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 August 4, 2023, there were
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| JUNE 30, 2023 AND DECEMBER 31, 2022 | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Intangibles | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest payable | ||||||||
| Notes payable | ||||||||
| Convertible notes payable, net of discounts of $ | ||||||||
| and $ | ||||||||
| Total current liabilities | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, | ||||||||
| $ | ||||||||
| Common stock, | ||||||||
| | ||||||||
| at June 30, 2023 and December 31, 2022 | ||||||||
| 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. | ||||||||
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| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Legal and professional | ||||||||||||||||
| Management consulting - related party | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other expense (income) | ||||||||||||||||
| Amortization of discount on convertible notes | ||||||||||||||||
| 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. | ||||||||||||||||
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| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||
| FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock to be Issued | Accumulated Deficit | Stockholders' Deficit | |||||||||||||||||||||||||
| Balances - December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | ( | ) | |||||||||||||||||||||||||||||
| Shares to be issued as consideration for notes payable | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balances - June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Balances - December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | |||||||||||||||||||||||||||||||
| Shares issued for cashless warrant exercise | — | ( | ) | — | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances - June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||||||
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| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock to be Issued | Accumulated Deficit | Stockholders' Deficit | |||||||||||||||||||||||||
| Balances - March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | ( | ) | |||||||||||||||||||||||||||||
| Shares to be issued as consideration for notes payable | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balances - June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Balances - March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | |||||||||||||||||||||||||||||||
| Shares issued for cashless warrant exercise | — | ( | ) | — | ||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balances - June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||||||
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| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 | ||||||||
| (Unaudited) | ||||||||
| 2023 | 2022 | |||||||
| 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 discounts on convertible notes | ||||||||
| Amortization of discounts on convertible note interest | ||||||||
| Interest paid in stock | ||||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) in prepaids | ( | ) | ||||||
| Increase (decrease) in accounts payable | ( | ) | ||||||
| Increase in accrued payables | ||||||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Payments for intangibles | ( | ) | ( | ) | ||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on convertible debt | ( | ) | ||||||
| Proceeds from convertible notes, net of offering costs | ||||||||
| and original issue discount | ||||||||
| 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 | $ | $ | ||||||
| Accounts payable for intangibles | $ | $ | ||||||
| Cashless exercise of common stock warrant | $ | $ | ||||||
| Cash paid for interest on debt | $ | $ | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
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BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2023
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
BlackStar Enterprise Group, Inc. (the “Company”
or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007. On January 25, 2016, International
Hedge Group, Inc. (“IHG”) signed an agreement to acquire a
The Company intends to act as a merchant banking firm seeking to facilitate venture capital to early stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services to crypto-equity companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in crypto-related ventures through a wholly-owned subsidiary, 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 Industry SRO Inc. (“BI”) in 2017. BI’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, 2022 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 six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
These unaudited consolidated financial statements include BlackStar and its wholly owned subsidiaries: Blockchain Equity Management Corp. and Blockchain Industry SRO Inc., and were prepared from the accounts of the Company in accordance with US GAAP. 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 six months ended June 30, 2023 and the year ended December 31,
2022, the Company has generated no revenues and has incurred losses. As of June 30, 2023, the Company had cash of $
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BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2023
(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 June 30, 2023 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
Intangibles at June 30, 2023 and December 31, 2022 consist of capitalized costs for the Company’s proprietary software and patents as follows:
| 2023 | 2022 | |||||||||
| Software | $ | $ | ||||||||
| Patents | ||||||||||
| $ | $ | |||||||||
| 9 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2023
