Webstar Technology Group Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes to those financial statements that are included elsewhere in this report and in conjunction with the audited financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 29, 2024. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Statement Regarding Forward-Looking Statements and Business sections in the audited financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.

Background and Overview

Webstar Technology Group, Inc. (the “Company”) was incorporated in Wyoming on March 10, 2015. The Company was established for the operation of certain licensed and purchased software solutions. Since inception, the Company signed two letters of intent with a related party to license proprietary software technology solutions, i.e., Gigabyte Slayer and WARP-G. The Company has been focused in large part on organizational activities and the development of its business plans to license the Gigabyte Slayer software application that is designed to deliver live video streams, video downloads and large data files more efficiently by using new proprietary data compression technology and to license the WARP-G software solution that is designed to enable enterprise customers that transmit live video streams, video downloads and large data files to push such data over existing pipelines at higher speeds in less time also by using new proprietary data compression technology. The Company completed the license of Gigabyte Slayer and WARP-G software on April 21, 2020. On June 21, 2024, the license agreement was acquired by Webnet, a Company owned and controlled by Mr. Owens.

Recent Developments

During the nine months ended September 30, 2024, the Company entered into several material definitive agreements as summarized below:

1) On June 14, 2024 (“Closing”), Mr. Ricardo Haynes, Mr. Eric Collins, Mr. Lance Lehr, Ms. Tori White and Mr. Donald Keer, each as an individual (the “Purchasers”) personally acquired 100% of the issued and outstanding shares of the Series A Preferred Stock (the “Preferred Stock”) of the Company from the Frank T. Perone Irrevocable Trust, a Florida trust (the “Seller” or “Trust”), a Trust controlled by Mr. James Owens the Company’s former CEO, founder and controlling stockholder. The Purchasers have agreed to purchase the Preferred Stock for $500,000 due as follows: $50,000 at the execution of the letter of intent, $125,000 at the Closing, and the remaining $325,000 ninety days after the Closing. The Preferred Stock will remain held in escrow until the final payment is remitted to the Seller. Further, the Seller retains the voting rights of the Preferred Stock while in escrow. Therefore, Mr. James Owens is referred to as the controlling stockholder in this filing as the Preferred Stock remains in escrow as of the date of this filing.

2) On June 21, 2024, the Company entered into a material definitive agreement with Electrical and Compression Optimization, Inc. (“ECO”), a Wyoming corporation owned and controlled by James Owens, for the acquisition of contracts, with a net book value of zero, from the Company. In exchange for the acquisition of the contracts ECO issued 201,057,278 common shares directly to the stockholders of record of the Company at the close of business June 21, 2024 on a one-to-one basis.

3) One June 21, 2024, the Company entered into a material definitive agreement with Webnet Technologies Incorporated (“Webnet”), a Wyoming corporation owned and controlled by James Owens, for the acquisition of licenses for the use, development and commercialization of Gigabyte Slayer and WARP-G software. As consideration for the licenses, Webnet assumed liabilities of the Company, specifically related to accrued salaries and related expenses of $3,317,472 and a cash payment of $22,869 which was applied against Webstar’s accounts payable at the time of the same amount. Due to the related party nature of the transaction, the assumption of the liabilities has been recorded as an increase to additional paid in capital of $3,340,341.

4) On June 24, 2024, the Company agreed to acquire the assets and intellectual property associated with the Bear Village, Inc. family resort developments from Thunder Energies Corporation, an entity owned and controlled by the Purchasers of the Company’s Preferred Stock. An asset sale agreement was executed on July 15, 2024 between the Company and the selling entity. Pursuant to the agreement, the Company agreed to issue the selling entity 201,057,278 shares of common as consideration for the assets acquired related to Bear Village, Inc. These shares were issued to the sellers on October 1, 2024 .

On June 3, 2024, the Board of Directors approved and Mr. Owens, as Trustee of the Trust, agreed to settle $427,863 of outstanding liabilities due to the Trust for working capital advances, consulting services and accrued interest on a convertible note with 42,786,278 shares of common stock. The fair value of the stock was $4,449,773 on the settlement date based on the stock’s market price.

On May 15, 2023, the Trust partially converted $101,000 of the convertible note principal, held by the Trust, and $82,710 of accrued interest into 18,371,000 shares of the Company’s common stock at the conversion price of $0.01 in accordance with the Note’s convertible provision.

Results of Operations for the three and nine months ended September 30, 2024 and 2023

Revenue

Revenue was $0 for the three and nine-month periods ended September 30, 2024 and 2023. Gross profit was $0 for the three and nine months ended September 30, 2024 and 2023.

Operating Expenses

Total operating expenses, which are comprised of salaries and related expenses, and general and administrative expenses were $21,578 and $199,401 for the three months ended September 30, 2024 and 2023, respectively. The decrease is primarily attributable to the decrease in salary and related expenses due to the Company’s former CE and CFO resigning effective June 14, 2024 and March 4, 2024, respectively, and not being replaced full time employees. The CFO was replaced by an external service provider, offset by a $60,000 consulting fee incurred with Mr. Owens in 2024 that was not incurred in 2023.

