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 September 30, 2021, we had an
accumulated deficit totaling $7,773,375. 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 of 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. BlackStar is currently building a
digital equity trading platform in order to trade registered BlackStar common
shares in digital form (DWAC), and intends to use the platform design to provide
custom subscription services to other public companies.
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Recent Updates - The Company is finalizing the design and build of the BlackStar
Digital Trading Platform ("BDTP"), subject to obtaining sufficient funding. The
Company is currently evaluating its options for the next major step in the
process - BDTP will need to be paired with an operating partner (a
broker-dealer, clearing firm, and/or registered Alternative Trading System
("ATS")) prior to implementation. To that end, the Company is exploring
partnerships with broker-dealers and existing ATS's and other strategies to go
live with BDTP in accordance with existing laws and regulations. As of the date
of this filing, the core platform of BDTP is complete and will remain in the
testing phase until we obtain an operating partner. BlackStar intends to
continue to seek further input from various regulatory agencies and others 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 software is complete in
demonstrating a proof-of-concept trading ability, while recording activity using
an immutable blockchain ledger. Currently, the working model platform is hosted
on Amazon's Quantum Ledger Database. In June of 2021, BlackStar and Artuova
successfully completed a production ready and feature-complete user interface
for the digital platform which is now in the final stages of quality assurance.
Blackstar is actively pursuing relationships with various broker-dealers,
clearing firms, and ATS's to complete the final stages of this multi-year
engineering effort.
The Company's success will be dependent upon the Company's ability to analyze
and manage the opportunities presented.
Contingent upon successfully raising funds, we intend to expend funds over the
next four quarters as follows:
4th Quarter 2021 · Ventures/BDTP · $250,000
· Operations · $100,000
1st Quarter 2022 · Ventures/BDTP · $250,000
· Operations · $100,000
2nd Quarter 2022 · Ventures/BDTP · $250,000
· Operations · $50,000
3rd Quarter 2022 · Ventures/BDTP · $250,000
· Operations · $50,000
Our Budget for operations in the next year is as follows:
BDTP Development and Testing $ 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 to date.
Based on our current cash reserves of approximately $559,438 as of September 30,
2021, we have the cash for an operational budget of less than twelve months. We
intend to offer a private placement to investors in order to achieve at least
$1,000,000 in funding in the next year. We intend to commence this offering in
the winter of 2021. 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 additional 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, 2020, includes a "going concern" explanatory
paragraph that describes substantial doubt about our ability to continue as a
going concern.
Our cash reserves were only $32,987 in December 2020. To satisfy this shortfall
and continue to fund operations, we issued convertible debt during the first
three quarters of 2021, in addition to our parent company, IHG, has agreeing to
fund on an
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interim basis any shortfall in our cash reserves. These funds have been used to
pay legal, accounting, office rent and general and administrative expense. In
early 2018, we completed a private placement of units for $165,000, and in
November 2018 we raised $53,000 through a convertible promissory note which
increased our working capital. In the year ended December 31, 2019, we received
funding through various promissory notes and convertible promissory notes,
totaling $280,000 with $236,150 being received in net cash proceeds. In the year
ended December 31, 2020, we received funding through promissory notes totaling
$25,000, and convertible promissory notes totaling $287,275 with $260,000 being
received in net cash proceeds.
Results of Operations
For the Three Months Ended September 30, 2021 compared to same period in 2020
During the three months ended September 30, 2021 and 2020, we had no revenue.
For the three months ended September 30, 2021, we recognized a net loss of
$772,953 compared to a net loss of $425,792 for the three months ended September
30, 2020. Our operating expenses included $93,500 in related party management
consulting fees, $23,572 in legal and professional fees, and $273,777 in general
and administrative fees, for a total of $390,849 for the three months ended
September 30, 2021. Higher related party management consulting fees and an
increase in costs for fund raising costs, including the $250,000 value of common
shares issued to a convertible note lender in the second quarter, increased the
total operating expenses in the three months ended September 30, 2021 by
$333,386 compared to the three months ended September 30, 2020. Our net loss
from operations was $390,849 for the three months ended September 30, 2021
compared to net loss from operations of $57,463 for the same period ended
September 30, 2020.
For the three months ended September 30, 2021, we had significantly higher other
expenses, substantially all of which are non-cash, predominately due to
amortization of discounts on debt issuance and conversion features of the
convertible promissory notes that we have used to finance our continued
operations. This resulted in net other expenses of $382,104 for the three months
ended September 30, 2021 compared to $368,329 for the same period in 2020. For
the three months ended September 30, 2020 the Company recognized $17,438 for
amortization of discount on convertible notes, as compared to $22,152 for the
three months ended September 30, 2021. During the three months ended September
30, 2020, we recognized $277,607 as a loss on notes payable conversion.
