
|
|
|
(100,000
|
)
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,000
|
|
Subscriptions received
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,000
|
|
|
|
—
|
|
|
|
60,000
|
|
Net loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(116,138
|
)
|
|
|
(116,138
|
)
|
Balances - December 31, 2017
|
|
|
52,000,000
|
|
|
$
|
52,000
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
3,155,353
|
|
|
$
|
60,000
|
|
|
$
|
(3,109,953
|
)
|
|
$
|
158,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
|
|
|
|
|
BLACKSTAR ENTERPRISE GROUP, INC.
|
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(116,138
|
)
|
|
$
|
(1,154,285
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
576
|
|
|
|
230
|
|
Changes in operating assets and liabilities
|
|
|
—
|
|
|
|
—
|
|
Increase/(Decrease) in accounts payable
|
|
|
2,341
|
|
|
|
(25,357
|
)
|
Increase/(Decrease) in accrued expenses
|
|
|
—
|
|
|
|
(67,258
|
)
|
(Decrease) in Advances
|
|
|
—
|
|
|
|
(50,000
|
)
|
|
|
|
—
|
|
|
|
—
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(113,221
|
)
|
|
|
(1,296,670
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Increase in Fixed Assets
|
|
|
—
|
|
|
$
|
(1,659
|
)
|
Increase in Notes Receivable - Related party
|
|
|
(145,000
|
)
|
|
|
—
|
|
Increase (Decrease) in Notes Receivable
|
|
|
250,000
|
|
|
|
(250,000
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
105,000
|
|
|
|
(251,659
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Notes payable retired
|
|
|
—
|
|
|
|
(200,000
|
)
|
Notes payable related party increased/(decreased)
|
|
|
(131,500
|
)
|
|
|
150,000
|
|
Sale of Common Stock
|
|
|
30,000
|
|
|
|
251,504
|
|
Sale of Preferred Stock
|
|
|
—
|
|
|
|
1,000
|
|
Common Stock Subscribed
|
|
|
60,000
|
|
|
|
—
|
|
Paid in Capital Warrants
|
|
|
70,000
|
|
|
|
1,360,000
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
28,500
|
|
|
|
1,562,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash
|
|
|
20,279
|
|
|
|
14,175
|
|
|
|
|
|
|
|
|
|
|
Cash At The Beginning Of The Period
|
|
|
14,175
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash At The End Of The Period
|
|
$
|
34,454
|
|
|
$
|
14,175
|
|
|
|
|
|
|
|
|
|
|
Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and accrued interest exchanged for common stock
|
|
$
|
317,258
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017
NOTE 1 – NATURE OF OPERATIONS AND
BASIS OF PRESENTATION
BlackStar Enterprise Group, Inc. (the Company”
or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007 as NPI08, Inc. (“NPI08”).
In January 2010, NPI08 acquired an ownership interest in Black Star Energy Group, Inc., a Colorado Corporation. BlackStar Energy
then merged into NPI08, with NPI08 being the surviving entity. Concurrently, NPI08 changed its name to BlackStar Energy Group,
Inc. On January 25, 2017, International Hedge Group, Inc. signed an agreement to acquire a 95% interest in the Company. The name
was changed to BlackStar Enterprise Group, Inc. in August of 2017.
The Company is a Delaware corporation organized
for the purpose of engaging in any lawful business. The Company intends to act as a merchant bank as at the date of these financial
statements. It currently trades on the Pink Sheets under the symbol “BEGI”.
The Company’s fiscal year end is December
31
st
. The Company’s financial statements are presented on the accrual basis of accounting.
NOTE 2 – GOING CONCERN
The
Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the financial statements for the year ended December
31, 2017 and the years ended December 31, 2016 and 2015, the Company has generated no revenues capable of sustaining its operations
but has incurred losses. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The
continuation of the Company as a going concern is dependent upon the ability to raise equity or debt financing, and the attainment
of profitable operations from the Company's planned business. Management cannot provide any assurances that the Company will be
successful in accomplishing any of its plans.
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers all cash on hand, cash
accounts not subject to withdrawal restrictions or penalties and all highly liquid investments with an original maturity of three
months or less as cash equivalents.
Revenue recognition
The Company has realized minimal revenues from
operations. The Company recognizes revenues when the sale and/or distribution of products is complete, risk of loss and title to
the products have transferred to the customer, there is persuasive evidence of an agreement, acceptance has been approved by the
customer, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related
receivable is probable. Net sales will be comprised of gross revenues less expected returns, trade discounts, and customer allowances
that will include costs associated with off-invoice markdowns and other price reductions, as well as trade promotions and coupons.