Total operating expenses are comprised of salaries and related expenses, and general and administrative expenses were $4,466,798 and $703,524 for the nine months ended September 30, 2024 and 2023, respectively.

The decrease is primarily attributable to the decrease in salary and related expenses due to the Company’s former CE and CFO resigning effective June 14, 2024 and March 4, 2024, respectively, and not being replaced full time employees. The CFO was replaced by an external service provider, offset by a $60,000 consulting fee incurred with Mr. Owens in 2024 that was not incurred in 2023.

Net Loss

The net loss was $41,578 and $219,401 and $4,466,798 and $703,524 for the three and nine months ended September 30, 2024 and 2023, respectively. The decrease in the loss during the three months ended September 30, 2024 is primarily due to the decrease in salary and related expenses as discussed above. The increase in loss during the nine months ended September 30, 2024 is primarily a result of settlement of liabilities with a related party of $427,638 through the issuance of shares of common stock with a fair value of $4,449,773 which resulted in a loss on extinguishment of $4,021,910.

Liquidity, Going Concern and Uncertainties

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2024, our working capital deficit amounted to $1,048,066 an increase of $3,323,316 as compared to working capital deficit of $4,371,382 as of December 31, 2023. This increase in working capital deficit is primarily a result of the settlement of liabilities through the issuance of shares of common stock and the assumption of liabilities by a related party for the transfer of certain license agreements.

Net cash used in operating activities was $87,475 during the nine months ended September 30, 2024 compared to $128,428 for the nine months ended September 30, 2023. The decrease in cash used in operating activities was primarily attributable to the increase in net loss of $3,763,274 and increase in cash flows from operating assets and liabilities of $276,483 , offset by noncash expenses of $4,080,710.

Net cash provided by financing activities was $87,459 during the nine months ended September 30, 2024 compared to $128,420 in the nine months ended September 30, 2023. The increase in cash from financing activities was the result of an increase in cash advances received from our controlling stockholder and a related party

The unaudited financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. To date, the Company’s commercial operations have not generated adequate revenues to enable profitability. Based on the current business plans and the Company’s operating requirements, management believes that the current cash balance will not be sufficient to fund operations for at least the next twelve months following the issuance of these financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity offerings and/or debt financing, strategic relationships, and to successfully execute its business plans. Management is actively pursuing financing but can provide no assurances that such financing will be available on acceptable terms, or at all. Without this funding, the Company could be required to delay, scale back or eliminate some or all of its business plans which would likely have a material adverse effect on the Company.

The unaudited financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Generally, the Company’s operations are subject to a number of factors that can affect its operating result and financial condition. Such factors include, but are not limited to, the results of our marketing efforts to promote users for our software solutions, successful launch and acceptance of our software solutions in the marketplace, competition of our software solutions, attraction of talented and skilled employees to support the business and the ability to raise capital to support its operations.

Since our inception, we have been funded by loans from our controlling shareholder, James Owens. The loans from Mr. Owens are pursuant to an oral agreement, are non-interest bearing and payable upon demand by Mr. Owens. Mr. Owens has orally agreed not to demand repayment of his loans until such time as we have sufficient capital resources to repay such loans. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. There can be no assurance that additional capital will be available to us. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes that exceed our current working capital will have a severe negative impact on our ability to remain a viable company.

Management’s plan is to obtain such resources for our capital needs by obtaining capital from management and significant shareholders sufficient to meet its operating expenses. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans.

Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in the notes to our unaudited financial statements included herein for the nine-month period ended September 30, 2024 and in the notes to our annual report 10-K which includes audited financial statements for the years ended December 31, 2023 and 2022. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.

Use of Estimates

The preparation of the unaudited financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary. Significant estimates made by management include the valuation of deferred tax assets and fair value of shares of common stock.

Revenue Recognition

The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The Company anticipates receiving revenue from licensing its software to customers. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The Company recognized no revenue from licensing fees during each of the three-month periods ended September 30, 2024 and 2023, respectively.

Leases

The Company accounts for leases under ASU 2016-02. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the unaudited balance sheets. The Company leased office equipment used to conduct our business. The lease was transferred to a related party on April 1, 2023.

Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited statements of operations. During the three and nine months ended September 30, 2024, the Company recorded $0 and $0, respectively, and $0 and $438, respectively, for the three and nine months ended September 30, 2023 as operating lease expense which is included in general and administrative expenses on the unaudited statements of operations. As of September 30, 2024 and December 31, 2023, the unamortized right-of-use assets resulting from the lease were $0 and $0, respectively, and the lease liabilities were $0 and $0, respectively.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (the Company’s principal executive officer and principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the quarter covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, due to the material weaknesses identified in our annual report 10-K.

Changes in Internal Controls over financial reporting

There has been no change in our internal control over financial reporting occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 29, 2024.