(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 six months ended June 30, 2023, the Company issued shares of its common stock as follows:
| ● |
During the six months ended June 30, 2022, the Company issued shares of its common stock as follows:
| ● |
| ● |
At June 30, 2023, the Company has recorded
common stock to be issued, valued at $
NOTE 6 – WARRANTS
In April 2019, the Company issued a convertible
note for $
A summary of warrant activity during the six months ended June 30, 2023 is presented below:
| Shares |
Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Outstanding and exercisable – December 31, 2022 | $ | |||||||||||||
| Exercised | ||||||||||||||
| Expired | ||||||||||||||
| Outstanding and exercisable – June 30, 2023 | $ | . | ||||||||||||
| 10 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2023
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES
During the six months ended June 30, 2023, the Company had the following transactions related to its convertible note financings:
| • | 1800 Diagonal Lending LLC converted, in three tranches, the outstanding principal balance of $ | |
| • | 1800 Diagonal Lending LLC converted the total outstanding principal balance of $ | |
| ● | 1800 Diagonal Lending LLC made a $ | |
| • | GS Capital Partners made a $ |
In April 2022, Quick Capital LLC issued a notice
of default on its $
| 11 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2023
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES (continued)
Convertible notes payable at June 30, 2023 and December 31, 2022 are summarized as follows:
| Note Holder | Face Amount | Interest Rate | Due Date | June 30, 2023 | December 31, 2022 | |||||||||||||
| GS Capital Partners LLC | $ | % | $ | $ | ||||||||||||||
| SE Holdings LLC | $ | % | $ | $ | ||||||||||||||
| Quick Capital LLC | $ | % | $ | $ | ||||||||||||||
| Adar Alef LLC | $ | % | $ | $ | ||||||||||||||
| 1800 Diagonal Lending LLC | $ | % | $ | |||||||||||||||
| $ | % | $ | ||||||||||||||||
| $ | % | $ | $ | |||||||||||||||
| Discount | $ | ( |
) | $ | ( |
) | ||||||||||||
| $ | $ | |||||||||||||||||
NOTE 8 – NOTES PAYABLE
In March 2023, the Company borrowed $
In May 2023, the Company borrowed $
| 12 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2023
(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 six months ended June 30, 2023 and 2022, the Company recorded related party management fees of $
NOTE 10 – SUBSEQUENT EVENTS
On July 1, 2023, the Board of Directors approved and authorized the issuance of shares of the Company’s common stock as follows:
| ● |
| ● |
| ● |
| ● |
In July 2023, 1800 Diagonal Lending LLC made
a $
On August 1, 2023, the Company borrowed $
The Company has analyzed its operations subsequent to June 30, 2023 through the date that these financial statements were issued, and has determined that it does not have any additional material subsequent events to disclose.
.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements and Associated Risks.
This Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying financial statements, as of June 30, 2023, we had an accumulated deficit of $9,614,154 and a working capital deficiency of $1,176,489. 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 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 wholly-owned subsidiary, Blockchain Equity Management Corp., (“BEMC”), mainly in the areas of blockchain and distributed ledger technologies (“DLT”). BEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTPTM. BEMC has not established any anticipated time frames or key milestones for BEMC business. 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. BEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTPTM. BEMC has not established any anticipated time frames or key milestones for BEMC business.
BlackStar is currently developing a blockchain-based software platform (“BDTP TM”) to trade electronic fungible shares of our common stock equal to the shares held and transferred by DTCC Brokers (DWAC). Once completed, the platform design might enable us to license the technology as a Platform as a Service (“PaaS”) for other publicly traded companies, providing revenue to finance our merchant banking. The completion of our software platform depends on our ability to license it to an existing
| 14 |
Alternative Trading System (“ATS”) or for us to possibly register as an ATS, which we do not intend to do at this time as we would prefer to license our platform to an existing ATS. The platform is not currently operational or in use by anyone. More details regarding the BDTP TM can be found in the most recent registration statement on Form S-1, as amended.
Recent Updates – Blackstar’s progress in 2022 and 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 2023. 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 to host the platform and quote the shares 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 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. BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP TM over the next 6 to 9 months. 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. BlackStar and its outside software developer, Artuova, previously 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. Blackstar has filed with the U.S. Patent and Trademark Office (“USPTO”) for patent protection of its proprietary software and, during 2022, also filed with U.S. and foreign trademark offices for protection.
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 once the SEC and FINRA clear BlackStar to promote broker dealers and or exchanges. 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, likely within the next six months. We anticipate our overall expansion of services into the blockchain industry within the next twelve months.
