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:
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 44,400,000 shares 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:
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A requirement to have only two years of audited financial statement and only two years of related Management Discussion and Analysis Disclosures:
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Reduced disclosure about the emerging growth company’s executive compensation arrangements; and
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No non-binding advisory votes on executive compensation or golden parachute arrangements.
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As an emerging growth company, we are
exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934.
Such sections are provided below:
Section 404(b) of the Sarbanes-Oxley
Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal
controls.
Sections 14A(a) and (b) of the Securities
and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive
compensation and golden parachute compensation.
We have already taken advantage of these
reduced reporting burdens in this 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 Equity Management Corp. (“CEMC”)
formed in September 2017. BlackStar Enterprise Group, Inc. is traded on the OTC QB under the symbol “BEGI.” Further
details about the business plan for CEMC, the operating subsidiary of BlackStar, can be found in the “Current Business”
section below.
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. In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares of common stock and 1,000,000
of Class A Preferred Stock. 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.
Definitions
As used throughout this annual report
on Form 10-K, capitalized terms used but not defined herein shall have the meanings assigned to such terms in the filing. The following
terms shall have the meanings set forth below, unless the context clearly indicates otherwise:
BlackStar Digital Trading Platform
(“BDTP”): a peer-to-peer digital equity trading platform enabling the trading of registered BlackStar Digital Equities
only.
BlackStar Digital Equity: a digitally
evidenced share of BlackStar common stock holding the same characteristics as securities evidenced by a paper certificate which
has been transmitted and protected by cryptographic protocols.
Blockchain: a disintermediating technology,
where each transaction is cryptographically signed, and always appended to an immutable ledger, visible to all participants, and
distributed across boundaries of trust. The ledger runs on a set of nodes, each of which may be under the control of a separate
company, individual or organization. These nodes connect to each other in a dense peer-to-peer network so that no one node acts
as a central point of control or failure. There is no need for a central intermediary, where one central database is used to rule
transaction validity. A ledger is both a network and a database. It has
rules and built-in security, and it maintains internal
integrity and its own history. Once a ledger transaction has received a sufficient level of validation, some cryptography ensures
that it can never be replaced or reversed. Transactions are secure, authenticated, and verifiable.
Digital Equity: an equity security
holding the same characteristics as securities evidenced by a paper certificate but in digital form which has been transmitted
and protected by cryptographic protocols.
CORPORATE STRUCTURE
Our corporate structure is as follows:
INTERNATIONAL HEDGE GROUP, INC.
(Parent Company – a Colorado corporation)
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BLACKSTAR ENTERPRISE GROUP, INC.
(a Delaware corporation)
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Crypto Equity Management Corp.
(a Colorado corporation)
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Crypto Industry SRO Inc.
(a Colorado non-profit corporation)
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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”), mainly in the areas
of blockchain and distributed ledger technologies. 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. Potential ventures for both BlackStar and CEMC will be analyzed using the
combined business experience of its executives, with CEMC looking to fill those venture criteria with companies in crypto-related
businesses such as blockchain or DLT technologies. The Company does not intend to develop Investment Objectives or “criteria”
in any manner but will rely on the acumen and experience of its executives.
Additional Steps Taken –
In
June of 2017, the management of BlackStar began analyzing the crypto industry due in large part to its rapid ascent in popularity.
Mr. Kurczodyna took an educational legal seminar on securities laws relating to blockchain, attended national and international
conferences on cryptocurrency, and spoke with several experts at each event, informing himself about the industry, regulations,
and potential pitfalls. Mr. Kurczodyna believed that many of the unregistered cryptocurrency offerings that had occurred throughout
much of 2016 and 2017 were “illegal unregistered securities” offerings and that BlackStar could design and implement
a better strategy for future capital raising using the security benefits of blockchain technology, perhaps in digital equity.
After significant study and discussions
with multiple vendors and service providers in the digital currency industries, in May 2018 BlackStar retained Solidgreen Software,
LLC, d/b/a Artuova (“Artuova”) to design a technological plan and an overall estimated cost of implementation of an
equity trading platform (agreement attached hereto as Exhibit 10. 4 ). BlackStar intends to assign the contract to CEMC so
that CEMC may continue to handle crypto-related ventures as the operating subsidiary of BlackStar. CEMC currently plans to build
the referenced digital equity trading platform in order to trade BlackStar shares as a “
registered Digital Equity
”,
only after the securities have been registered with the Securities and Exchange Commission.
We estimate developing the BDTP at
a cost of $105,000 USD over the next five months. As of the date of this Amendment No. 2 to Form 10-K, BDTP has been completely
designed in terms of the following components: data model, reports, web-based user interface, blockchain interface, transaction
logic, and cloud interface.
