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 |
| N/A |
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 November 1, 2023, there were
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| SEPTEMBER 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 September 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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 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) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) per share - basic and diluted | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| 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 SEPTEMBER 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 - June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | ( | ) | |||||||||||||||||||||||||||||
| Shares to be issued for loan costs | — | — | ||||||||||||||||||||||||||||||
| Shares to be issued to officers/directors | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances - September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Balances - June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances -September 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 NINE MONTHS ENDED SEPTEMBER 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 for loan costs | — | — | ||||||||||||||||||||||||||||||
| Shares to be issued to officers/directors | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances - September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Balances - December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of notes and interest | — | |||||||||||||||||||||||||||||||
| Shares issued for cashless warrant exercise | — | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balances - September 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 NINE MONTHS ENDED SEPTEMBER 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 | ||||||||
| Stock based compensation to officers/directors | — | |||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease in prepaids | ||||||||
| Increase in accounts payable | ( | ) | ||||||
| Increase in accrued payables | ||||||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchase of software | ( | ) | ( | ) | ||||
| 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 (decrease) increase 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 to be issued to officers/directors | $ | $ | — | |||||
| Common stock to be issued for loan costs | $ | $ | — | |||||
| 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
NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 nine months ended September 30, 2023 and the year ended December
31, 2022, the Company has generated no revenues and has incurred losses. As of September 30, 2023, the Company had cash of $
| 8 |
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 September 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 September 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 |
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 nine months ended September 30, 2023, the Company issued shares of its common stock as follows:
| ● |
During the nine months ended September 30, 2022, the Company issued shares of its common stock as follows:
| ● |
| ● |
At September 30, 2023, the Company has recorded common stock to be issued as follows:
| ● |
| ● |
NOTE 6 – WARRANTS
In April 2019, the Company issued a convertible
note for $
| 10 |
NOTE 6 – WARRANTS (continued)
A summary of warrant activity during the nine months ended September 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 – September 30, 2023 | $ | . | ||||||||||||
NOTE 7 – CONVERTIBLE NOTES
During the nine months ended September 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 converted, in |
| ● | GS Capital Partners made a $ |
In April 2022, Quick Capital LLC issued a notice
of default on its $
| 11 |
NOTE 7 – CONVERTIBLE NOTES (continued)
Convertible notes payable at September 30, 2023 and December 31, 2022 are summarized as follows:
| Note Holder | Face Amount | Interest Rate | Due Date | September 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 $
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NOTE 8 – NOTES PAYABLE (continued)
In August 2023, the Company borrowed $
In September 2023, the Company borrowed $
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 nine months ended September 30, 2023 and 2022, 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 – SUBSEQUENT EVENTS
In November 2023, the Company borrowed $
On November 6, 2023, the Company was notified
of a lawsuit filed in Clark County, NV against the Company by GS Capital Partners LLC regarding the unavailability of conversion
shares relating to the Promissory Note entered into on October 11, 2021 and the remaining principal balance of $
The Company has analyzed its operations subsequent
to September 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 September 30, 2023, we had an accumulated deficit of $9,713,576 and a working capital deficiency of $1,249,456. 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. On October 19, 2023, BlackStar received a ‘Notice of Allowance’ from the United States Patent and Trademark Office (USPTO), for a patent application titled “System and Method for Matching Orders and Immutable Blockchain Ledger for all Customer Trading Activity with Settlement into the Broker Dealer Ecosystem.” The technology claimed in the patent application enables trading of common shares of a public company on a blockchain. This revolutionary software is our BDTPTM, a trading platform for electronic fungible shares in book-entry, and compliant at any U.S. Brokerage Firm. The patent has not yet been issued.
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 September 30, 2023, we have cash reserves of approximately $51,099, 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 first quarter 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 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 $225,000 from four investors, due nine months from receipt with interest at 11% per annum.
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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.
Results of Operations
For the Three Months Ended September 30, 2023 compared to same period in 2022
Net loss for the three months ended September 30, 2023 was $99,422 as compared to $214,329 for the three months ended September 30, 2022, a decrease of $114,907. 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 September 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 $113,140 for the three months ended September 30, 2022 as compared to $36,762 for the three months ended September 30, 2023. For the three months ended September 30, 2022, the Company recognized $56,071 for amortization of discount on convertible notes, as compared to none for the three months ended September 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 $35,702 in 2023 as compared to $50,452 in the 2022 period, as loans were converted from debt to equity.
