BEGI 10-Q
BLACKSTAR ENTERPRISE GROUP, INC. (BEGI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| [ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from __________ to ___________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State of Incorporation) | (IRS Employer ID Number) |
(Address of principal executive offices)
(Registrant’s Telephone number)
______________________________
(Former Address and phone of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
| [X] | No | [ ] |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 for Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| [X] | No | [ ] |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| [X] | Smaller reporting company | [ | |
| Emerging growth company | [ | ||
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | [ ] | No | [ |
Indicate the number of share outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of June 28, 2024, there were
TABLE OF CONTENTS
| Page | ||
| PART 1 – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | 3 |
| Consolidated Balance Sheets – December 31, 2023 and March 31, 2024 | 3 | |
| Consolidated Statements of Operations – Three months ended March 31, 2024 | 4 | |
| Consolidated Statements of Stockholder’s Deficit – Three months ended March 31, 2024 | 5 | |
| Consolidated Statements of Cash Flows – Three months ended March 31, 2024 | 6 | |
| Notes to the Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk – Not Applicable | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II- OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 18 |
| Item 1A. | Risk Factors – Not Applicable | 18 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3. | Defaults Upon Senior Securities – Not Applicable | 19 |
| Item 4. | Mine Safety Disclosure – Not Applicable | 19 |
| Item 5. | Other Information | 19 |
| Item 6. | Exhibits | 20 |
| Signatures | 21 |
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| MARCH 31, 2024 AND DECEMBER 31, 2023 | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Intangibles | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued payables | ||||||||
| Notes payable, net of discount of $ | ||||||||
| Convertible notes payable | ||||||||
| Total current liabilities | ||||||||
| Notes payable - long term | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, | ||||||||
| $ | ||||||||
| Common stock- | ||||||||
| | ||||||||
| at March 31, 2024 and December 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Common stock to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| 3 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 | ||||||||
| (Unaudited) | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Legal and professional | ||||||||
| Management consulting - related party | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Other expense (income) | ||||||||
| Amortization of convertible debt issuance costs | ||||||||
| Interest expense | ||||||||
| Other expense (income) | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average number of common shares | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| 4 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock to be Issued | Accumulated Deficit | Stockholders’ Deficit | |||||||||||||||||||||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Balances - December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for debt extinguishment | — | ( | ) | |||||||||||||||||||||||||||||
| Shares to be issued for loan extension | — | — | ||||||||||||||||||||||||||||||
| Shares to be issued for loan costs | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balances - March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
| Balances - December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | ( | ) | |||||||||||||||||||||||||||||
| Shares to be issued for notes payable | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances - March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||||||
| 5 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 | ||||||||
| (Unaudited) | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used | ||||||||
| in operating activities | ||||||||
| Amortization of convertible note issue costs | ||||||||
| Amortization of note discount | ||||||||
| Interest paid in stock | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Increase in accounts payable | ||||||||
| Increase in accrued interest payable | ||||||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Software costs | ( | ) | ( | ) | ||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash investing | ||||||||
| and financing activities | ||||||||
| Notes payable and interest converted to common stock | $ | $ | ||||||
| Common stock issuable for loan costs | $ | $ | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| 6 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(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
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 companies desiring to issue digital shares and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in digital share related ventures through a wholly-owned subsidiary, Blockchain Equity Management Corp (“BEMC”). 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. BlackStar formed a subsidiary nonprofit company, Blockchain Equity SRO Inc. (“BESRO”) in 2017. BESRO’s business plan is 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.
Basis of presentation
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 (US GAAP) 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, 2023 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. These unaudited financial statements are condensed and should be read in conjunction with those financial statements included in the Form 10-K and interim disclosures generally do not repeat those in the annual statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
These unaudited consolidated financial statements include BlackStar and its wholly owned subsidiaries: Blockchain Equity Management Corp. and Blockchain Equity SRO Inc. (neither of which was operating as of March 31, 2024), and were prepared from the accounts of the Company in accordance with US GAAP. All transaction have been included in the Company's books and records and all significant intercompany transactions and balances have been eliminated on consolidation.
