Item 1. Financial Statements
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash
|
|
$
|
37,975
|
|
|
$
|
33,251
|
|
Prepaid expenses
|
|
|
10,463
|
|
|
|
10,557
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
48,438
|
|
|
|
43,808
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
|
1,659
|
|
|
|
1,659
|
|
Accumulated depreciation
|
|
|
(1,659
|
)
|
|
|
(1,659
|
)
|
|
|
|
|
|
|
|
|
|
Total fixed assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
48,438
|
|
|
$
|
43,808
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
54,450
|
|
|
$
|
57,392
|
|
Accrued payables
|
|
|
14,183
|
|
|
|
3,636
|
|
Advances related parties
|
|
|
19,260
|
|
|
|
41,850
|
|
Convertible notes payable, net of discounts of $128,151
|
|
|
|
|
|
|
|
|
and $101,648 at June 30, 2020 and December 31, 2019
|
|
|
167,186
|
|
|
|
145,208
|
|
Notes payable
|
|
|
55,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
310,079
|
|
|
|
278,086
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, 10,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
$0.001 par value; 1,000,000 shares issued and outstanding
|
|
|
1,000
|
|
|
|
1,000
|
|
Common stock, 700,000,000 and 200,000,000 shares authorized
|
|
|
|
|
|
|
|
|
at June 30, 2020 and December 31, 2019 ; $0.001 par value;
|
|
|
|
|
|
|
|
|
60,374,137 and 48,003,443 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at June 30, 2020 and December 31, 2019
|
|
|
60,374
|
|
|
|
48,003
|
|
Common stock to be issued
|
|
|
11,000
|
|
|
|
—
|
|
Additional paid in capital
|
|
|
2,667,073
|
|
|
|
2,315,655
|
|
Additional paid in capital - warrants
|
|
|
1,562,593
|
|
|
|
1,562,593
|
|
Additional paid in capital - debt discount of convertible note
|
|
|
342,073
|
|
|
|
239,073
|
|
Accumulated deficit
|
|
|
(4,905,754
|
)
|
|
|
(4,400,602
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(261,641
|
)
|
|
|
(234,278
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
48,438
|
|
|
$
|
43,808
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
162
|
|
|
|
—
|
|
|
|
300
|
|
Legal and professional
|
|
|
46,791
|
|
|
|
78,599
|
|
|
|
49,791
|
|
|
|
86,907
|
|
Management consulting - related party
|
|
|
9,910
|
|
|
|
54,000
|
|
|
|
26,410
|
|
|
|
56,430
|
|
General and administrative
|
|
|
31,114
|
|
|
|
13,480
|
|
|
|
46,733
|
|
|
|
17,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
87,815
|
|
|
|
146,241
|
|
|
|
122,934
|
|
|
|
161,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on convertible notes
|
|
|
(26,273
|
)
|
|
|
(110,000
|
)
|
|
|
(59,516
|
)
|
|
|
(110,000
|
)
|
Amortization of convertible debt issuance costs
|
|
|
(3,077
|
)
|
|
|
—
|
|
|
|
(9,577
|
)
|
|
|
—
|
|
Loss on note payable conversions
|
|
|
(276,563
|
)
|
|
|
—
|
|
|
|
(297,108
|
)
|
|
|
—
|
|
Warrant expense
|
|
|
—
|
|
|
|
(132,593
|
)
|
|
|
—
|
|
|
|
(132,593
|
)
|
Interest expense
|
|
|
(7,315
|
)
|
|
|
(54,055
|
)
|
|
|
(16,017
|
)
|
|
|
(55,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(313,228
|
)
|
|
|
(296,648
|
)
|
|
|
(382,218
|
)
|
|
|
(297,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before provision for income taxes
|
|
|
(401,043
|
)
|
|
|
(442,889
|
)
|
|
|
(505,152
|
)
|
|
|
(459,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(401,043
|
)
|
|
$
|
(442,889
|
)
|
|
$
|
(505,152
|
)
|
|
$
|
(459,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share - basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - basic and diluted
|
|
|
52,880,834
|
|
|
|
52,000,000
|
|
|
|
50,562,551
|
|
|
|
52,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
|
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount ($0.001 Par)
|
|
Shares
|
|
Amount ($0.001 Par)
|
|
Paid in Capital
|
|
Common Stock To Be Issued
|
|
Accumulated Deficit
|
|
Stockholders’ Deficit
|
Balances - December 31, 2019
|
|
|
48,003,443
|
|
|
$
|
48,003
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
4,117,321
|
|
|
|
—
|
|
|
$
|
(4,400,602
|
)
|
|
$
|
(234,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjust for shares issued directly from IHG retirement to treasury at December 31, 2019
|
|
|
(150,000
|
)
|
|
|
(150
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Shares issued for conversion of notes and interest