The incentive costs will be recognized at the later of the date on which the Company recognized the related revenue or the date
on which the Company offers the incentive.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance
with “ASC-260,” “Earnings per Share” which requires presentation of both basic and diluted earnings per
share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders
by the weighted average number of outstanding common share during the period. Diluted loss per share gives effect to all dilutive
potential common shares outstanding during the period. Diluted loss per share excludes all potential common shares if their effect
is anti-dilutive.
Income Taxes
The Company accounts for income taxes pursuant
to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.
The Company maintains a valuation allowance
with respect to deferred tax asset. Blackstar Enterprise Group establishes a valuation allowance based upon the potential likelihood
of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations
for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within
the carry-forward period under Federal tax laws.
Changes in circumstances, such as the Company
generating taxable income, could cause a change in judgment about the reliability of the related deferred tax asset. Any change
in the valuation allowance will be included in income in the year of the change estimate.
Carrying Value, Recoverability and Impairment
of Long-Lived Assets
The Company has adopted paragraph 360-10-35-17
of FASB Accounting Standards Codification for its long-lived assets. The Company’s long –lived assets are reviewed
for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
The company assesses the recoverability of
its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group
of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on
the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected
future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but
the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived
assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following to be some
examples of important indicators that may trigger an impairment review; (i) significant under-performance or losses of assets relative
to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the
Company’s overall strategy with respect to the manner of use of the acquired assets or changes in the Company’s overall
business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant
decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired
assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
The impairment charges, if any, are included
in operating expenses in the accompanying statements of operations.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases
its estimates on
historical experience and on various assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources.
The Company’s significant estimates include
income taxes provision and valuation allowance of deferred tax assets; the fair value of financial instruments; the carrying value
and recoverability of long-lived assets, and the assumption that the Company will continue as a going concern. Those significant
accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates
or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management regularly reviews its estimates
utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions.
After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those
estimates.
Fair values of Financial Instruments
The Company groups its financial
assets and financial liabilities generally measured at fair value in three levels, based on the markets in which
the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.
Level 1: Valuation is based on quote prices
in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities
that are traded in an active exchange market. Valuations are obtained from readily available pricing sources to market transactions
involving identical assets or liabilities.
Level 2: Valuation is based on observable
inputs other than Level I prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted price that are traded
less frequently than exchange-traded instruments.
Level 3: Valuation is based on
unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using
pricing models, discounted ash flow methodologies, or similar techniques, as well as instruments for which the determination
of fair value equities significant management judgment or estimation. This category generally includes certain private
equity investments and long-term derivative contracts.
The fair value hierarchy also requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of
December 31, 2017, the Company does not have any assets or liabilities which could be considered Level 2 or 3 in the hierarchy.
The Company may also be required, from
time to time, to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair
value usually result from application of lower—of-cost-or—market accounting or write-downs of individual assets. There
were no such adjustments through the years ended December 31, 2017.
Long Lived Assets
In accordance with ASC 350 the Company regularly
reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances both internally
and externally that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized
by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Stock-based Compensation
The Company accounts for stock-based compensation
issued to employees based on FASB accounting standard for Share Based Payment. It requires an entity to measure the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will
be recognized over the period during which
an employee is required to provide service in exchange for the award – the requisite service period (usually the vesting
period). It requires that the compensation cost relating to share-based payment transactions be recognized in financial statements.
That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of the FASB accounting
standard includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. The Company currently has no stock-based compensation plan
in place.
Advertising and Promotional Costs
Advertising and promotional costs are expensed
as incurred. Advertising and promotional expenses totaled $1,323 and $905 for the years ended December 31, 2017 and 2016, respectively.
Comprehensive Income (Loss)
Comprehensive income is defined as
all changes in stockholders’ equity (deficit), exclusive of transactions with owners, such as capital investments.
Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity
such as translation adjustments in investments in foreign subsidiaries and unrealized gains (losses) on available-for—sale
securities. From our inception, there have been no differences between our Comprehensive loss and net loss. Our comprehensive loss
was identical to our net loss for the years ended December 31, 2017 and 2016.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
During the quarter ended September 30, 2016,
the Company purchased certain office equipment for a total of $1,659. This equipment is being depreciated over a three-year life
and the Company has recorded a depreciation expense of $575 for the current year.
NOTE 5 – NOTE RECEIVABLE
During the month of October 2016, the Company
identified a target company in which management felt it would be beneficial to invest. The target company was looking for an aggregate
investment of $2,500,000, of which the Company agreed to provide $500,000 and to provide assistance in raising the remaining $2,000,000.