NOTE 2 – GOING CONCERN
The Company’s financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements for the three months ended March 31, 2024 and the year ended
December 31, 2023, the Company has generated no revenues and has incurred losses. As of March 31, 2024, the Company had cash of
$
| 7 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Recent Accounting Pronouncements
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations. Management has evaluated accounting standards and interpretations issued but not yet effective as of March 31, 2024 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 presentation.
NOTE 4 – INTANGIBLES
| 2024 | 2023 | |||||||||
| Software | $ | $ | ||||||||
| Patents | ||||||||||
| $ | $ | |||||||||
As of March 31, 2024, the patents and related software have not been placed in service nor marketed to potential customers, and therefore no depreciation/amortization was recorded for the period.
| 8 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(Unaudited)
NOTE 5 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized
Common Stock
In July 2022, the Company’s authorized
common stock was increased from
During the three months ended March 31, 2024, the Company issued shares of its common stock as follows:
| ● |
During the three months ended March 31, 2023, the Company issued shares of its common stock as follows:
| ● |
At March 31, 2024, the Company has recorded common stock to be issued as follows:
| ● |
| ● |
| ● |
NOTE 6 – WARRANTS
In April 2019, the Company issued a convertible
note for $
| 9 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(Unaudited)
NOTE 6 – WARRANTS (continued)
|
Shares |
Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Outstanding and exercisable – December 31, 2023 | $ | |||||||||||||
| Exercised | ||||||||||||||
| Expired | ||||||||||||||
| Outstanding and exercisable – March 31, 2024 | $ | |||||||||||||
NOTE 7 – CONVERTIBLE NOTES
The Company has outstanding convertible notes
due to SE Holding LLC and Adar Alef LLC which, as of March 31, 2024 and December 31, 2023, are in default. Accordingly, the Company
has accrued default interest at the rate of
| Note Holder | Face Amount | Interest Rate | Due Date | 2024 | 2023 | |||||||||||||
| SE Holdings LLC | $ | % | $ | $ | ||||||||||||||
| Adar Alef LLC | $ | % | $ | $ | ||||||||||||||
| $ | $ | |||||||||||||||||
On January 23, 2024, the managing member of
SE Holdings, LLC, individually, and Adar Alef, LLC, also managed by the same individual, as the entity, settled charges with the
SEC ordering them, in part, to surrender for cancellation all remaining shares of the Company they obtained through conversion
of notes, as well as conversion rights under any remaining convertible notes. The Company is evaluating what this means for the
remaining outstanding conversion rights under the two convertible promissory notes held by SE Holdings, LLC ($
| 10 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(Unaudited)
NOTE 8 – NOTES PAYABLE
In January 2024, the Company
borrowed $
In January 2024, the Company borrowed
$
| Face Amount | Interest Rate | Due Date | 2024 | 2023 | ||||||||||||||
| Current notes payable | $ | % | Sept 1, 2024 | $ | $ | |||||||||||||
| $ | % | May 1, 2024 | $ | $ | ||||||||||||||
| $ | % | Jun 29, 2024 | $ | $ | ||||||||||||||
| $ | % | Apr 25, 2024 | $ | |||||||||||||||
| $ | % | Sept 1, 2024 | $ | $ | ||||||||||||||
| $ | % | Feb 25, 2025 | $ | |||||||||||||||
| $ | % | Dec 9, 2024 | $ | $ | ||||||||||||||
| $ | % | Dec 18, 2024 | $ | $ | ||||||||||||||
| $ | % | Aug 17, 2024 | $ | $ | ||||||||||||||
| $ | % | Aug 6, 2024 | $ | $ | ||||||||||||||
| $ | % | Aug 8, 2024 | $ | $ | ||||||||||||||
| Note discount | $ | ( | ) | |||||||||||||||
| $ | $ | |||||||||||||||||
| Long-term notes payable | $ | % | Nov 13, 2026 | $ | $ | |||||||||||||
| $ | % | May 17, 2025 | $ | $ | ||||||||||||||
| $ | $ | |||||||||||||||||
| 11 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, the Company has relied 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.