We have contracted the services of
Dr. David Gnabasik, a computer scientist contractor of Artuova and a former employee of Colorado Parks and Wildlife, who has demonstrated
a working blockchain project for managing licenses for Parks and Wildlife state agencies.
Risk Management Framework –
We
currently have no risk management framework for addressing material risks associated with this new business strategy and our decisions
will be guided by management’s judgment and experience.
Nature and Types of Services Provided
–
As a subsidiary of BlackStar, CEMC additionally intends to offer consulting and regulatory compliance services to cryptocurrency
entities and blockchain entrepreneurs for securities, tax, and commodity issues. Our Company has always operated under the assumption
that cryptocurrencies and tokens are “securities” and regulated under the SEC rules and in some circumstances, the
CFTC rules. Due to significant experience of our management in the US securities and commodities industry, we felt that we had
regulatory compliance backgrounds that could be useful in assisting with regulatory compliance for former cryptocurrency offerors
and token offerors. In the 1990s, Mr. Kurczodyna was formerly the majority shareholder, general principal, and financial principal
assistant of a Broker-Dealer (BD) registered with the SEC and an Introducing-Broker (IB) with the CFTC, Mills Financial Services
Inc. (“Mills”). In his time at Mills, Mr. Kurczodyna wrote the policies and procedures such as: know your client; preventing
the misuse of material non-public information; books and records requirements; and financial responsibility rules including the
requirements concerning the safeguarding and custody of customer funds and securities. The lack of management’s cryptocurrency
experience is applicable to virtually all the current “experienced” cryptocurrency executives and since BlackStar has
always operated under the assumption that cryptocurrencies were securities, the securities experience applied to the cryptocurrency
industry seemed like a natural progression. Other companies’ principals have been offering unregistered securities with multiple
violations of securities and other laws including FinCen regulation, CFTC rules, exchange rules, AML, and tax laws. The concept
of CEMC as a subsidiary of BlackStar was to provide compliance services for the multitude of laws that are applicable.
Expertise and Experience –
The
management of BlackStar have each been involved in the securities and financial markets for well over 40 years and understand many
of the intricate rules and regulations surrounding securities/commodities in general. Through CEMC, the management plans to pass
on this knowledge and connect the cryptocurrency and blockchain entities with the correct industry experts. CEMC will bring in
technology and/or cryptocurrency consultants when necessary to
inform the design, strategy, and implementation of the planned digital
equity trading platform (“BDTP”). Currently, Artuova software engineer Dr. David Gnabasik is providing the expertise
needed to develop the hyperledger-fabric blockchain solution for CEMC. Dr. Gnabasik holds a Ph.D. in Computer Science from the
University of Colorado Denver.
Regulatory Challenges –
BlackStar
has always recognized that crypto equities must be registered within the existing SEC regulations and guidelines. BlackStar’s
aim is to develop BDTP, a digital equity trading platform, to trade registered BlackStar securities only. The regulatory challenges
presented come from integration of the existing broker-dealer ecosystem into the platform, approvals/advice of and compliance with
the rules and regulations of the OTC Market Group, SEC, FinCen, IRS, CFTC, anti-money laundering rules, and FINRA for the functionality
of the system, cybersecurity laws, and other state and federal financial and banking laws.
Our Company has examined numerous “exchanges” or
“platforms” for trading including Aphelion, tZero, and others and found them lacking essential regulatory compliance
practices. This research and management’s securities and compliance background lead the Company to engage a team of software
experts at Artuova to create the platform that is being designed to contain the essentials for full regulatory compliance including:
• Know-Your-Customer (KYC)
• Anti-Money Laundering (AML)
• IRS tax reporting
• SEC compliance
• Exchange registration (ATS)
CEMC intends to engage further software
developers as needed for blockchain implementation on the Peer-to-Peer (“P2P”) BDTP platform. CEMC intends to integrate
BDTP with the existing FINRA and SEC regulated brokerage ecosystem in order to trade BlackStar securities, addressing many of the
regulatory issues by operating within the existing confines of the system. The intent of BDTP is to replace the market-makers in
the brokerage ecosystem. As intended , the system would operate in the following manner: broker-dealers would invite customers
to participate as users on the BDTP to buy and sell BlackStar equity trades; the broker-dealers comply with all FinCen and Exchange
regulations, KYC and FinCen rules, submit IRS tax reports, etc.; orders, bids, and offers are entered into the BDTP (like a
specialist’s order book) either by broker-dealers or Users through trading software supplied by the broker-dealers; BDTP
records all transactions; and finally, OTC Market Group and the SEC/FINRA have complete and transparent access to the data stored
in BDTP, offering FINRA and the likes a single data interface and consolidated history of transactions. BDTP seamlessly integrates
with the order entry processes, priority rules, and execution procedures of the existing brokerage ecosystem. Although not a profit
center, BlackStar intends to charge a $0.99 cent fee per executed trade to cover expenses, and broker-dealers would recover the
fee. CEMC plans to implement the technology based upon the hyperledger-fabric, an open-source blockchain framework from IBM,