The terms of this investment are the note shall
bear an interest rate of 12% and the lender (Company) shall receive 2 shares of Series B Convertible Preferred stock for each one
dollar ($1.00) loaned to the target company. Payments on the note shall commence at such time the target company is generating
gross revenues. The payment shall consist of 15% of the gross revenues ratably apportioned among the then existing note holders.
Said payments to be applied first to accrued interest and then to the outstanding principal. Notwithstanding the aforementioned
payment schedule the entire note becomes due and payable on February 1, 2019. Commencing not later than February 1, 2019, the target
company shall pay a 15% dividend to the holders of the Series B Convertible Preferred stock until such time as each holder of the
Series B Convertible Preferred stock has received an amount equivalent to their original loan. At such time the Series B Convertible
Preferred stock shall be converted into common stock of the target company at the rate of one share of common stock for each share
of Convertible stock.
During the month of January 2017, the Company
advanced the second tranche of these funds.
On September 27, 2017, the Company entered
into an Agreement to Settle Debt (the “Agreement”) with International Hedge Group, Inc. (“IHG”). the majority
stockholder of the Company. Under the Agreement, IHG agreed to compromise and settle the Principal Amount under the verbal working
capital loan agreement of BEGI, as of November 2016, in the amount of $400,000, by assignment, without recourse, of the MeshWorks
Media Corp, Promissory Notes together with all collateral agreements. Upon signing of the Agreement, a promissory note was delivered
for the difference from IHG to BEGI in the amount of $145,000 for BEGI return of principal of $100,000 and all of the accrued interest
to date under the MeshWorks Media Corp. notes, payable in twelve months with interest of 1% per quarter on the last day of each
quarter until paid. The assignment of the MeshWorks Media Corp. Promissory Note and the note from IHG to BEGI in the amount of
$145,000 is full and complete payment and
consideration for the transaction referenced
hereinabove. A copy of the Agreement is available from the Company or by accessing the Form 8-K filed by the Company with the Securities
and Exchange Commission on September 27, 2017.
NOTE 6 – STOCKHOLDER’S DEFICIT
The total number of common shares authorized
that may be issued by the Company is 200,000,000 shares with a par value of $0.001 per share. The Company is authorized to issue
10,000,000 shares of preferred stock with a par value of $0.001 per share.
On August 25, 2016, the Company issued 1,000,000
shares of its preferred series A stock to IHG in fulfillment of the purchase agreement. As at December 31, 2017, there are 1,000,000
preferred series A shares issued and outstanding. These shares are convertible at a ratio of 100 shares of the common stock of
the Company for each share of preferred stock of the Company.
As at December 31, 2017, the total number of
common shares outstanding was 52,000,000. The Company has an ongoing program of private placements to raise funds to support the
operations. During the period ended March 31, 2016, the Company entered into a purchase agreement with International Hedge Group,
Inc. (“IHG”) whereby certain existing stockholders would surrender their stock and IHG would acquire a 95% working
interest in the Company.
During the quarter ended December 31, 2016,
the Company issued 1,322,579 shares of its common stock to satisfy certain accounts payable and notes payable plus accrued interest.
The stock was valued at $0.04 per share which valued the total debt relief at $52,903. The debts discharged in these transactions
were valued at $335,072. These transactions were with unrelated parties giving the Company a net gain of $282,569 as gain on debt
relief.
During the quarter ended September 30, 2016,
the Company issued 34,000,000 warrants for the purchase of its common stock at $0.05 per share. Using the Black-Scholes valuation
model the Company assigned a value of $1,360,000 to these warrants. The Company recorded an expense of $1,328,000 on the operating
statement for the quarter ended September 30, 2016. The Company also used 800,000 of these warrants to satisfy an account payable
to a service provider. The value of the debt discharged in this transaction was $20,253. This transaction was with an unrelated
party giving the Company a net loss of $11,747 on the debt relief. Total net gain on all debt relief transactions was $270,822.
During the quarter ended September 30, 2017,
the Company sold 100,000 shares of its common stock at a price of $0.30. Each of the shares sold had a warrant to purchase one
additional share for $0.70 with an exercise period of 5 years. Using the Black-Scholes valuation model the Company assigned a value
of $70,000 to these warrants. The Company recorded an expense of $70,000 on the operating statement for the quarter ended September
30, 2017. Concurrently, with the sale of these shares, International Hedge Group, the majority stockholder of the Company, surrendered
100,000 of its shares.
In December of 2017, the Company began a private
placement program to raise additional funds for the operations of the Company. At the end of December 2017, the Company had received
$60,000 in subscriptions for this offering. The offering is explained in greater detail in the footnote:
PRIVATE OFFERING.
Super Majority Voting Rights.