IHG, the controlling shareholder
of the Company, provides management consulting services to the Company. There is no formal written agreement that defines the compensation
to be paid. For the three months ended March 31, 2024 and 2023, the Company recorded related party management fees of $
On July 1, 2023, the Board of Directors
approved and authorized the issuance of shares of the Company’s common stock as follows:
NOTE 10 - COMMITMENTS AND CONTINGENCIES
On November 6, 2023, the Company
was notified of a lawsuit filed in Clark County, NV against the Company by GS Capital regarding the unavailability of conversion
shares relating to the Promissory Note entered into on October 11, 2021 and the remaining principal balance of $
At March 31, 2024, there were no legal proceedings against the Company, other than the beforementioned.
NOTE 11 – SUBSEQUENT EVENTS
In April 2024, the Company borrowed
$
| 12 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2024
(Unaudited)
NOTE 11 – SUBSEQUENT EVENTS (continued)
On May 3, 2024, the Securities and Exchange Commission (“SEC”) entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC and its sole audit partner Benjamin F. Borgers CPA (individually and together, “BF Borgers”), the Company’s former public accountant. The Order denies BF Borgers the privilege of appearing or practicing before the SEC as an accountant. As a result, the Company retained a new public accountant, Fruci & Associates II, PLLC, to review the financials presented in this report.
The Company has analyzed its operations
subsequent to March 31, 2024 through the date that these financial statements were issued, and has determined that it does not
have any additional material subsequent events to disclose.
| 13 |
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 March 31, 2024, we had an accumulated deficit of $10,921,022 and a working capital deficiency of $1,934,762. This raises substantial doubts about our ability to continue as a going concern.
Overview
BlackStar Enterprise Group, Inc. (the “Company” or “BlackStar”) intends to act as a merchant bank as of the date of these financial statements. We currently trade on the OTC Pink Sheets 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 blockchain and DLT companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in electronic fungible share-related ventures though our wholly-owned subsidiary, Blockchain Equity Management Corp., (“BEMC”), 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 its Board of Directors 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 BEMC. BlackStar, through BEMC, intends to initially control and manage each venture. Potential ventures for both BlackStar and BEMC will be analyzed using the combined business experience of its executives, with BEMC 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.
Recent Updates – BlackStar’s progress in 2023 was focused on thoroughly planning and describing many aspects of our new proposed line of business of trading common shares on a blockchain through the broker-dealer ecosystem. The Company is finalizing the marketing plan to promote and roll out the three features of its blockchain platform. The Company plans to offer its Private Funding and Corporate Governance Blockchain to individual private companies in 2024. The Company’s next major step in its main feature, BlackStar’s Digital Trading Platform (“BDTP TM”), will be to engage an operating partner (a broker-dealer, clearing firm, and/or registered Alternative Trading System (“ATS”)) to host the platform prior to implementation. To that end, the Company has been exploring partnerships with broker-dealers and existing ATS’s and other strategies to go live
| 14 |
with BDTP TM in accordance with existing laws and regulations. As of the date of this filing, the core platform of BDTP TM is complete and will remain in the testing phase until we obtain an operating partner, or acquires a broker-dealer to operate the platform. BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP TM. The BDTP TM 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. During 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. In 2023, BlackStar and Artuova completed a production ready and feature-complete user interface for our Corporate Governance feature on a blockchain. BlackStar is actively pursuing relationships with various broker-dealers, clearing firms, and ATS’s to complete the final stages, while considering applying for a Broker Dealer or ATS license. During 2021-2022, BlackStar filed with the U.S. Patent and Trademark Office (“USPTO”) for patent protection of its proprietary software. During 2022, BlackStar also filed with U.S. and foreign trademark offices for protection. On December 26, 2023, the USPTO issued Patent No. US 11,854,080 B2, “System And Method For Matching Orders And Immutable Blockchain Ledger For All Customer Trading Activity With Settlement Into The Broker Dealer Ecosystem”. In February 2024, BlackStar was allowed its Corporate Governance patent “System and Method for Preparing for a SEC Financial Statement Audit by Recording Corporate Governance Information on an Immutable Blockchain,” which was subsequently issued on April 23, 2024. On May 6, 2024, the USPTO allowed BlackStar’s patent “Systems And Methods For Using A Digital Trading Platform To Trade Securities On A Blockchain.”