|
|
|
12,520,694
|
|
|
|
12,521
|
|
|
|
—
|
|
|
|
—
|
|
|
|
351,268
|
|
|
|
—
|
|
|
|
—
|
|
|
|
363,789
|
|
Conversion feature of convertible note
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103,000
|
|
Common stock to be issued for loans made to the Company – 550,000 shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,000
|
|
|
|
—
|
|
|
|
11,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(505,152
|
)
|
|
|
(505,152
|
)
|
Balances - June 30, 2020
|
|
|
60,374,137
|
|
|
$
|
60,374
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
4,571,739
|
|
|
$
|
11,000
|
|
|
$
|
(4,905,754
|
)
|
|
$
|
(261,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - December 31, 2018
|
|
|
52,000,000
|
|
|
$
|
52,000
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
3,373,353
|
|
|
$
|
—
|
|
|
|
(3,521,333
|
)
|
|
$
|
(94,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for interest on loans
|
|
|
150,000
|
|
|
|
150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48,850
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,000
|
|
Shares issued for conversion on notes payable
|
|
|
139,891
|
|
|
|
140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,860
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,000
|
|
Shares cancelled
|
|
|
(289,891
|
)
|
|
|
(290
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
290
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Paid in Capital - Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
132,593
|
|
|
|
—
|
|
|
|
—
|
|
|
|
132,593
|
|
Paid in Capital - Convertible note
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(459,003
|
)
|
|
|
(459,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances - June 30, 2019
|
|
|
52,000,000
|
|
|
$
|
52,000
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
3,680,946
|
|
|
$
|
—
|
|
|
|
(3,980,336
|
)
|
|
$
|
(246,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
BLACKSTAR ENTERPRISE GROUP, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
|
(Unaudited)
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Cash Flows From Operating Activities
|
|
|
|
|
Net income (loss)
|
|
$
|
(505,152
|
)
|
|
$
|
(459,003
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
300
|
|
Stock issued with note payable
|
|
|
—
|
|
|
|
49,000
|
|
Convertible note discount
|
|
|
—
|
|
|
|
110,000
|
|
Amortization of convertible note issue costs
|
|
|
9,577
|
|
|
|
—
|
|
Amortization of discounts on convertible notes
|
|
|
59,516
|
|
|
|
—
|
|
Effects of conversions on convertible debt discounts
|
|
|
10,404
|
|
|
|
—
|
|
Loss on conversion of notes payable
|
|
|
297,108
|
|
|
|
—
|
|
Interest paid in stock
|
|
|
23,162
|
|
|
|
—
|
|
Warrant expense
|
|
|
—
|
|
|
|
132,593
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaids
|
|
|
94
|
|
|
|
(8,889
|
)
|
Increase (decrease) in accounts payable
|
|
|
(2,942
|
)
|
|
|
34,656
|
|
Increase (decrease) in accrued payables
|
|
|
10,547
|
|
|
|
4,990
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(97,686
|
)
|
|
|
(136,353
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Increase in notes payable
|
|
|
125,000
|
|
|
|
140,000
|
|
Increase in advances from related party
|
|
|
—
|
|
|
|
10,478
|
|
Repayments in advances from related party
|
|
|
(22,590
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
102,410
|
|
|
|
150,478
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
4,724
|
|
|
|
14,125
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
33,251
|
|
|
|
6,319
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
37,975
|
|
|
$
|
20,444
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing
|
|
|
|
|
|
|
|
|
and financing activities
|
|
|
|
|
|
|
|
|
Common stock to be issued for loan costs
|
|
$
|
11,000
|
|
|
$
|
—
|
|
Note payable and interest converted to common stock
|
|
$
|
87,225
|
|
|
$
|
16,000
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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
8% of outstanding common stock as of June 30, 2020), 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 7% of common
stock as of June 30, 2020) and Joseph Kurczodyna (beneficial owner of an additional 7% of common stock as of June 30, 2020).