The record
Holders of the Class A Preferred Convertible Stock shall have the right to vote on any matter with holders of Common Stock and
may vote as required on any action, which Delaware law provides may or must be approved by vote or consent of the holders of the
specific Class of voting preferred shares and the holders of common shares. The Record Holders of the Class A Preferred Shares
shall have the right to vote on any matter with holders of common stock voting together as one (1) class. The Record Holders of
the Class A Preferred Shares shall have that number of votes (identical in every other respect to the voting rights of the holders
of other Class of voting preferred shares and the holders of common stock entitled to vote at any Regula or Special Meeting of
the Shareholders) equal to that number of common shares which is not less than 60% of the vote required to approve any action,
which Delaware law provides may or must be approved by vote or consent of the holders of other Class of voting preferred shares
and the holders of common shares or the holders of other securities entitled to vote, if any.
NOTE 7 – WARRANTS
At the time of the issuance of stocks referenced
in Note 8 the Company issued 34,000,000 warrants to purchase the Company’s common stock at an exercise price of $0.05 These
warrants have an exercise price of $0.05 per share and an expiration date that is three years from the date of issuance. The warrants
were issued to the existing shareholders of International Hedge Group. There are 15 stockholders in IHG and 6 of these represent
owners of greater than 5% of IHG stock. These 6 stockholders received 57.35% of the warrants issued. 800,000 of these warrants
were issued to satisfy outstanding accounts payable. The payable amounted to $20,253 and the warrants were valued at $32,000 giving
rise to a loss of $11,747 on the settlement of debt.
Using the Black-Scholes valuation model a value
of $1,328,000 is assigned to these warrants. The parameters used in the Black-Scholes model were as follows: stock price $0.04;
strike price $0.05; volatility 172%; risk free rate 1.75% and time to expiration of 3 years. This expense is recorded on the books
of the Company as “Warrant expense” with an offsetting entry in the Stockholder’s Deficit section as “Additional
paid in capital – Warrants.”
On June 14, 2017, the Company received notice
from the holders of 17,000,000 warrants as to their intentions to convert the warrants into shares of common stock of the Company.
The Company instructed the transfer agent to proceed with the issuance of 16,320,000 shares of the common stock of the Company.
This exercise was carried out on a “cashless exercise” which meant that the actual exercise resulted in no cash being
received by the Company. The number of shares of common stock to be issued in exchange for the warrants was calculated by using
the closing price of the stock on the last trading day prior to the exchange which was $1.25. The value of the warrant was subtracted
from the trading price which was then multiplied by the number of warrants being exercised. This result was then divided by the
last trading price to determine the number of shares to be issued. At the same time that these warrants were exercised International
Hedge Group agreed to surrender 16,320,000 shares of the common stock of the Company that it holds. This transaction produced no
financial consequence to the Company.
On July 3, 2017, in consideration for $30,000,
BEGI sold 100,000 units, each unit consisting of one share of restricted common stock and one warrant to purchase common stock,
in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors
afforded, inter alia, by Rule 506 under Regulation D as promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the 1933 act, and/or Section 4(a)(2) of the 1933 Act.
As at December 31, 2017, the Company has not
received any further notifications with respect to any exercise of any outstanding warrants.
Warrant table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
|
|
Shares under
|
|
Exercise
|
|
Remaining
|
|
|
Date
|
|
Life
|
|
Warrant
|
|
Price
|
|
Life
|
Balance at
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
August 30, 2016
|
|
|
|
3.00
|
|
|
|
34,000,000
|
|
|
$
|
0.05
|
|
|
|
1.66
|
|
Exercised
|
|
|
June 14, 2017
|
|
|
|
|
|
|
|
(17,000,000
|
)
|
|
$
|
—
|
|
|
|
|
|
Issued
|
|
|
July 5, 2017
|
|
|
|
5.00
|
|
|
|
100,000
|
|
|
$
|
0.70
|
|
|
|
4.21
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Balance at
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
17,100,000
|
|
|
|
|
|
|
|
1.67
|
|
NOTE 8 – INCOME TAXES
A reconciliation of the provision for income
taxes at the United States federal statutory rate of 34% and a Colorado state rate of 5% compared to the Company’s income
tax expense as reported is as follows:
Income tax valuation allowance
|
|
|
|
|
|
|
|
|
|
December 31
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Net loss before income taxes
|
|
$
|
(116,138
|
)
|
|
$
|
(1,154,285
|
)
|
|
$
|
(15,000
|
)
|
Adjustments to net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant expense
|
|
|
—
|
|
|
|
1,328,000
|
|
|
|
—
|
|
Gain on exchange of debt for stock
|
|
|
—
|
|
|
|
(270,822
|
)
|
|
|
—
|
|
Net taxable income (loss)
|
|
|
(116,138
|
)
|
|
|
(97,107
|
)
|
|
|
(15,000
|
)
|
Income tax rate
|
|
|
39
|
%
|
|
|
39
|
%
|
|
|
39
|
%
|
Income tax recovery
|
|
|
45,295
|
|
|
|
37,870
|
|
|
|
5,850
|
|
Valuation allowance change
|
|
|
(45,295
|
)
|
|
|
(37,870
|
)
|
|
|
(5,850
|
)
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The significant components of deferred income
tax assets at December 31, 2017, December 31, 2016 and 2015 are as follows:
Components of deferred income tax assets
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Net operating loss carryforward
|
|
$
|
213,245
|
|
|
$
|
97,107
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(213,245
|
)
|
|
|
(97,107
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of December 31, 2017, the Company has no
unrecognized income tax benefits. Based on management’s understanding of IRC Sec 383 the substantial change in ownership
and change in business activities precludes any carryforward of the accumulated net operating losses. The Company’s policy
for classifying interest and penalties associated with unrecognized income tax benefits is to include such items as tax expense.