The Company’s success will be dependent upon its ability to analyze and manage the opportunities presented and is contingent upon successfully raising funds and ultimately SEC approval of our digital trading platform.
Currently in the testing phase, we estimate $100,000 to finalize the integration of the digital platform into the broker-dealer eco system. The ability to obtain a licensee may be dependent on our ability to confirm that FINRA and the SEC will allow trading on our platform as described. If this is the case, the Company may alternatively seek to acquire an existing broker-dealer in order to become a FINRA-registered broker-dealer. Once we have secured a licensee broker-dealer, clearing firm, or ATS for the operations of the BDTP TM and begun operating the BDTP TM, we will seek subscriber companies desiring customized platforms. At that point, we will have the ability to showcase BDTP TM’s live operations. The technical platform operations and updates will be managed by Artuova, through our oversight and direction. The software building of additional platforms for subscriber companies may take as little as 48 hours. We have not yet developed our marketing campaign to seek out these customers, but plan to do so after securing our operating licensee, anticipated within the next twelve months. We anticipate our Corporate Governance platform to be subscribed to by US corporations in 2024, with overall expansion of services into the blockchain industry within the next twelve months.
Based on our current cash reserves of approximately $17,433 as of March 31, 2024, and our receipt in April 2024 of $75,000 in short term loans, we estimate that we have the cash for an operational budget of approximately three (3) months. We intend to offer a private placement of preferred shares to investors in order to achieve at least $5,000,000 in funding in the next year to scale our business plan. We intend to commence this offering in the second quarter of 2024. 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.
We have estimated $100,000 for each of the second and third quarters of 2024 and $150,000 in the fourth quarter of 2024 for operational costs which includes legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. Thus far in 2024, we received loans of an aggregate $189,000 in short term loans from investors, due with interest at 11% per annum.
The independent registered public accounting firm’s report on our financial statements as of December 31, 2023, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
| 15 |
Results of Operations
For the Three Months Ended March 31, 2024 compared to same period in 2023
Net loss for the three months ended March 31, 2024 was $499,072 as compared to $117,204 for the three months ended March 31, 2023, an increase of $381,868.
General and administrative expenses in 2024 were $23,285 an increase of $11,073 from general and administrative expenses of $12,252 in 2023. General and administrative costs for the 2024 and 2023 quarters were for investor relations, website management, filing fees, transfer agent fees and overhead operational costs.
The Company paid management consulting fees to IHG of $47,000 for the three months ended March 31, 2024 as compared to $31,500 paid for the comparable 2023 period.
Legal and professional fees of $363,253 for the three months ended March 31, 2024 increased by $318,601 from $44,652 for the comparable 2023 period. The increase in legal fees for the 2024 period was predominately for fees related to litigation for convertible debt issues. For both periods the Company’s legal and professional fees included SEC regulatory and statutory filings, registration statement filings and amendments thereto and auditor related fees for the Company’s annual audit.
Interest expense increase by $40,124 to $65,534 for the 2024 period as compared to $25,410 for the 2023 period. The increase includes $11,737 as the value of common stock issued for debt extinguishment,and $7,325 amortization of the value of common stock issuable for loan costs and loan extension costs.
Liquidity and Capital Resources
At March 31, 2024, we had a working capital deficit of $1,934,762 and cash of $17,433 as compared to a working capital deficit of $1,480,550 and cash of $33,550, at December 31, 2023. The decrease in cash and increase in working capital deficit was due primarily to the utilization of available cash for operations and an increase in debt funding from $114,000 of loans received in the three months ended March 31, 2024. The Company used new and existing fundings to maintain operating activities and for legal matters. During the three months ended March 31, 2024, we used $120,116 of cash for operating activities and paid $10,001 in investing activities for software development costs. In the comparable 2023 period, operating activities utilized cash of $68,481 and investing activities for software development costs utilized cash of $7,001.
