NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH
31, 2020
(Unaudited)
NOTE 1 – NATURE OF
OPERATIONS AND BASIS OF PRESENTATION
BlackStar Enterprise Group, Inc.
(the Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007 as NPI08, Inc. (“NPI08”).
Our Company was divested from Kingsley Capital, Inc. in a bankruptcy proceeding in 2008, in which Kingsley was the debtor. In January
2010, NPI08 acquired an ownership interest in Black Star Energy Group, Inc., a Colorado Corporation. BlackStar Energy then merged
into NPI08, with NPI08 being the surviving entity. Concurrently, NPI08 changed its name to BlackStar Energy Group, Inc. and attempted
to start up in the energy business in 2010 without success, resulting in losses totaling $1,819,530 over a three-year period. Our
Company was inactive until 2016 when new management and capital were introduced.
On January 25, 2016, International
Hedge Group, Inc. (“IHG”) signed an agreement to acquire a 95% interest in the Company. The name was changed to BlackStar
Enterprise Group, Inc. in August of 2016. In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares
of common stock, of which IHG currently owns 4,792,702 due to anti-dilutive cancellation of shares by management (approximately
10% of outstanding common stock), and 1,000,000 of Class A Preferred Stock. The Class A Preferred Stock is a super majority voting
stock and is convertible at a rate of 100 common shares to one share of preferred stock. IHG is our controlling shareholder and
is engaged in providing management services to companies, and, on occasion, capital consulting. IHG and BlackStar are currently
managed and controlled by the same individuals John Noble Harris (beneficial owner of an additional 9% of common stock) and Joseph
Kurczodyna (beneficial owner of an additional 9% of common stock).
The Company is a Delaware corporation
organized for the purpose of engaging in any lawful business. The Company intends to act as a merchant banking firm seeking to
facilitate venture capital to early stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services
to crypto-equity companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing
analysis for opportunities in involvement in crypto-related ventures through a wholly-owned subsidiary, Crypto Equity Management
Corp (“CEMC”). BlackStar intends to serve businesses in their early corporate lifecycles and may provide funding in
the forms of ventures in which they control the venture until divestiture or spin-off by developing the businesses with capital.
In addition to the services described above, BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc., on December
31, 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.
The Company’s fiscal year
end is December 31st. The Company’s financial statements are presented on the accrual basis of accounting.
Basis of presentation –
Unaudited Financial Statements
The accompanying unaudited financial
statements have been prepared in accordance with United States generally accepted accounting principles for financial information
and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted
accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change
in the information disclosed in the notes to the financial statements for the year ended December 31, 2019 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission. These unaudited financial statements are condensed
and should be read in conjunction with those financial statements included in the Form 10-K and interim disclosures generally do
not repeat those in the annual statements. In the opinion of Management, all adjustments considered necessary for a fair presentation,
consisting solely of normal
recurring adjustments, have been
made. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2020.
NOTE 2 – GOING CONCERN
The Company's financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements for the three months ended March 31, 2020 and the year ended
December 31, 2019, the Company has generated no revenues and has incurred losses. As of March 31, 2020, the Company had a total
of $5,885 of cash, negative working capital of ($313,758) and an accumulated deficit of ($4,504,710). These conditions raise substantial
doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The continuation of the Company
as a going concern is dependent upon the ability to raise equity or debt financing, and the attainment of profitable operations
from the Company's planned business. Management cannot provide any assurances that the Company will be successful in accomplishing
any of its plans.
NOTE 3 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Accounting policies refer to specific
accounting principles and the methods of applying those principles to fairly present the Company’s financial position and
results of operations in accordance with generally accepted accounting principles. The policies discussed below include those that
management has determined to be the most appropriate in preparing the Company’s financial statements and are not discussed
in a separate footnote.
Principles of Consolidation
The accompanying consolidated financial
statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and reflect
our accounts and operations and those of our subsidiaries and include the accounts of BlackStar Enterprise Group, Inc. and its
wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
On September 30, 2017, the Company
formed a wholly-owned subsidiary corporation, Crypto Equity Management Corp (“CEMC”) in the state of Colorado. The
Company intends to use CEMC to pursue business opportunities in cryptocurrency sphere. These financial statements as currently
presented reflect the combined operations of BEGI and CEMC. BlackStar also formed a subsidiary nonprofit company, Crypto Industry
SRO Inc., on December 31, 2017.