No interest or penalties have been recorded during the years ended December 31, 2015 and 2014, and no interest or penalties have
been accrued as of December 31, 2017. As of December 31, 2015 and 2014, the Company did not have any amounts recorded pertaining
to uncertain tax positions.
As at December 31, 2017, the current management
of the Company has been unable to ascertain when the last corporation income tax returns were filed. As at December 31, 2017, the
Company is current in its tax filing obligations for the years under control by the new management. The Company is currently not
under examination by the Internal Revenue Service or any other taxing authorities. The Company has not recorded any liability for
an uncertain tax position related to the lack of return filings since the Company records show a continuing pattern of losses for
the periods in question. Since penalties are commonly assessed based on tax amounts owed management has deemed in unnecessary to
record any liability.
NOTE 9 – LOAN PAYABLE
As of the quarter ended September 30, 2017,
International Hedge Group, the holder of a majority of the common stock and all of the preferred stock of the Company has advanced
a total of $440,500 to the Company. During the
quarter ended September 30, 2017, the Company
made repayments in the amount of $22,000. On September 27, 2017 the Company entered into an Agreement with International Hedge
Group to effect an exchange of this Loan Payable in the amount of $400,000 and a Note Receivable in the amount of $145,000 for
the Note Receivable and accrued interest from MeshWorks Media Corp. in the amount of $545,000. Further details can be seen in Note
5 of these financial statements.
This loan is not secured, bears no interest,
is not documented in writing and is payable on demand of the lender.
NOTE 10 – OTHER EVENT
On September 30, 2017, the Company formed a
wholly-owned subsidiary corporation, Crypto Equity Management Corp (“CEMC”) in the state of Colorado. The Company intends
to use CEMC to pursue business opportunities in cryptocurrency sphere.
NOTE 11 – PRIVATE OFFERING
In December of 2017, the Company initiated
a private offering to raise additional funds. A summary of this offering is as follows:
The offering is a maximum of 1,000,000 units
at $0.50 per unit. Each unit consists of 1 common share of BlackStar Enterprise Group, Inc. (BlackStar), 1 warrant exercisable
into 1 Coin of BlackStar, (coins effective upon a registration statement) and 1 right to purchase 1 share of Crypto Equity Management
Corp. at $10.00 per share. The units offered hereby are not registered and the underlying stock and coin will be restricted under
Rule 144 as to resale unless made effective by registration with the SEC, or another exemption is made available under the Securities
Act of 1933. The Company reserves the right to accept an additional 1,000,000 units.
Management intends that the BlackStar Coin
be treated as a SAFE (Simple Agreement for Future Equity) contract. The terms and conditions of this contract are yet to be determined
by the Company. It is considered to be a derivative equity instrument that, at present, has no value due to not being defined by
any terms or conditions. Management hereby declares that the BlackStar Coin in not intended to be a crypto currency as commonly
understood since it will, at some future time.
Management has researched and has found no
definitive means for valuing the “BlackStar Coin”. First; the coin is not yet in existence, second; it is considered
a tier 3 asset which relies on secondary sources of valuation which, at this time are not viable. The Internal Revenue Service
in their Notice 2014-21 states “Virtual currency that has an equivalent value in real currency, or that acts as a substitute
for real currency, is referred to as ‘convertible’ virtual currency.”
The essence of the Notice 2014-21 is that the
Internal Revenue Service deems that a virtual currency transaction is subject to the United States income tax laws in much the
same manner as the “barter clubs” in the past. This means that the holder must necessarily maintain records of the
acquisition costs in USD and the fair market value of the goods or services acquired by the expenditure of the virtual currency.