Substantially all of our funding in the 2024 and 2023 periods has been from note financings from non-related individuals. During the three months ended March 31, 2024, we borrowed $114,000 from two individuals, due with interest at 11%, and we issued 195,620,499 shares of common stock for debt extinguishment valued at $11,737. During the three months ended March 31, 2023, we borrowed $50,000 from two individuals, and convertible note holders were issued 104,643,949 shares of common stock for conversion of $33,927 face value of debt and related accrued interest and fees.
While management of the Company believes that the Company will be successful in its current and planned activities, there can be no assurance that the Company will be successful in obtaining sufficient revenues from our planned operations and raise sufficient equity, debt capital or strategic relationships to sustain the operations and future business of the Company.
Our ability to create sufficient working capital to sustain us over the next twelve-month period, and beyond, is dependent on our raising additional equity or debt capital, and ultimately to commence revenues form or digital trading platform.
There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Availability of Additional Capital
Notwithstanding our previous success in fund raising from notes and convertible debt financings there can be no assurance that we will continue to be successful in raising capital and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. We estimate that we will need to raise $5,000,000 over the next twelve months to scale up our current plan. The Company received $189,000 in debt financing to date in 2024.
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Any additional financings may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs.
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 March 31, 2024 and December 31, 2023, we had accumulated deficit of $10,921,022 and $10,421,950, respectively, and we will require additional working capital to fund operations through 2024 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.
Our former registered independent auditors have issued an opinion on our financial statements as of December 31, 2023 which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we obtain final SEC approval for our digital trading platform. There is no assurance that any revenue will be realized in the future. Accordingly, we must raise capital from sources other than the actual revenue from issuance of memberships in our digital trading platform.
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.
Off Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer/principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
Management has carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Due to the lack of personnel and outside directors, management acknowledges that there may be deficiencies in these controls and procedures, but Management believes that the current procedures are not effective in disclosing all information required to be disclosed. The Company anticipates that with further resources, the Company will expand both management and the board of directors with additional officers and independent directors in order to provide sufficient disclosure controls and procedures.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 6, 2023, we were notified of a lawsuit filed in Clark County, NV against the Company by GS Capital (“Plaintiff”) regarding the unavailability of conversion shares relating to the Promissory Note entered into on October 11, 2021 and the remaining principal balance of $33,682. The Plaintiff is seeking specific performance for the reserve of 700,000,000 shares, or damages in excess of $15,000, plus interest, costs, and legal fees. At the outset of the case, a temporary restraining order was entered preventing the Company from trading any shares. As currently postured, Plaintiff seeks specific performance (a mandatory injunction) requiring the conversion of approximately 257,000,000 shares and possibly additional recovery of legal fees and interest. On February 27, 2024, the Company, through its attorneys, filed an answer to Plaintiff’s complaint and counterclaims against Plaintiff. In addition to denying many of the allegations laid out in the lawsuit, the Company invokes several affirmative defenses that bar Plaintiff’s recovery in the action and alleges that Plaintiff breached the terms of the agreement, including, but not limited to, obtaining the conversion of BlackStar’s stock after the Promissory Note was fully paid off. Amongst other claims, the Company alleges that the Plaintiff acted in bad faith and in violation of usury laws by recovering an estimated $600,000 in BlackStar stock off of a $60,000 promissory note, estimated at a roughly 170% interest rate. We seek a judgment in our favor and against Plaintiff, compensatory damages in an amount to be proven at trial, declaratory relief voiding the agreement as illegal under Section 29(b) of the Securities Act, punitive damages in an amount to be proven at trial, interest on all damages, and attorneys’ fees. At an April 22, 2024 hearing, the Plaintiff’s motion to dismiss our counterclaims was denied.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 25, 2024, the Company entered into note agreements with two unrelated individuals as follows:
| ● | $100,000 from an unrelated individual, repayable one year from date of the note with interest at 11% per annum; and agreed to issue as additional consideration to the lender 15,000,000 shares of the Company’s common stock. At maturity the lender has the option to be issued, in lieu of cash payment of the outstanding debt, an additional 15,000,000 shares of the Company’s common stock as full satisfaction of the principal loan amount and related unpaid and accrued interest thereon. The Company and the holders executed the agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The Company intends to use the funds to continue limited operations, including finding a broker-dealer and/or ATS to host the BDTP TM, legal and professional fees, consulting fees, and general and administrative expenses. |
| ● | $14,000 from an unrelated individual, repayable 90 days from date of the note with interest at 11%. At maturity the lender has the option to be issued, in lieu of cash payment of the outstanding debt, 7,000 shares of the Company’s common stock as full satisfaction of the principal loan amount and related unpaid and accrued interest thereon. The Company and the holders executed the agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The Company intends to use the funds to continue limited operations, including finding a broker-dealer and/or ATS to host the BDTP TM, legal and professional fees, consulting fees, and general and administrative expenses. |
In 2024, GS Capital filed notices of conversion and were issued, in three tranches, 195,620,499 shares of the Company’s common stock at a price of $0.00006 per share on their note of October 11, 2021. (See “Item 1. Legal Proceedings” for additional information related to GS Capital Partners).