Cash and cash equivalents
The Company considers all cash
on hand, cash accounts not subject to withdrawal restrictions or penalties and all highly liquid investments with an original maturity
of three months or less as cash equivalents. Accounts at each institution are insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to $250,000. At March 31, 2020 and December 31, 2019, the Company had $0 and $0 in excess of the FDIC insured
limit, respectively.
Revenue recognition
The Company recognizes revenue
under ASC 606, using the following five-step model, which requires that we: (1) identify a contract with the customer, (2) identify
the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance
obligations and (5) recognize revenue as performance obligations are satisfied. The Company currently has no sources of revenue.
Basic and Diluted Loss per
Share
The Company computes loss per share
in accordance with Accounting Standards Update (“ASU”), Earnings per Share (Topic 260) which requires presentation
of both basic and diluted earnings per share on the face of the statement of operations. Basic EPS would exclude any dilutive effects
of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Diluted EPS reflects
the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common
stock. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding
during the year. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares
and dilutive common share equivalents outstanding. Under current Company policy the majority stockholder International Hedge Group
has and intends to surrender an equivalent number of common shares each time shares are sold or converted from other instruments.
As a result, the EPS is the same for basic and diluted shares.
Income Taxes
The Company accounts for income
taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized
for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.
The Company maintains a valuation
allowance with respect to deferred tax asset. Blackstar Enterprise Group establishes a valuation allowance based upon the potential
likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results
of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable
income within the carry-forward period under Federal tax laws.
Changes in circumstances, such
as the Company generating taxable income, could cause a change in judgment about the reliability of the related deferred tax asset.
Any change in the valuation allowance will be included in income in the year of the change estimate.
Carrying Value, Recoverability
and Impairment of Long-Lived Assets
The Company has adopted paragraph
360-10-35-17 of FASB Accounting Standards Codification for its long-lived assets. The Company’s long –lived assets
are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
The company assesses the recoverability
of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or
group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based
on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected
future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but
the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived
assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following
to be some examples of important indicators that may trigger an impairment review; (i) significant under-performance or losses
of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use
of assets or in the Company’s overall strategy with respect to the manner of use of the acquired assets or changes in the
Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures;
(v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company
evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such
events.
The impairment charges, if any,
are included in operating expenses in the accompanying statements of operations.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases
its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources.
The Company’s significant
estimates include income taxes provision and valuation allowance of deferred tax assets; the fair value of financial instruments;
the carrying value and recoverability of long-lived assets, and the assumption that the Company will continue as a going concern.
Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached
to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management regularly reviews its
estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions.
After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The estimated fair values of financial
instruments were determined by management using available market information and appropriate valuation methodologies. The carrying
amounts of financial instruments including cash approximate their fair value because of their short maturities.
Long Lived Assets
In accordance with ASC 350 the
Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances
both internally and externally that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment
loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Stock-based Compensation
The Company accounts for stock-based
compensation issued to employees based on FASB accounting standard for Share Based Payment. It requires an entity to measure the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service
in exchange for the award – the requisite service period (usually the vesting period). It requires that the compensation
cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the
fair value of the equity or liability instruments issued. The scope of the FASB accounting standard includes a wide range of share-based
compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights,
and employee share purchase plans. The Company currently has no stock-based compensation plan in place.
Advertising and Promotional
Costs
Advertising and promotional costs
are expensed as incurred. Advertising and promotional expenses totaled $0 and $0 for the three months ended March 31, 2020 and
December 31, 2019 respectively.
Comprehensive Income (Loss)
Comprehensive income is defined as all
changes in stockholders’ equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive
income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation
adjustments in investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our inception,
there have been no differences between our Comprehensive loss and net loss. Our comprehensive loss was identical to our net loss
for the years ended December 31, 2019 and 2018.
Original Issue Discount
For certain convertible debt issued, the
Company provides the debt holder with an original issue discount. The original issue discount is recorded as a debt discount, reducing
the face amount of the note and is amortized to interest expense over the life of the debt.