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 31. 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
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(continued)
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 six months ended June 30, 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 six months ended June 30, 2020 and the year ended December
31, 2019, the Company has generated no revenues and has incurred losses. As of June 30, 2020, the Company had cash of $37,975,
negative working capital of ($261,641) and an accumulated deficit of ($4,905,754). 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 June 30, 2020 and December 31, 2019, the Company had no deposits in excess of the FDIC
insured limits.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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.
Comprehensive Income (Loss)
Comprehensive income (loss) 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 six months ended June 30, 2020 and 2019.
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 June 30, 2020 and does not expect such pronouncements to have
a material impact on the Company’s financial position, operations, or cash flows.
Reclassifications
Certain amounts in the consolidated
financial statements for prior year periods have been reclassified to conform with the current year periods presentation.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 4 – PROPERTY, PLANT
AND EQUIPMENT
As of June 30, 2020, all equipment,
consisting of office equipment and computers, was fully depreciated and the Company recognized no depreciation expense for the
six months then ended.
NOTE 5 – STOCKHOLDERS’
DEFICIT
Preferred Stock
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 June 30, 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.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 5 – STOCKHOLDERS’ DEFICIT (continued)
Common Stock
As of December 31, 2019, the authorized
number of common shares was 200,000,000, with a par value of $0.001 per share, and the authorized number of preferred shares is
10,000,000, 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.
As of June 30, 2020, and December
31, 2019, the total number of common shares outstanding was 60,374,137 and 48,003,443, respectively. The number of shares outstanding
at June 30, 2020 was reduced by 150,000 in order to reflect that shares previously reported as outstanding as of December 31, 2019,
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.
During the six months ended June
30, 2020, the Company issued an aggregrate 12,520,694 shares of common stock for conversion of $54,519 principal and $12,161 accrued
interest on convertible notes payable, and recognized a loss on note payable conversions of $297,108.
Common Stock to be Issued
At June 30, 2020, the Company is
obligated to issue an aggregate 550,000 shares of its common stock, valued at $11,000, to two individuals as partial consideration
for loans made to the Company as follow:
|
·
|
150,000 shares as consideration for extension of notes originally
dated April 29, 2019, as extended, for an additional six months through October 29, 2020.
|
|
·
|
400,000 shares as partial consideration for an aggregate $25,000
of loans made to the Company on May 18, 2020.
|
The shares to be issued are valued
at $0.02 per share, the trading price of the underlying common stock as of the date of the agreements.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 6 – WARRANTS
A summary of warrant activity during
the six months ended June 30, 2020 is presented below:
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Outstanding and exercisable – December 31, 2019
|
|
|
|
540,000
|
|
|
$
|
.31
|
|
|
|
3.99
|
|
|
Granted
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable – June 30, 2020
|
|
|
|
540,000
|
|
|
$
|
.31
|
|
|
|
3.49
|
|
NOTE 7 – CONVERTIBLE NOTES
AUCTUS FUND
On April 26, 2019, the Company
entered into a financing arrangement with Auctus Fund LLC. 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 has recorded the conversion
feature as a Beneficial Conversion Feature. The fair value of $110,000 for the expense portion of the note is being amortized over
the term of the note. This fair value has been determined based on the current trading prices of the Company’s common stock.
Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock,
and 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 six months ended June
30, 2020, the lender converted an aggregate $11,916 of principal, interest and fees on the note into 5,257,195 shares of common
stock of the Company. The Company has recognized a loss on conversion of $41,406, based on the difference between the trading price
and the value of the debt converted.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 7 – CONVERTIBLE NOTES
(continued)
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.
The Company has recorded the conversion
feature as a Beneficial Conversion Feature. The fair value of $38,032 for the expense portion of the note is being amortized over
the term of the note. This fair value has been determined based on the current trading prices of the Company’s common stock.
Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock,
and there will be no revaluations until the note is paid or redeemed for stock.
During the six months ended June
30, 2020, the lender converted an aggregate $21,107 of principal and interest on the note into 2,329,031 shares of common stock
of the Company. The Company has recognized a loss on conversion of $118,635, based on the difference between the trading price
and the value of the debt converted.
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.
The Company has recorded the conversion
feature as a Beneficial Conversion Feature. The fair value of $38,040 for the expense portion of the note is being amortized over
the term of the note. This fair value has been determined based on the current trading prices of the Company’s common stock.
Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock,
and there will be no revaluations until the note is paid or redeemed for stock.