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In February 2024, the Company and each of the holders of two loans of $50,000 and $25,000 agreed to extend the maturity of the notes from February 2024 for a period of ten (10) months to December 2024 with interest continuing to be accrued at 11%. The Company agreed to issue 7,500,000 shares of common stock to the $50,000 note holder (valued at $12,000 ($0.0016 per share) and 3,750,000 shares of common stock to the $25,000 note holder (valued at $7,125 ($0.0019 per share) as consideration for extending the notes. The Company valued the shares to be issued based on the per share closing trading prices of the Company’s common stock as of the date of extensions. The Company and the holders executed the agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The Company intends to use the funds to continue limited operations, including finding a broker-dealer and/or ATS to host the BDTP TM, legal and professional fees, consulting fees, and general and administrative expenses.
In April 2024, the Company borrowed $25,000 and $50,000 from each of two unrelated individuals, repayable one year from date of the notes with interest at 11% per annum. At maturity, the Company will repay the face amount of the loans in cash, including unpaid and accrued interest at 11% and, in addition, has agreed to issue as additional consideration 3,750,000 and 7,500,000 shares of the Company’s common stock, respectively, to each of the lenders. At maturity the lenders have the option to be issued, in lieu of cash payment of the outstanding debts, an additional 3,750,000 and 7,500,000 shares of the Company’s common stock, respectively, as full satisfaction of the principal loan amounts and related unpaid and accrued interest thereon. The Company and the holders executed the agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(a)(2) of the 1933 Act. The Company intends to use the funds to continue limited operations, including finding a broker-dealer and/or ATS to host the BDTP TM, legal and professional fees, consulting fees, and general and administrative expenses.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5.
The Company is aware that on January 23, 2024, Aryeh Goldstein, Managing Member of SE Holdings, LLC, individually, and Adar Alef, LLC, also managed by Aryeh Goldstein, as the entity, settled charges with the SEC ordering them, in part, to surrender for cancellation all remaining shares they obtained through conversion of notes, as well as conversion rights under any remaining convertible notes. The Company is evaluating what this means for the remaining outstanding conversion rights under the two convertible promissory notes held by SE Holdings, LLC ($220,000) and Adar Alef, LLC ($550,000), and for the current holdings of Adar Alef, LLC (5,000,000 shares of common stock of BlackStar).
On May 3, 2024, the Securities and Exchange Commission (“SEC”) entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC and its sole audit partner Benjamin F. Borgers CPA (individually and together, “BF Borgers”), the Company’s former public accountant. The Order denies BF Borgers the privilege of appearing or practicing before the SEC as an accountant. As a result, on June 3, 2024, the Company retained a new public accountant, Fruci & Associates II, PLLC, to review the financials presented in this report, and will have the previous fiscal year (ended December 31, 2023) reaudited by the new public accountant.
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ITEM 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a–14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
| 32.1 | Certification of Chief Executive Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Chief Financial Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as an Inline XBRL document and included in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BLACKSTAR ENTERPRISE GROUP, INC. | ||
|
(Registrant) | ||
| Dated: July 15, 2024 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Acting Chief Executive Officer, | ||
| Acting Principal Executive Officer) | ||
| Dated: July 15, 2024 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer, | ||
| Principal Accounting Officer) | ||
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