At June 30, 2023, we have cash reserves of approximately $19,942, which enables us to only sustain limited operations. 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 late fall of 2023. 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 we will require approximately $100,000 quarterly for operational costs which includes legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. In the year ended December 31, 2022, we received funding through convertible promissory notes totaling $194,750 being received in net cash proceeds. In 2023, we received loans of an aggregate $125,000 from four investors, due nine months from receipt with interest at 11% per annum.
The independent registered public accounting firm’s report on our financial statements as of December 31, 2022, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
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Results of Operations
For the Three Months Ended June 30, 2023 compared to same period in 2022
Net loss for the three months ended June 30, 2023 was $121,983 as compared to $308,733 for the three months ended June 30, 2022, a decrease of $186,750. As explained below, the decrease is predominately attributable to non-cash transactions from the issuance of convertible debt and other financings.
For the three months ended June 30, 2022, we had significantly higher non-operating (other) expenses as compared to the 2023 period, 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 total other expenses of $157,508 for the three months ended June 30, 2022 as compared to $37,214 for the three months ended June 30, 2023. For the three months ended June 30, 2022, the Company recognized $102,446 for amortization of discount on convertible notes, as compared to none for the three months ended June 30, 2023. The decrease in 2023 is attributable to the maturity of convertible loans outstanding and convertible debt conversions in the 2022 period. Interest expense decreased to $34,202 in 2023 as compared to $45,920 in the 2022 period, as loans were converted from debt to equity.
General and administrative expenses in 2023 were $11,783 a decrease of $20,355 from general and administrative expenses of $32,138 in 2022. General and administrative costs, which were comparable for the 2023 to 2022 quarters, were for investor relations, filing fees, transfer agent fees and overhead operational costs.
In 2023, the Company paid management consulting fees to IHG of $26,750 for the three months ended June 30 as compared to $78,661 paid in 2022 for the three months ended June 30.
Legal and professional fees of $46,236 for the three months ended June 30, 2023 increased by $5,810 from $40,426 for the comparable 2022 period. Fees for the 2023 and 2022 periods were predominately for SEC regulatory and statutory filings, registration statement filings and amendments thereto and auditor related fees for annual audits and quarterly reviews.
For the Six Months Ended June 30, 2023 compared to same period in 2022
Net loss for the six months ended June 30, 2023 was $239,187 as compared to $825,635 for the six months ended June 30, 2022, a decrease of $586,448. As explained below, a significant portion of the losses in those periods was attributable to non-cash transactions from the issuance of convertible debt and other financings.
Operating expenses for the six months ended June 30, 2023 included $58,250 in related party management consulting fees, $90,888 in legal and professional fees, and $24,036 in general and administrative fees, for total operating expenses of $173,174. In the comparable 2022 period, operating expenses included $165,274 in related party management consulting fees, $76,625 in legal and professional fees, and $45,605 in general and administrative fees, for a total of $287,504 for the six months ended June 30, 2022. For the 2022 period, there were higher related party management consulting fees and costs for fund raising as compared to the 2023 period resulting in a decrease in total operating expenses of $114,330 for 2023.
For the six months ended June 30, 2022, we had significantly higher non-operating (other) expenses as compared to the 2023 period, 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 total other expenses of $538,131 for the three months ended June 30, 2022 as compared to $66,013 for the three months ended June 30, 2023. For the six months ended June 30, 2022, the Company recognized $416,369 for amortization of discount on convertible notes, as compared to none for the six months ended June 30, 2023. The decrease in 2023 is attributable to the maturity of convertible loans outstanding and convertible debt conversions in the 2022 period. Interest expense decreased to $59,611 in 2023 as compared to $92,292 in the 2022 period, as loans were converted from debt to equity.
General and administrative expenses in 2023 were $24,036 a decrease of $21,569 from general and administrative expenses of $45,605 in 2022. The decrease in general and administrative costs is attributable to cost containment efforts by management as the Company allocated all available resources to SEC filings and patent prosecution. General and administrative costs included investor relations, filing fees, transfer agent fees and overhead operational costs.
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In 2023, the Company paid management consulting fees to IHG of $58,250 for the six months ended June 30 as compared to $165,274 paid in 2022 for the six months ended June 30.