During the six months ended June
30, 2020, the lender converted an aggregate $33,657 of principal on the note into 4,934,468 shares of common stock of the Company.
The Company has recognized a loss on conversion of $137,067, based on the difference between the trading price and the value of
the debt converted.
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 7 – CONVERTIBLE NOTES
(continued)
POWER UP LENDING GROUP
On May 21, 2020, the Company entered
into a financing agreement with Power Up Lending Group to borrow $103,000 with a due date of May 21, 2021. The note bears interest
at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is
to be calculated at 61% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior
to the date of conversion. 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.The Company has reserved 63,319,672 shares for conversion.
Net proceeds from the loan were $100,000, after legal fees and offering costs of $3,000. These fees and costs are being amortized
over the term of the note.
The Company has recorded the conversion
feature as a Beneficial Conversion Feature. The fair value of $103,000 for the expense portion of the note is being amortized over
the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of
the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the
Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
NOTE 8 – NOTES PAYABLE
On April 24, 2019, the Company
was loaned $20,000 from an unrelated individual. The note was due October 24, 2019 with 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 24, 2020, the lender agreed to a second six month extension
through October 24, 2020. As consideration for entering into the extension, the Company agreed to pay the lender accrued interest
on the note of $1,100 and to issue 100,000 shares of the Company’s common stock, valued at $0.02 per share, the closing price
of the stock as of the extension agreement date. The $2,000 value of the shares was recorded as interest expense and included in
Common Stock to be Issued. As of June 30, 2020, the interest due had not been paid nor had the shares of common stock been issued.
On April 29, 2019, the Company
was loaned $10,000 from an unrelated individual. The note was due on October 29, 2019 with 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. On April 29, 2020, the lender agreed to a second six month extension through October
29, 2020. As consideration for entering into the extension, the Company agreed to pay the lender accrued interest on the note of
$550 and to issue 50,000 shares of the Company’s common stock, valued at $0.02 per share, the closing price of the stock
as of the extension agreement date. The $1,000 value of the shares was recorded as interest expense and included in Common Stock
to be Issued. As of June 30, 2020, the interest due had not been paid nor had the shares of common stock been issued.
On May 18, 2020, the Company entered
into loan agreements with two unrelated individuals, who are current note holders in the aggregate amount of $30,000. Each of the
new loans is for $12,500, an aggregate $25,000. The notes are due November 18, 2020 with interest at 11%. 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
Table of Contents
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(Unaudited)
|
NOTE 8 – NOTES PAYABLE
(continued)
lender. As additional consideration
for entering into the loans, each individual shall be issued 200,000 shares of common stock, an aggregate 400,000 shares. The shares
are valued at $0.02 per share, the closing price of the Company’s common stock as of the date of the loan. The $8,000 value
ascribed to the shares has been capitalized as prepaid interest and is being amortized over the six month term of the loans. As
of June 30, 2020, then underlying shares have not been issued and the $8,000 value is included in Common Stock to be Issued.
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.
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 six months ended June 30, 2020 and 2019 the Company recorded the related party management consulting expense
of $26,410 and $56,430 respectively. For the three months ended June 30, 2020 and 2019 the Company recorded the related party management
consulting expense of $9,910 and $54,000 respectively.
During the six months ended June
30, 2020 there were no advances from related parties, and the Company repaid $22,590 to its parent company, International Hedge
Group, Inc. At June 30, 2020, Joseph Kurczodyna, an officer of the Company, was owed $480; and Todd Lahr, a former officer of the
Company, was owed $18,780.
NOTE 10 – SUBSEQUENT EVENTS
In July and August 2020, the Company
issued shares of common stock to two convertible note holders as consideration for debt conversion as follows:
|
·
|
3,012,667 shares, valued at $0.0045 per share, for conversion of
note principal in the amount of $13,557.
|
|
·
|
3,012,600 shares, valued at $0.0027 per share, for conversion of
note principal, interest and loan fees in the aggregate amount of $8,134.
|
|
·
|
3,561,200 shares, valued at $0.0039 per share, for conversion of
note principal, interest and loan fees in the aggregate amount of $13,888.
|
|
·
|
3,288,719 shares, valued at $0.0065 per share, for conversion of
note principal in the amount of $21,500.
|
|
·
|
839,830 shares, valued at $0.0071 per share, for conversion of remaining
note principal and interest in the aggregate amount of $5,942.
|
Management has evaluated significant
subsequent events through September 4, 2020, the date these financial statements were available to be issued, noting none that
require additional disclosure.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Forward-Looking Statements and Associated
Risks.