Derivative Financial Instruments
Fair value accounting as required by ASC
815 – Derivatives and Hedging, requires bifurcation of embedded derivative instruments such as certain convertible features
in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Black-Scholes option pricing model. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial instruments.
Recent pronouncements
Management has evaluated accounting
standards and interpretations issued but not yet effective as of March 31, 2020 and does not expect such pronouncements to have
a material impact on the Company’s financial position, operations, or cash flows.
NOTE 4 – PROPERTY,
PLANT AND EQUIPMENT
During the quarter ended September
30, 2016, the Company purchased certain office equipment for a total of $1,659. As of March 31, 2020, the equipment was fully depreciated
and the Company recognized $0 of depreciation expense for the three months then ended.
NOTE 5 – STOCKHOLDERS’
DEFICIT
As of December 31, 2019, the total
number of common shares authorized that may be issued by the Company was 200,000,000 shares with a par value of $0.001 per share.
The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share. On March 10, 2020,
the Company’s shareholders voted to increase the Company’s authorized common shares from 200,000,000 to 700,000,000.
On August 25, 2016, the Company
issued 1,000,000 shares of its preferred series A stock to IHG in fulfillment of the purchase agreement. As at March 31, 2020 there
are 1,000,000 preferred series A shares issued and outstanding. These shares are convertible at a ratio of 100 shares of the common
stock of the Company for each share of preferred stock of the Company.
Class A Preferred Rights. The
record Holders of the Class A Preferred Convertible Stock shall have the right to vote on any matter with holders of Common Stock
and may vote as required on any action, which Delaware law provides may or must be approved by vote or consent of the holders of
the specific Class of voting preferred shares and the holders of common shares. The Record Holders of the Class A Preferred Shares
shall have the right to vote on any matter with holders of common stock voting together as one (1) class. The Record Holders of
the Class A Preferred Shares shall have that number of votes (identical
in every other respect to the voting
rights of the holders of other Class of voting preferred shares and the holders of common stock entitled to vote at any Regular
or Special Meeting of the Shareholders) equal to that number of common shares which is not less than 60% of the vote required to
approve any action, which Delaware law provides may or must be approved by vote or consent of the holders of other Class of voting
preferred shares and the holders of common shares or the holders of other securities entitled to vote, if any. The Class A Preferred
Convertible Stock shall rank: (i) senior to any other class or Class of outstanding Preferred Shares or Class of capital stock
of the Company; (ii) prior to all of the Company's Common Stock, ("Common Stock"); and (iii) prior to any other class
or Class of capital stock of the Company hereafter created "Junior Securities"); and in each case as to distributions
of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions"). So long as a majority of the shares of Class A Preferred authorized
are outstanding, the Company will not, without the written consent of the holders of at least 51% of the Company’s outstanding
Class A Preferred, either directly or by amendment, merger, consolidation, or otherwise: (i) liquidate, dissolve or wind-up the
affairs of the Company, or effect any Liquidation Event; (ii) amend, alter, or repeal any provision of the Certificate of
Incorporation or Bylaws in a manner adverse to the Class A Preferred (iii) create or authorize the creation of, or issue any
other security convertible into or exercisable for, any equity security, having rights, preferences or privileges senior to the
Class A Preferred, or (iv) purchase or redeem or pay any dividend on any capital stock prior to the Class A Preferred, other than
stock repurchased from former employees or consultants in connection with the cessation of their employment/services. In the event
of any liquidation, merger, dissolution or winding up of the Company, either voluntary or involuntary, the holders of shares of
Class A Preferred Convertible Stock (each a “Holder” and collectively the “Holders”) shall be entitled
to receive, prior in preference to any distribution to Junior Securities, an amount per share equal to $.01 plus any allocable
and due dividends per share. The Holders of the Class A Preferred Convertible Stock shall, individually and collectively, have
the right to convert all of their Class A Preferred Convertible Stock, in one transaction, by electing, in writing, to convert
the 1,000,000 shares of Class A Preferred Stock into shares of Common Stock of the Company, on the basis of 100 common shares for
each share of Class A Preferred Stock, subject to adjustment
Common Stock Voting Rights:
Except as stated in the articles of incorporation, each outstanding share, regardless of class, is entitled to one vote, and each
fractional share is entitled to a corresponding fractional vote, on each matter voted on at a shareholders’ meeting.