With this information the taxpayer calculates a gain or a loss on the transaction in the normal manner.
The Accounting Standards Board has convened
a committee to investigate and promulgate reporting requirements with respect to the virtual currency situation. As of the date
of these financial statements there has been no such pronouncement made.
Given that the coins have not been issued and
that there is no stock issued in Crypto Equity Management Corp, causing the warrants for such stock to have no value per the Black-Scholes
valuation model, management has determined that the full exercise price of $0.50 be applied to the shares of BlackStar Enterprise
Group, Inc. using the capital stock and paid in capital reporting as is customarily reported.
As at December 31, 2017, the Company had received
a total of $60,000 in exchange for 120,000 units of this offering. The Company stock will be issued upon the earlier of full sale
of all units or December 29, 2018.
NOTE 11 – GENERAL AND ADMINISTRATIVE
EXPENSES
Components of General and Administrative Expenses
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Advertising and promotion
|
|
|
—
|
|
|
|
905
|
|
Automobile
|
|
|
—
|
|
|
|
132
|
|
Bank charges
|
|
|
250
|
|
|
|
166
|
|
Clerical services
|
|
|
1,275
|
|
|
|
6,564
|
|
Continuing education
|
|
|
218
|
|
|
|
—
|
|
Investor relations
|
|
|
1,323
|
|
|
|
—
|
|
Meals and entertainment
|
|
|
292
|
|
|
|
687
|
|
Office expense
|
|
|
279
|
|
|
|
1,448
|
|
Corporate registration
|
|
|
12,500
|
|
|
|
—
|
|
Filing fees
|
|
|
3,800
|
|
|
|
5,237
|
|
Rent
|
|
|
1,572
|
|
|
|
—
|
|
Transfer Agent
|
|
|
2,627
|
|
|
|
4,786
|
|
Telephone
|
|
|
1,433
|
|
|
|
—
|
|
Travel
|
|
|
(36
|
)
|
|
|
1,838
|
|
Website
|
|
|
450
|
|
|
|
174
|
|
|
|
$
|
25,983
|
|
|
$
|
21,937
|
|
NOTE 12 - SUBSEQUENT EVENTS
As at the date of the filing of these financial
statements management has determined that there are no events requiring reporting.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS & PROCEDURES
Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under
the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated
and communicated to management including our principal executive officer and principal financial officer as appropriate, to allow
timely decisions regarding required disclosure.
In connection with this annual report, as required
by Rule 15d-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design
and operation of our company's disclosure controls and procedures. Under the supervision of our Board of Directors, our Chief Executive
Officer and Chief Financial Officer, acting as our principal executive officer and principal financial officer respectively, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017 based on
the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded
that our internal control over financial reporting was not effective as of December 31, 2017. Subject to the inherent limitations
noted in this Part II, Item 9A as of December 31, 2017, our disclosure controls and procedures were not effective due to the existence
of material weaknesses in our internal controls over financial reporting as discussed below. It is management's responsibility
to establish and maintain adequate internal control over financial reporting.
This annual report does not include an attestation
report of our independent registered public accounting firm regarding our internal control over financial reporting. Management's
report on internal control over financial reporting was not subject to attestation by our independent registered public accounting
firm pursuant to the rules of the SEC because we are neither an accelerated filer nor a larger accelerated filer.
We have implemented a framework used by management
to evaluate the effectiveness of our internal control over financial reporting, which incorporates a quarterly review by our Board
of Directors of the recording of transactions and whether questions of accuracy and authorization may arise as the accounting may
be reviewed by our auditors.
Our Management's assessment of the effectiveness
of internal controls over financial reporting as of the end of the most recent fiscal year, including a statement as to whether
or not internal control over financial reporting is effective is contained in the section immediately following this paragraph.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
It is Management's responsibility to establish
and maintain adequate internal control over financial reporting. The matters involving internal controls and procedures that our
Company's management considered to be material weaknesses and may have been ineffective under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on our board
of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
(2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting
and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective
controls over period end financial disclosure and reporting processes.
Management has assessed the effectiveness of
its internal controls over financial reporting at the end of the most recent fiscal year and has determined several weaknesses
and has determined that its internal controls have not been effective due, in part, to lack of full-time financial accounting professionals.
Management believes that the material weaknesses
and ineffectiveness set forth in items (2), (3) and (4) above did not have an affect on our Company's financial results. However,
management believes that the lack of a functioning audit committee and lack of a majority of outside directors on our Company's
board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures
may result in our Company's financial statements for the future years being subject to error and inaccurate if controls, procedures,
and professional financial officers are not maintained.