This form 10-Q contains certain statements
that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements
contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”,
“estimate, or “continue” or comparable terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions
generally and in the industries in which we may participate; competition within our chosen industry, including competition from
much larger competitors; technological advances and failure to successfully develop business relationships.
Based on our financial history since inception,
our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying
financial statements, as of June 30, 2020, we had an accumulated deficit totaling $4,905,754. This raises substantial doubts about
our ability to continue as a going concern.
Plan of Operation
BlackStar Enterprise Group, Inc. (the
“Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007 as NPI08, Inc.
(“NPI08”). In January 2010, NPI08 acquired an ownership interest in Black Star Energy Group, Inc., a Colorado Corporation.
BlackStar Energy then merged into NPI08, with NPI08 being the surviving entity. Concurrently, NPI08 changed its name to BlackStar
Energy Group, Inc. On January 25, 2016, International Hedge Group, Inc. signed an agreement to acquire a 95% interest in the Company.
In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares of common stock and 1,000,000 shares
of Class A Preferred Stock. The name was changed to BlackStar Enterprise Group, Inc. in August of 2016.
The Company is a Delaware corporation
organized for the purpose of engaging in any lawful business. The Company intends to act as a merchant bank as at the date of these
financial statements. We currently trade on the OTC QB under the symbol “BEGI”. The Company is 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 though our newly formed wholly-owned subsidiary, Crypto
Equity Management Corp., (“CEMC”), mainly in the areas of blockchain and distributed ledger technologies (“DLT”).
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.
As a merchant bank, BlackStar intends
to seek to provide access to capital for companies and is specifically seeking out ventures involved in DLT or blockchain. BlackStar
intends to facilitate funding and management of DLT-involved companies through majority controlled joint ventures through its subsidiary
CEMC. 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.
Recent Updates – The
Company has designed and is constructing the Peer-to-Peer (“P2P”) BlackStar Enterprise Trading Platform (“BDTP”),
subject to obtaining sufficient funding. We have completed a working demo on Amazon Blockchain that
facilitates shareholder trading activity
while complementing the market makers. The Company is positioning itself to trade BEGI common shares digital on Amazon’s
Blockchain while complying with the rules and regulations within the Broker Dealer Eco-System. Currently we anticipate that there
may be a small charge to enter the platform, but no ticket charge, and with unlimited commission-free trading. We believe that
this parallel market may produce liquidity from price movement or arbitrage, along with low cost of entry and easy access to Bid
and Offer prices for both shareholders and speculators. In July 2020, the Company presented the concept to SEC FinHub staff members
for regulatory guidance and received the recommendation to apply for Alternative Trading System (“ATS”) status. BlackStar
is evaluating its options, including exploring partnerships with existing ATS’s.
Currently in the demonstration phase,
we estimate finalizing the BDTP at a cost of $60,000 USD over the next five months and are seeking funds for the final production
of the platform. As of the date of this filing, the initial demo is complete and BlackStar intends to continue to seek further
input from various regulatory agencies and OTC Markets on the functionality of the BDTP over the next several months. The BDTP
has been completely designed in terms of the following components: data model, reports, web-based user interface, blockchain interface,
transaction logic, cloud interface, and functional demonstration app.
The Company’s success will be
dependent upon the Company’s ability to analyze and manage the opportunities presented.
We intend to expend
funds over the next four quarters as follows:
3rd Quarter 2020
|
|
· BDTP Software Development/Ventures
|
· $250,000
|
|
|
· Operations
|
· $100,000
|
|
|
|
|
4th Quarter 2020
|
|
· BDTP Implementation/Ventures
|
· $250,000
|
|
|
· Operations
|
· $100,000
|
|
|
|
|
1st Quarter 2021
|
|
· BDTP Implementation/Ventures
|
· $250,000
|
|
|
· Operations
|
· $50,000
|
|
|
|
|
2nd Quarter 2021
|
|
· Ventures
|
· $250,000
|
|
|
· Operations
|
· $50,000
|
Our Budget for operations in the current year
is as follows:
BDTP Development
|
|
$
|
500,000
|
|
Working Capital –Joint Ventures
|
|
$
|
500,000
|
|
Legal, Audit and Accounting
|
|
$
|
150,000
|
|
Fees, rent, travel and general & administrative expenses
|
|
$
|
150,000
|
|
|
|
$
|
1,300,000
|
|
The
Company may change any or all 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 $37,975 as of June 30, 2020, we have limited cash for an operational budget. We have recently
received funds from convertible promissory notes to continue to provide operational funds. We may offer a private placement of
stock or notes to investors in order to achieve an additional approximately $700,000 in funding in the next six months. We have
not yet commenced the offering, but may commence this offering in the 3rd Quarter of 2020. 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, 2019, includes a “going
concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
Since
our cash reserves were $37,975 as of the end of the 2nd Quarter, our parent company, IHG, may fund on an interim basis
any shortfall in our cash reserves. If received, we would use those funds to pay legal, accounting, office rent and general and
administrative expense. We have estimated $200,000 for the remaining quarters in 2020 in operational costs which includes ordinary
legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous.