As of March 31, 2020, and December
31, 2019, the total number of common shares outstanding was 50,241,238 and 48,003,443, respectively. The number of shares outstanding
at March 31, 2020 was reduced by 150,000 in order to reflect that shares previously reported as outstanding but yet to be issued
by the Company were, in fact, issued from the block of shares that were returned to treasury by International Hedge Group, Inc.
The share quantity was deemed by management to be not material therefore not requiring an amendment of the Form 10-K for the year
ended December 31, 2019 that was previously filed.
NOTE 6 – WARRANTS
Warrant Table
|
|
Date
|
|
Issue Life
|
|
Shares Under Warrant
|
|
Exercise Price
|
|
Remaining Life
|
Balance at
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Granted
|
|
|
August 30, 2016
|
|
|
|
3.00
|
|
|
|
34,000,000
|
|
|
$
|
0.05
|
|
|
|
0.00
|
|
Exercised
|
|
|
June 14, 2017
|
|
|
|
|
|
|
|
(17,000,000
|
)
|
|
|
0
|
|
|
|
0
|
|
Issued
|
|
|
July 5, 2017
|
|
|
|
5.00
|
|
|
|
100,000
|
|
|
$
|
0.60
|
|
|
|
2.26
|
|
Exercised
|
|
|
June 14, 2018
|
|
|
|
|
|
|
|
(17,000,000
|
)
|
|
|
0
|
|
|
|
0
|
|
Issued
|
|
|
April 26, 2019
|
|
|
|
5.00
|
|
|
|
440,000
|
|
|
|
0.25
|
|
|
|
4.07
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Balance at
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
540,000
|
|
|
$
|
0.31
|
|
|
|
3.17
|
|
As of March 31, 2020, warrants
to purchase 540,000 shares of common stock were outstanding.
NOTE 7 – CONVERTIBLE
NOTE
7-1 AUCTUS FUND
On April 26, 2019, the Company
entered into an agreement with Auctus Fund LLC. The terms and conditions are as follows:
The face value of the note is $110,000
at an interest rate of 12% and the maturity date is January 26, 2020. As of January 26, 2020, the Company is in default with the
payments required by the note and is therefore subject to a default rate of 24%. At the time of the disbursement the Company received
$97,250 net cash proceeds, as there was a deduction from proceeds to the Company of $2,750 for legal fees related to the issuance
of the promissory note and a deduction of $10,000 as prepaid interest to the lender of which $1,111 was expensed in the current
quarter. The repayment is a lump sum payment on the due date or is convertible into Company common stock at the discretion of the
lender. The conversion, if chosen, will be at 50% of the two lowest trading days in the previous ten-day period prior to the date
of conversion. This represents a discount of fifty percent (50%). The number of shares to be issued in the conversion will be calculated
as follows: the average price of the two lowest trading days of the preceding the days will be multiplied by 0.50 ((to arrive at
the discount factor) and then the resulting price will be divided into the principal and accrued interest resulting in the number
of shares due. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock.
There are also 440,000 warrants attached to this note with an exercise price of $0.25 and a life of 5 years.
The Company accounts for this conversion
feature as a Beneficial Conversion Feature and has fully recognized the Beneficial Conversion Feature on inception. The fair
value is calculated to be $110,000 for the expense portion of the note. This calculation is based on the current trading prices
of the Company. Management has determined that this treatment, the expensing of the entire value of the note, is appropriate given
the uncertain nature of the value of the Company and its stock. With this treatment there will be no revaluations until the note
is paid or redeemed for stock.
The Company has accounted for the
value of the warrants using the Black-Scholes model with a stock price of $0.38, volatility of 98%, risk free rate of 2.25% and
a life of 5 years. Within these parameters the Company has recorded a warrant expense of $132,593.
During the quarter ended March
31, 2020 the lender exercised its right to convert $2,471 of accrued interest and $862 of principal into 2,387,795 shares of common
stock of the Company.
As a result of these conversions
the Company issued a total of 2,387,795 shares of its common stock and due to the difference between the trading price ant the
value of the debt converted the Company recorded a loss of ($20,545). This is reported on the Statement of Income and Expense under
the heading of “Loss on conversion of Notes Payable.”