We are committed to improving our financial
organization. As part of this commitment, we intend to create a position to segregate duties consistent with control objectives
and intend to increase our personnel resources and technical accounting expertise within the accounting function when funds are
available to our Company: i) Appointing one or more outside directors to our board of directors who shall be appointed to the audit
committee of our Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment
and monitoring of required internal controls and procedures; and ii) preparing and implementing sufficient written policies and
checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application
of US GAAP and SEC disclosure requirements.
Management believes that the appointment of
one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning
audit committee and a lack of a majority of outside directors on our Company's Board. In addition, management believes that preparing
and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written
policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and
SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management
believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation
of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training
needed to support our Company if personnel turn over issues within the department occur. This coupled with the appointment of additional
outside directors will greatly decrease any control and procedure issues our Company may encounter in the future.
Due to insufficient funds during the year ended
December 31, 2017, the Company has been unable to implement many of the remedies to the ineffective oversight. The Company will
continue to implement the changes as laid out above as soon as funds are available to the Company.
We will continue to monitor and evaluate the
effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and
are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Item 9B. Other Information.
None.
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 March 15, 2018.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
John Noble Harris
|
|
71
|
|
Chief Executive Officer and Director
|
Joseph E. Kurczodyna
|
|
64
|
|
Chief Financial Officer and Director
|
Todd H. Lahr (1)
|
|
57
|
|
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.
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 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
The annual meeting of stockholders is anticipated
in the Fall of 2018 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.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Executives and Director Compensation
Table
The following table sets forth the compensation
paid to our officers from the years ended December 31, 2017, 2016, and 2015.
SUMMARY EXECUTIVES COMPENSATION TABLE
In Dollars
Name & Position
|
|
Year
|
|
Contract Payments
($)
|
|
Bonus
($)
|
|
Stock awards
($)
|
|
Option awards
($)
|
|
Non-equity incentive plan compensation
($)(1)
|
|
Non-qualified deferred compensation earnings
($)
|
|
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
|
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
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
|
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
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
|
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
(1)
|
International Hedge Group, of which these persons are controlling parties, also own 1,350,000 Warrants to purchase @ $0.05 expiring August 2019.
|
|
(2)
|
Resigned as President of BlackStar Enterprise Group, Inc. on February 8, 2017.
|
Employment Contracts and Termination of
Employment and Change-in-Control Arrangements
There are no employment contracts, compensatory
plans or arrangements, including payments to be received from us, with respect to any of our directors or executive officers which
would in any way result in payments to any such person because of his or her resignation, retirement or other termination of employment
with us. These agreements do not provide for payments to be made as a result of any change in control of us, or a change in the
person's responsibilities following such a change in control.
Compensation Committee Interlocks and Insider
Participation
Our board of directors in our entirety acts
as the compensation committee for BlackStar Enterprise Group, Inc.
DIRECTOR COMPENSATION
The following table sets forth certain information
concerning compensation paid to our directors for services as directors, but not including compensation for services as officers
reported in the "Summary Executives’ Compensation Table" during the years ended December 31, 2015, 2016 and 2017:
Name
|
|
Year
|
|
Fees earned or paid in cash
($)
|
|
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
|
|
|
|
|
2017
|
|
|
|
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
|
|
|
|
|
2017
|
|
|
|
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
|
|
|
|
|
2017
|
|
|
|
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 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 31, 2017, 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.
|
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 March 15, 2018.
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)
|
|
|
30,140,000
|
|
|
|
58
|
%
|
|
|
33,740,000
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
33,980,000
|
|
|
|
65
|
%
|
|
|
40,580,000
|
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
30,140,000
|
|
|
|
58
|
%
|
|
|
33,740,000
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
30,140,000
|
|
|
|
58
|
%
|
|
|
33,740,000
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (2 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 52,000,000 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.)
|
|
(3)
|
Mr. Harris, Mr. Lahr and Mr. Kurczodyna are persons owning and controlling International Hedge Group, Inc. and deemed beneficial owners.
|
|
(4)
|
International Hedge Group, Inc. (“IHG”), Mr. Harris, Mr. Lahr and Mr. Kurczodyna are shown collectively as they jointly control IHG. IHG also controls voting of the Class A Super Majority Voting Preferred stock which votes 60% of the common at all times.
|
|
(5)
|
Assuming full exercise of all warrants (34,000,000).
|
|
(6)
|
Including warrants held by International Hedge Group, Inc., our parent, which are deemed beneficially owned by the other persons (Mr. Lahr, Mr. Harris & Mr. Kurczodyna).