Results of Operations
For the Three Months Ended June 30, 2020
compared to same period in 2019
During the three months ended June 30, 2020
and 2019, we had no revenues. During the three months ended June 30, 2020, we recognized a net loss of $(401,043) compared to a
net loss of $(442,889) during the three months ended June 30, 2019. Our operating expenses included $9,910 in related party management
consulting fees, $46,791 in legal and professional fees, and $31,114 in general and administrative fees, for a total of $87,815
for the three months ended June 30, 2020. Lower related party management consulting fees decreased the total operating expenses
in the three months ended June 30, 2020 by $58,426 compared to the same period ended June 30, 2019. Our net loss from operations
was $(87,815) for the three months ended June 30, 2020 compared to net loss from operations of $(146,261) for the same period ended
June 30, 2019.
For the three months ended June 30, 2020, we
amorized convertible note expenses of $(26,273), convertible debt issuance costs of $(3,077), loss on note payable conversions
of $(276,563) and recognized interest expense of $(7,315), resulting in other net expenses of $(313,228). For the three months
ended June 30, 2019, we had convertible note expenses of $(110,000), a warrant expense of $(132,593), and interest expense of $(54,055),
resulting in other net expenses of $(296,648).
Net loss per share for the three-month period
in 2020 and 2019 was $(0.01) and $(0.01) per share, respectively.
For the Six Months Ended June 30, 2020 compared
to same period in 2019
During the six months ended June 30, 2020 and
2019, we had no revenues. During the six months ended June 30, 2020, we recognized a net loss of $(505,152) compared to a net loss
of $(459,003) during the six months ended June 30, 2019. The net loss for the six months ended June 30, 2020 was due to operating
expenses of $122,934. Our operating expenses included $26,410 in management consulting fees-related, $49,791 in legal and professional
fees, and $46,733 in general and administrative fees, for a total of $122,934 for the six months ended June 30, 2020. Operating
expenses were lower by $38,375 for the six months ended June 30, 2020 compared to the same period in 2019, due mainly to lower
legal and professional fees and management consulting fees, resulting in a lower net loss for the six months ended June 30, 2020
compared to the same period in 2019. Our net loss from operations was $(122,934) for the six months ended June 30, 2020 compared
to net loss from operations of $(161,309) for the same period ended June 30, 2019.
For the six months ended June 30, 2020, we
amortized convertible note expenses of $(59,516), $(9,577) in convertible debt issuance costs, loss on note payable conversions
of $(297,108) and recognized interest expense of $(16,017), resulting in other net expenses of $(382,218). For the six months ended
June 30, 2019, we had convertible note expenses of $(110,000), a warrant expense of $(132,593), and interest expense of $(55,101),
resulting in other net expenses of $(297,694).
Net loss per share for the six-month period
in 2020 and 2019 was $(0.01) and $(0.01) per share, respectively.
Our auditor has expressed substantial doubt
as to whether we will be able to continue to operate as a “going concern” due to the fact that the Company has an accumulated
deficit of $(4,905,754) as of June 30, 2020, compared to an accumulated deficit of $(4,400,602) at December 31, 2019, and has not
yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company obtaining the adequate capital to fund operating
losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Liquidity and Capital Resources
At June 30, 2020, we had total current
assets of $48,438 comprised of $37,975 in cash and $10,463 in prepaid expenses, compared to $43,808 total current assets at December
31, 2019. Our total assets at June 30, 2020 were $48,438 compared to $43,808 as of December 31, 2019. Current liabilities at June
30, 2020 were $310,079 compared to $278,086 at December 31, 2019. Current liabilities at June 30, 2020 consisted of accounts payable
of $54,450, accrued liabilities of $14,183, advances payable to related parties of $19,260, convertible promissory notes of $295,337,
before discounts of $128,151, and notes payable of $55,000. At June 30, 2020, we had a deficit of ($261,641) in working capital,
compared to a deficit of ($234,278) at December 31, 2019.