Net loss per share for the 2021 and 2020 three-month periods ending September
30, 2021 and 2020 was $0.01 in each of the periods.
For the Nine Months Ended September 30, 2021 compared to same period in 2020
During the nine months ended September 30, 2021 and 2020, we had no revenue. For
the nine months ended September 30, 2021, we recognized a net loss of $1,807,182
compared to a net loss of $930,944 for the nine months ended September 30, 2020.
Our operating expenses included $242,642 in related party management consulting
fees, $69,876 in legal and professional fees, and $468,950 in general and
administrative fees, for a total of $781,468 for the nine months ended September
30, 2021. Higher related party management consulting fees and an increase in
costs for fund raising, including the realization of the $356,667 value of
common shares issued to convertible note lenders during the nine-month period,
increased the total operating expenses in the nine months ended September 30,
2021 by $617,804 compared to the nine months ended September 30, 2020. Our net
loss from operations was $781,468 for the nine months ended September 30, 2021
compared to net loss from operations of $163,664 for the same period ended
September 30, 2020.
For the nine months ended September 30, 2021, we had significantly higher other
expenses, substantially all of which are non-cash, predominately due to
amortization of discounts on debt issuance and conversion features of the
convertible promissory notes that we have used to finance our continued
operations. This resulted in net other expenses of $1,025,7144 for the nine
months ended September 30, 2021 compared to $767,280 for the same period in
2020. For the nine months ended September 30, 2020, the Company recognized
$27,015 for amortization of discount on convertible notes, as compared to
$46,116 for the nine months ended September 30, 2021, and recognized $574,715 as
a loss on notes payable conversion in 2020 period as compared to $166,422 during
the comparable period in 2021.
Net loss per share for the 2021 and 2020 nine-month periods ending September 30,
2021 and 2020 was $0.02 in each of the periods.
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Management has evaluated the current business plan, ongoing operations and
financial position of the Company as of September 30, 2021, and has determined
that there is substantial doubt as to whether the Company will be able to
continue to operate as a "going concern". The Company has an accumulated deficit
of $7,773,375 as of September 30, 2021, compared to an accumulated deficit of
$5,966,193 as of December 31, 2020, 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
As of September 30, 2021, we had total current assets of $571,384 comprised of
$559,438 in cash and $11,946 in prepaids, compared to $84,211 total current
assets as of December 31, 2020. Our total assets as of September 30, 2021 were
$646,384 compared to $94,211 as of December 31, 2020. Current liabilities as of
September 30, 2021 were $520,366 compared to $129,062 at December 31, 2020.
Current liabilities as of September 30, 2021 consisted of accounts payable of
$12,246, accrued payables of $51,072, convertible promissory notes of $427,048,
net of discounts of $715,977, and notes payable of $30,000. As of September 30,
2021, we had a working capital equity of $51,018, compared to a negative working
capital of $44,851 as of December 31, 2020.
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 launch the BDTP, and
further, enter into additional joint ventures. We intend to use the funds repaid
from the joint ventures to a) retire debt, b) fund additional joint ventures
with companies, and c) 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 nine months ended September 30, 2021, the Company had no cash
received from equity offerings or shareholder contributions, and we received
$1,004,500 from convertible notes, net of offering costs and original issue
discounts. The Company also made $20,000 repayments of notes payable and $18,780
of repayments of advances from related parties in the nine months ended
September 30, 2021. During the nine months ended September 30, 2020, the Company
had no cash received from equity offerings or shareholder contributions. The
Company received $165,000 from notes payable and made $22,590 of repayments of
advances from related parties for the nine months ended September 30, 2020. Net
cash provided by financing activities was $965,720 for the nine months ended
September 30, 2021, compared to $142,410 for the same period in 2020. During the
nine months ended September 30, 2021 and 2020, $204,741 and $129,703,
respectively, in principal and interest on convertible notes was converted to
common stock.
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Investing Activities
Net cash used in investing activities was $45,000 for software development for
the nine-month period ended September 30, 2021, as compared to $0 for the nine
months ended September 30, 2020.
Operating Activities
During the nine months ended September 30, 2021, net cash used in operating
activities was $394,269, compared to $152,655 used in operating activities for
the same period in 2020. The increased amount of cash used in operating
activities is attributable to increases in operating and other expenses,
increasing the net loss for the nine months ended September 30, 2021.
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 September 30, 2021
and December 31, 2020, we had accumulated deficit of $7,773,375 and $5,966,193,
respectively and we will require additional working capital to fund operations
through 2021 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, 2020, 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.
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Off Balance Sheet Arrangements
None
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