and to use the IBM Cloud for transaction data storage. BDTP would offer a web-based interface for trading transactions as well
as an Application Programming Interface (API) that directly accesses all immutable transactions stored on BDTP. The participating
members on the platform would be buying and selling broker-dealers, OTC Market Group, FINRA, SEC, DTCC, and Clearing House. FINRA
and the SEC would serve as Certificate Authorities in the BDTP permissioned blockchain, restricting the actors who can contribute
to the consensus of the system state – only a restricted set of users would be enabled to have the rights to write or validate
the block transactions. The distributed consensus process satisfies the following purposes: 1) permissioned clients are voted into
the network by all existing validators; 2) the process helps to keep inaccurate or potentially fraudulent transactions out of the
database through a chosen computational mechanism; and 3) all relevant network participants agree that a transaction is valid through
the use of a multi-signature consensus algorithm where a majority of validators must agree that a specific transaction or transaction
class is valid. BlackStar and CEMC hope to build and implement BDTP over the next six months, pending comments/approval by various
regulatory agencies. BlackStar and CEMC would operate and manage the platform and remain responsible for the functionality and
security of the platform.
Neither CEMC nor BlackStar intend to underwrite
these entities or entrepreneurial companies, nor do they intend to act as a broker-dealer or investment company, though we acknowledge
the potential requirements to register as such or to claim exemption from registration.
We understand that we
may be required to register as an ATS. Alternatively, we may seek an exemption if we are able to establish a relationship with
OTC Market Group to quote our stock on the OTCQB page alongside the Market Makers. We plan to 1) trade only registered shares of
BEGI on a blockchain platform; 2) qualify for listing of our digital quote on OTC Markets; and 3) have the SEC, FINRA and BlackStar
deemed the Certificate Authority on the blockchain trading platform.
Volatility of Cryptocurrencies and
Tax Implications –
Neither BlackStar nor CEMC will be trading in, accepting loan repayments in, or making loans in cryptocurrencies;
the intent is to build a P2P platform on which to trade registered digital securities of BlackStar.
Cybersecurity Implications of DLT –
Transactions on the distributed ledger fabric are protected by public-key X.509 certificates. The protection of PII data is
the responsibility of each brokerage dealer. Any blockchain code used will be placed in a public repository after having been certified
by an independent cybersecurity audit. Further, CEMC bases the operational requirements and cyber-security framework in part on
the following publications the “Distributed Ledger Technology: Implications of Blockchain for the Securities Industry”
published by FINRA, and the European Union Agency for Network and Information Security (ENISA) report entitled “Distributed
Ledger Technology & Cybersecurity.”
IHG, our parent company, 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. CEMC is authorized to issue 999,999,999 shares
of common stock and 99,999,999 shares of preferred stock. At organization, BlackStar received 1,000 shares of common stock for
formation services and is the only shareholder.
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:
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Provide alternative joint
venture funding for entrepreneurs;
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Require GAAP and SEC
accounting compliance for portfolio ventures;
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Require competent and
efficient legal representation;
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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.
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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 MAY ENGAGE IN BUSINESS ACTIVITIES THAT COULD
RESULT IN US HOLDING INVESTMENT INTERESTS IN A NUMBER OF ENTITIES WHICH COULD SUBJECT US TO REGULATION UNDER THE INVESTMENT COMPANY
ACT OF 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,” or holding
unconsolidated minority interests in multiple companies and cash which might fall within the “holding company” definitions.
In the event we engage in business activities that result in us holding investment interests in a number of nonconsolidated 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. Additionally, the 1940 Act requires that a number of structural safeguards,
such as an independent board of directors and a separate investment adviser whose contract must be approved by a majority of the
company’s shareholders, be put in place within such companies. The 1940 Act also imposes significant disclosure and reporting
requirements beyond those found in the Securities Act and the Exchange Act of 1934, as amended (the Exchange Act). Likewise, the
1940 Act contains its own anti-fraud provisions and private remedies, and it strictly limits investments made by one investment
company in another to prevent pyramiding of investment companies, leading to consolidated investment companies acting in the interest
of other investment companies rather than in the interest of securities holders. The labeling of the Company as an investment company
could significantly impair our business plan and operations and have a material adverse effect on our financial condition. Compliance
with the 1940 Act is prohibitively expensive for small companies, in our estimation, and even if it meant divestiture of assets,
we would intend to avoid being classified as an Investment Company.
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
54% 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 54% 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.