We intend to attempt to raise capital
through several sources: a) partner venture funds, b) private placements of our stock, and/or c) loans from our parent company
IHG. We do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we
intend to make appropriate plans to ensure sources of additional capital in the future to fund growth and expansion through additional
equity or debt financing or credit facilities.
We do not have terms or committed sources
of capital of any type at this time. If we are able to raise additional capital, we intend to enter into additional joint ventures
and would intend to use the funds repaid from the joint ventures to a) retire debt, and b) fund additional joint ventures with
companies, and c) to provide operational funds.
We have been, and intend to continue,
working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining
additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders.
Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial
and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact
on our business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available,
we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic
partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such
financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability
to fund our continued operations and our expansion efforts.
We do not anticipate that we will purchase
any significant equipment over the next twelve months.
We do not anticipate any significant
changes in the number of employees unless we significantly increase the size of our operations. We believe that we do not require
the services of additional independent contractors to operate at our current level of activity. However, if our level of operations
increases beyond the level that our current staff can provide, we may need to supplement our staff in this manner.
Financing Activities
During the six months ended June 30, 2020,
the Company received $0 from subscription agreements or private placement offerings. The Company received shareholder contributions
in the amount of $0 in the six months ended June 30, 2020. We received $125,000 from notes payable and made $22,590 of repayments
in advances from related parties. Net cash provided by financing activities was $102,410 for the six months ended June 30, 2020,
compared to $150,478 for the same period the year before.
Investing Activities
Net cash used in investing activities was $0
for both six-month periods ended June 30, 2020 and 2019.
Operating Activities
During the six months ended June 30,
2020, we used $(97,686) in cash for our net operating activities, compared to $(136,353) used in operating activities for the same
period in 2019. We recorded $0 and $10,000 in cash paid for interest for the six months ended June 30, 2020 and 2019, respectively,
and had notes payable and interest converted to common stock of $87,225 and $16,000 for the six months ended June 30, 2020 and
2019, respectively. During the six months ended June 30, 2020, the Company included $8,000
in prepaid expenses and common stock to be issued for interest on new loans.
Going Concern
We have only a very limited amount of cash
and have incurred operating losses and limited cash flows from operations since inception. As of June 30, 2020 and December 31,
2019, we had accumulated deficit of $(4,905,754) and $(4,400,602), respectively and we will require additional working capital
to fund operations through 2020 and beyond. These factors, among others, raise substantial doubt about our ability to continue
as a going concern. Our financial statements included in this Form 10-Q do not include any adjustments related to recoverability
and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable
to continue as a going concern. The audited financial statements included in the Company’s recent annual report on Form 10-K
have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we
cease to continue as a going concern.
Based on our financial history since inception,
in their report on the financial statements for the period ended December 31, 2019, our independent registered public accounting
firm has expressed substantial doubt as to our ability to continue as a going concern. There is no assurance that any revenue will
be realized in the future.
There can be no assurance that we will have
adequate capital resources to fund planned operations or that any additional funds will be available to us when needed or at all,
or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital
resources to fund operations, we may be required to delay, scale back or eliminate some or all of our operations, which may have
a material adverse effect on our business, results of operations and ability to operate as a going concern.
Short Term
On a short-term basis, we have not generated
revenues sufficient to cover our growth oriented operations plan. Based on prior history, we may continue to incur losses until
such a time that our revenues are sufficient to cover our operating expenses and growth oriented operations plan. As a result we
may need additional capital in the form of equity or loans, none of which is committed as of this filing.
Capital Resources
We have only common stock as our capital resource,
and our assets, cash and receivables.
We have no material commitments for capital
expenditures within the next year, however, as operations are expanded substantial capital will be needed to pay for expansion
and working capital.
Need for Additional Financing
We do not have capital sufficient to meet our
growth plans. We have made equity and debt offerings in order to support our growth plans, to date, and may do so in the future.
No commitments to provide additional funds
have been made by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be
available to us to allow coverage of our expenses as they may be incurred.
Off Balance Sheet Arrangements
None