Legal and professional fees of $90,888 for the six months ended June 30, 2023 increased by $14,263 from $76,625 for the comparable 2022 period. Fees for the 2023 and 2022 periods were predominately for SEC regulatory and statutory filings, registration statement filings and amendments thereto and auditor related fees for annual audits and quarterly reviews.
Liquidity and Capital Resources
At June 30, 2023, we had a working capital deficit of $1,176,489 and cash of $19,942 as compared to a working capital deficit of $971,295 and cash of $62,085, at December 31, 2022. 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 $125,000 of loans received in the six months ended June 30, 2023. The Company used new and existing fundings to maintain operating activities and complete filings of amendments to the Company’s Registration Statement on Form S-1. During the six months ended June 30, 2023, we used $151,142 of cash for operating activities and paid $16,001 in investing activities for software development and patent costs. In the comparable 2022 period, operating activities utilized cash of $329,832 and investing activities for software development and patent costs utilized cash of $9,634.
Substantially all of our funding in 2023 and 2022 has been from notes and convertible debt financings from non-related investment firms and individuals. During the six months ended June 30, 2023, we borrowed $125,000 from four individuals, due nine months from issuance with interest at 11%. During the six months ended June 30, 2022, we issued convertible debt with a face value of $111,500, receiving cash proceeds, net of financing costs, of $104,000. The convertible debt instruments were with non-related investment firms, carried an interest rate of 10%, matured six months to one year from date of financing and were convertible into shares of the Company’s common stock at a discount to the trading prices of the common shares of 35% to 40%. During the six months ended June 30, 2023, note holders were issued 487,584,913 shares of common stock for conversion of $85,595 face value of debt and related accrued interest. In the comparable 2022 period, convertible note holders were issued 143,872,288 shares of common stock for conversion of $461,584 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 $125,000 in debt financing during the six months ended June 30, 2023 which enabled us to sustain operations in the first two quarters of 2023.
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 June 30, 2023 and December 31, 2022, we had accumulated deficit of $9,614,154 and $9,374,967, respectively, and we will require additional working capital to fund operations through 2023 and beyond. These factors, among others, raise
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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 registered independent auditors have issued an opinion on our financial statements as of December 31, 2022 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 have been 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.
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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
The following additional Risk Factor was added to the Registration Statement on Form S-1, as amended, subsequent to the most recent annual report on Form 10-K.
AN ARTICLE PUBLISHED ON APRIL 17, 2023 BY COINTELEGRAPH.COM MAY EXPOSE US TO LIABILITY FOR VIOLATIONS OF SECTION 5 OF THE SECURITY ACT.
On April 17, 2023, cointelegraph.com published an article by Ana Paula Pereira making various statements which were erroneous about BlackStar and our platform. When the publication of the article came to the attention of the Company, management felt that it was necessary to issue a press release (see the Current Report on Form 8-K ) correcting the article such that the public and existing security holders received factual information and were not misled by the article. In responding to the article, the Company made statements about this Registration Statement, which was not yet effective, in order to remove any confusion that the article may have caused and to reinforce that it was NOT effective; the Company also clarified that the SEC was not approving the BDTPTM platform and that this Registration Statement is a resale registration for common shares underlying convertible notes for select noteholders. While the Company believes that the article and the Company’s response do not constitute offers or sales of securities in the absence of an effective registration statement, the Company cannot eliminate the possibility that it may have liability for a violation of the Securities Act of 1933 (the “’33 Act”). Violations of the registration provisions of Section 5 of the ’33 Act give a purchaser of securities a one-year right to rescind the transaction, pursuant to Sections 12(a)(1) and 13 of the Act, as against any “seller” of the securities who has violated Section 5. In the event that there is a finding of a violation of Section 5 of the ’33 Act, certain investors may have a right of rescission. Section 5 allows purchasers to sue sellers for offering or selling a non-exempt security without registering it. If the purchaser can prove a direct link between the purchaser and the seller, and the suit is within the statute of limitations, the purchaser may obtain rescission, with interest, or damages if the investor sold his securities for less than he purchased them.