7-2 GS CAPITAL PARTNERS
On November 1, 2019 the Company
entered into a financing arrangement with GS Capital Partners LLC. The face value of the note is $70,000 at an interest rate of
10% and the maturity date is November 1, 2020. At the time of the disbursement the Company received $54,450 net cash proceeds,
as there was a deduction from proceeds to the Company of $3,500 for legal fees related to the issuance of the promissory note,
$6,000 as prepaid interest and $6,050 as a note placement expense. The repayment is a lump sum payment on the due date or is convertible
into Company common stock at the discretion of the lender. The conversion, if chosen, will be at 50% of the two lowest trading
days in the previous ten-day period prior to the date of conversion. This represents a discount of fifty percent (50%). The number
of shares to be issued in the conversion will be calculated as follows: the average price of the two lowest trading days of the
preceding the days will be multiplied by 0.50 (to arrive at the discount factor) and then the resulting price will be divided into
the principal and accrued interest resulting in the number of shares due. The lender agrees to limit the amount of stock received
to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note.
7-3 ADAR ALEF
On November 4, 2019 the Company
entered into a financing arrangement with Adar Alef, LLC. The face value of the note is $70,000 at an interest rate of 10% and
the maturity date is November 1, 2020. At the time of the disbursement the Company received $54,450 net cash proceeds, as there
was a deduction from proceeds to the Company of $3,500 for legal fees related to the issuance of the promissory note, $6,000 as
prepaid interest and $6,050 as a note placement expense. The repayment is a lump sum payment on the due date or is convertible
into Company common stock at the discretion of the lender. The conversion, if chosen, will be at 50% of the two lowest trading
days in the previous ten-day period prior to the date of conversion. This represents a discount of fifty percent (50%). The number
of shares to be issued in the conversion will be calculated as follows: the average price of the two lowest trading days of the
preceding the days will be multiplied by 0.50 (to arrive at the discount factor) and then the resulting price will be divided into
the principal and accrued interest resulting in the number of shares due. The lender agrees to limit the amount of stock received
to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note.
Upon issuance of the 2019 convertible
notes, the Company recorded discounts of $229,922 against the notes’ face values, to be amortized ratably over the life of
each note. The discounts initially consisted of $186,072 of beneficial conversion features, $9,750 of direct legal costs, $12,100
of placement costs and $22,000 of original issue discounts.
During the quarter ended March
31, 2020, the Company amortized the following to expense: $3,492 of legal fees, $3,008 of placement costs, $29,314 of beneficial
conversion features and $3,929 of prepaid interest.
AMORTIZATION OF PREPAID INTEREST
|
OF CONVERTIBLE NOTES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
|
|
|
|
Begin
|
|
End
|
|
2019
|
|
Quarter
|
|
|
|
|
Prepaid
|
|
Date
|
|
Date
|
|
Amortize
|
|
2020
|
|
Balance
|
10-1
Auctus
|
|
$
|
10,000
|
|
|
|
4/26/2019
|
|
|
|
1/26/2020
|
|
|
$
|
9,054
|
|
|
$
|
946
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-2 GS Capital
|
|
$
|
6,000
|
|
|
|
11/1/2019
|
|
|
|
11/1/2020
|
|
|
$
|
984
|
|
|
$
|
1,500
|
|
|
$
|
3,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-3 Adar Alef
|
|
$
|
6,000
|
|
|
|
11/4/2019
|
|
|
|
11/4/2020
|
|
|
$
|
982
|
|
|
$
|
1,500
|
|
|
$
|
3,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,020
|
|
|
$
|
3,946
|
|
|
$
|
7,034
|
|
NOTE 8 – NOTES PAYABLE
On April 24, 2019, the Company
received $20,000 from an individual. The terms of this note are: a due date of October 24, 2019 and an interest rate of 11%. In
addition, the individual received 100,000 shares of restricted common stock. These shares were valued at $30,000 which represents
the trading price as of the date indicated and were recorded to interest expense.
On December 13, 2019, the Company
negotiated a six-month extension with the lender and paid $1,100 cash for accrued interest and issued 100,000 shares of common
stock as an additional inducement for the extension. The stock was valued at $0.027 per share per the loan agreement, resulting
in $2,700 of interest expense based on the stock’s closing price on that date.