|
|
(7)
|
Including other affiliate companies of Mr. Lahr, Mr. Harris and Mr. Kurczodyna.
|
|
(8)
|
Resigned as an Officer and Director of BlackStar Enterprise Group, Inc. on February 8, 2017 and as an Officer and Director of International Hedge Group, Inc. on February 9, 2017.
|
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)
|
|
|
27,980,000
|
|
|
|
54
|
%
|
|
|
29,330,000
|
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
30,140,000
|
|
|
|
58
|
%
|
|
|
33,740,000
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
33,980,000
|
|
|
|
65
|
%
|
|
|
40,580,000
|
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
30,140,000
|
|
|
|
58
|
%
|
|
|
33,740,000
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 52,000,000 shares issued and outstanding on a fully diluted basis. (Does not include conversion rights of Class A Preferred Super Majority Voting Convertible Stock held by International Hedge Group, Inc.)
|
|
(3)
|
Mr. Harris, Mr. Lahr and Mr. Kurczodyna are persons owning and controlling International Hedge Group, Inc. and deemed beneficial owners.
|
|
(4)
|
International Hedge Group, Inc. (“IHG”), Mr. Harris, Mr. Lahr and Mr. Kurczodyna are shown collectively as they jointly control IHG. IHG also controls voting of the Class A Super Majority Voting Preferred stock which votes 60% of the common at all times.
|
|
(5)
|
Assuming full exercise of all warrants (34,000,000).
|
|
(6)
|
Including warrants held by International Hedge Group, Inc., our parent, which are deemed beneficially owned by the other persons (Mr. Lahr, Mr. Harris & Mr. Kurczodyna).
|
|
(7)
|
Including other affiliate companies of Mr. Lahr, Mr. Harris and Mr. Kurczodyna.
|
|
(8)
|
Resigned as an Officer and Director of BlackStar Enterprise Group, Inc. on February 8, 2017 and as an Officer and Director of International Hedge Group, Inc. on February 9, 2017.
|
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 are 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 Directors and Officers, listed below, who
also control our parent International Hedge Group, Inc., own warrants of our Company granted in August 2016, which provide for
an exercise price of $0.05 per share, and which expire in three years in August 2019, and provide for cashless exercise. The warrants
were issued for services in reorganizing the Company and settling the debts of the Company.
On September 27, 2017, BlackStar Enterprise
Group, Inc. (“BEGI”) entered into an Agreement to Settle Debt (the “Agreement”) with International Hedge
Group, Inc. (“IHG”), the parent company of BEGI. Under the Agreement, IHG agreed to compromise and settle the Principal
Amount under the verbal working capital loan agreement of BEGI, as of November 2016, in the amount of $400,000.00, by assignment,
without recourse, of the MeshWorks Media Corp. Promissory Notes together with all collateral agreements. Upon signing of the Agreement,
a promissory note was delivered for the difference from IHG to BEGI in the amount of $145,000.00 for BEGI return
of principle of $100,000 and all of the accrued
interest to date under the MeshWorks Media Corp. notes, payable in twelve months with interest of 1% per quarter on the last day
of each quarter until paid. The assignment of the MeshWorks Media Corp. Promissory Notes and the note from IHG to BEGI in the amount
of $145,000 is full and complete payment and consideration for the transaction referenced hereinabove.
On September 29, 2017, International Hedge
Group, Inc. retired 17,420,000 shares to treasury and exercised warrants. Messrs. Harris, Kurczodyna and Lahr exercised warrants
on September 29, 2017, thereby changing their shareholdings as reflected below.
The warrants are as follows:
Todd H. Lahr, Former President
|
3,250,000 – Expiry August 2019
|
John Noble Harris, CEO
|
1,5000,000 – Expiry August 2019
|
Joseph E. Kurczodyna, CFO
|
1,5000,000 – Expiry August 2019
|
International Hedge Group, Inc.
|
1,350,000 – Expiry August 2019
|
In addition to those listed above, affiliates
of the following shareholders which held warrants in BlackStar Enterprise Group, Inc. in the following amounts:
THL Holdings, LLC
|
Affiliate: Todd H. Lahr
|
2,000,000 Warrants
|
Rare Green, Inc.
|
Affiliate: John Noble Harris
|
750,000 Warrants
|
Patriot Mtg. Acceptance Corp.
|
Affiliate: Joseph E. Kurczodyna
|
750,000 Warrants
|
In 2017, International Hedge Group Inc was
paid $25,000 for their consulting services. No further compensation arrangements exist at this time.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
We incurred approximately $23,760 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, 2017. 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.
During the fiscal years ended December 31,
2017 and 2016, 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.