In addition to the civil liability from lawsuits brought by investors, the Company and management could face civil or criminal action brought by the federal or state government, depending on the nature of the violation. Criminal liability under Section 5 subjects the defendant to not more than $10,000 in fines and not more than five years imprisonment. Any lawsuits, judgments, penalties, or orders against the Company or its management could have a significant impact on the Company, may prevent or delay it from pursuing the proposed business plan, and would likely have a negative effect on the stock price.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In May 2023, the Company borrowed $50,000 from an unrelated individual, repayable nine months from date of borrowing with interest at 11% per annum. At maturity, the Company will repay the face amount of the loan in cash, including unpaid and accrued interest at 11% and, in addition, will issue 7,500,000 shares of the Company’s common stock to the lender. At maturity the lender has the option to be issued, in lieu of cash payment of the outstanding debt, an additional 7,500,000 shares of the Company’s common stock as full satisfaction of the principal loan amount of $50,000 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.
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On August 1, 2023, the Company borrowed $50,000 from an unrelated individual, repayable May 1, 2024 with interest at 11% per annum. At maturity, the Company will repay the face amount of the loan in cash, including unpaid and accrued interest at 11% and, in addition, will issue 7,500,000 shares of the Company’s common stock to the lender. At maturity the lender has the option to be issued, in lieu of cash payment of the outstanding debt, an additional 7,500,000 of the Company’s common stock as full satisfaction of the principal loan amounts and related unpaid and accrued interest thereon. A substantially similar form of the note is attached as Exhibit 10.1 to the Current Report on Form 8-K filed on June 10, 2019, but with the terms mentioned herein.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5. OTHER INFORMATION
Subsequent to the end of the period covered by this report, on July 1, 2023, the Board of Directors appointed Lance Throneberry as Director and Chief Operating Officer.
Mr. Throneberry is a results driven professional with over 25 years of experience. Mr. Throneberry began his career in public accounting and financial services in 1990. He joined Newmont Mining Corporation (NYSE: “NEM”) in 1995 and served in various roles including Internal Audit Manager, Manager of Global Agreements, Black Belt – Change Management, Program Manager of e-Commerce and Director of Supply Chain Management. Mr. Throneberry joined Peabody Energy (NYSE: “BTU”) in 2006 where he held roles as the Vice President of Supply Chain Management, including a 2+ year international assignment in Australia. He also served as Vice President of Sales and Marketing with Peabody Energy. Mr. Throneberry performed additional roles with Newmont and Peabody including Mergers and Acquisitions, budgeting and forecasting, commodity hedging, capital projects, risk management, people management and others. Post Peabody, Mr. Throneberry has provided consulting services and was a partner in two (2) energy-based LLC’s. Mr. Throneberry holds an MBA from the University of Denver, a BS in Accounting from Eastern Illinois University and is licensed as a Registered Certified Public Accountant (CPA) in the State of Illinois.
As stated in Item 2, above, the Company entered into a promissory note on August 1, 2023, with an unrelated individual. The Company borrowed $50,000, repayable May 1, 2024 with interest at 11% per annum. At maturity, the Company will repay the face amount of the loan in cash, including unpaid and accrued interest at 11% and, in addition, will issue 7,500,000 shares of the Company’s common stock to the lender. At maturity the lender has the option to be issued, in lieu of cash payment of the outstanding debt, an additional 7,500,000 of the Company’s common stock as full satisfaction of the principal loan amounts and related unpaid and accrued interest thereon. A substantially similar form of the note is attached as Exhibit 10.1 to the Current Report on Form 8-K filed on June 10, 2019, but with the terms mentioned herein.
Previously Reported Financial Information Revision:
The Balance Sheet for the period ended March 31, 2023 contained an error in the text regarding the number of Common Stock authorized; the correct number should read 2,000,000,000 shares authorized and not 700,000,000. The correct number was stated elsewhere throughout the 10-Q and the revision did not impact any other aspect of the financial statements as presented.
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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: August 14, 2023 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Executive Officer, | ||
|
Principal Executive Officer)
| ||
| Dated: August 14, 2023 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer, | ||
| Principal Accounting Officer) | ||
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