On April 29, 2019, the Company
received $10,000 from an individual. The terms of this note are: due date October 29, 2019 and an interest rate of 11%. In addition,
the individual received 50,000 shares of restricted common stock. These shares were valued at $19,000 which represents the trading
price as of the date indicated and recorded to interest expense.
On December 13, 2019, the Company
negotiated a six-month extension with the lender and paid $550 cash for accrued interest and issued 50,000 shares of common stock
as an additional inducement for the extension. The stock was valued at $0.027 per share per the loan agreement, resulting in $1,350
of interest expense based on the stock’s closing price on that date. Principal outstanding on the first note was $20,000
at both March 31, 2020 and December 31, 2019. Principal outstanding on the second note was $10,000 at both March 31, 2020 and December
31, 2019.
ACCRUED INTEREST SUMMARY FOR NOTES PAYABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
Begin
|
|
End
|
|
Interest
|
|
|
|
2019
|
|
2020
|
|
2020
|
|
|
Date
|
|
Date
|
|
Rate
|
|
Principal
|
|
Accrual
|
|
Expense
|
|
Accrual
|
B Rosen
|
|
|
5/13/2019
|
|
|
|
5/13/2020
|
|
|
|
11
|
%
|
|
|
10,000
|
|
|
$
|
699
|
|
|
$
|
274
|
|
|
$
|
973
|
|
L Haag
|
|
|
5/13/2019
|
|
|
|
5/13/2020
|
|
|
|
11
|
%
|
|
|
20,000
|
|
|
$
|
1,398
|
|
|
$
|
547
|
|
|
$
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,097
|
|
|
$
|
821
|
|
|
$
|
2,918
|
|
NOTE 9 – RELATED PARTY
TRANSACTIONS
In support of the Company’s
efforts and cash requirements, it must rely on advances from related parties until such time that the Company can support its operations
or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment
for continued support by shareholders. The advances are considered temporary in nature and have not been formalized by a promissory
note. The following table summarizes the advances and repayments from/to related parties and describes each person’s relationship
to the Company.
In addition, International Hedge
Group provides management consulting services to the Company. There is no formal written agreement that defines the compensation
to be paid. For the three months ended March 31, 2020 and 2019 the Company recorded the related party management consulting expense
of $16,500 and $2,430 respectively.
There were no related party advances
during the quarter ended March 31, 2020. Joe Kurczodyna, an officer of the Company, was owed a total of $480; Todd Lahr, a former
officer of the Company, was owed $18,780; and a total of $22,590 was owed to our parent company, International Hedge Group, Inc.,
at March 31, 2020.
NOTE 10 – SUBSEQUENT
EVENTS
On May 18, 2020, the Company negotiated
loans with two individuals who are currently owed a total of $30,000 principal and $2,918 of accrued interest.
The new notes are dated May 18,
2020 and have a due date of November 18, 2020. Each note has a face value of $12,500 and bears an interest rate of 11%. In addition,
each party received 200,000 shares of common stock of the Company. These shares are valued at $0.02, the price of the stock on
May 18, 2020. The Company will record a prepaid interest amount of $8,000 to be amortized over the six-month life of the notes.
The notes may be prepaid at any time but in the event of the prepayment the full amount of principal and interest will required
to be paid. In the event that the Company is unable to make payment on the due date the default interest rate will continue at
11% but the Company is obligated to issue 500,000 shares of its common stock to each lender.
On May 21, 2020, the Company entered
into an agreement with Power Up Lending Group to borrow $103,000 with a due date of May 21, 2021. The note bears an interest rate
of 10% with a default rate of 22%. This is a convertible note that may be exercised beginning 180 days after the date of the note.
The conversion price is to be calculated at 61% of the lowest trading price of the stock for the previous 20 trading days, an effective
discount of 39%. The Company is required to instruct the transfer agent to reserve a total of 63,319,672 shares for conversion.
The Company received $100,000 as
proceeds of the note on May 25, 2020 There are legal fees of $2,500 and offering costs of $500. These fees and costs will be recorded
as costs to be amortized over the life of the note.
Management has evaluated significant
subsequent events through June 22, 2020, the date these financial statements were available to be issued, noting none that require
additional disclosure.