General and administrative expenses in 2023 were $8,520 a decrease of $2,914 from general and administrative expenses of $11,434 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.
The Company paid management consulting fees to IHG of $29,000 for the three months ended September 30, 2023 as compared to $70,028 paid for the comparable 2022 period.
Legal and professional fees of $25,140 for the three months ended September 30, 2023 increased by $5,413 from $19,727 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 quarterly reviews.
For the Nine Months Ended September 30, 2023 compared to same period in 2022
Net loss for the nine months ended September 30, 2023 was $338,609 as compared to $1,039,964 for the nine months ended September 30, 2022, a decrease of $701,355. 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 nine months ended September 30, 2023 include $87,250 in related party management consulting fees, $116,028 in legal and professional fees, and $32,555 in general and administrative fees, for total operating expenses of $235,833. In the comparable 2022 period, operating expenses include $235,301 in related party management consulting fees, $96,352 in legal and professional fees, and $57,040 in general and administrative fees, for a total of $388,693 for the nine months ended September 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 $152,860 for 2023.
For the nine months ended September 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 $651,271 for the nine months ended September 30, 2022 as compared to $102,776 for the nine months ended September 30, 2023. For the nine months ended September 30, 2022, the Company recognized $472,440 for amortization of discount on convertible notes, as compared to none for the nine months ended September 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 $95,314 in 2023 as compared to $142,744 in the 2022 period, as loans were converted from debt to equity.
General and administrative expenses in 2023 were $32,555 a decrease of $24,485 from general and administrative expenses of $57,040 in 2022. The decrease in general and administrative costs is attributable to cost containment efforts by management as
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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.
The Company paid management consulting fees to IHG of $87,250 for the nine months ended September 30, 2023 as compared to $235,301 paid in the comparable 2022 period.
Legal and professional fees of $116,028 for the nine months ended September 30, 2023 increased by $19,676 from $96,352 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 September 30, 2023, we had a working capital deficit of $1,249,456 and cash of $51,099 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 $225,000 of loans received in the nine months ended September 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 nine months ended September 30, 2023, we used $207,985 of cash for operating activities and paid $28,001 in investing activities for software development and patent costs. In the comparable 2022 period, operating activities utilized cash of $456,277 and investing activities for software development and patent costs utilized cash of $11,634.
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 nine months ended September 30, 2023, we borrowed $225,000 from four individuals, due nine months from issuance with interest at 11%. During the nine months ended September 30, 2022, we issued convertible debt with a face value of $155,250, receiving cash proceeds, net of financing costs, of $144,000. 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 nine months ended September 30, 2023, note holders were issued 698,077,221 shares of common stock for conversion of $116,725 face value of debt and related accrued interest. In the comparable 2022 period, convertible note holders were issued 196,896,962 shares of common stock for conversion of $528,212 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 $225,000 in debt financing during the nine months ended September 30, 2023 which enabled us to sustain operations in the first three 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.
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Going Concern
We have only a very limited amount of cash and have incurred operating losses and limited cash flows from operations since inception. As of September 30, 2023 and December 31, 2022, we had accumulated deficit of $9,713,576 and $9,374,967, respectively, and we will require additional working capital to fund operations through 2023 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 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 September 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
Subsequent to the end of the period covered in this filing, on November 6, 2023, the Company was notified of a lawsuit filed in Clark County, NV against the Company by GS Capital Partners LLC 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 sought specific performance for the reserve of 700,000,000 shares, or damages in excess of $15,000, plus interest, costs, and legal fees. The Company has paid the note in full on November 15, 2023 totaling $51,196.71 in cash and issued no shares. The Company is attempting to settle the dispute.
ITEM 1A. RISK FACTORS
The risk factor included in the periodic report for the prior quarter ended June 30, 2023, is incorporated herein by reference.
The following additional risk factor shall be added:
A LAWSUIT WAS FILED AGAINST THE COMPANY ON NOVEMBER 6, 2023.
On November 6, 2023, GS Capital Partners LLC filed a lawsuit against the Company in Nevada 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. The lawsuit increases the company’s financial and administrative burdens and is a risk to the Company’s capital. Although the Company is attempting to settle the dispute by paying the note in full, there is no guarantee that this will settle the matter in its entirety. The Company may need to increase the authorized shares of common stock in order to accommodate any judgments or settlements, and the Company could be exposed to further risks of lawsuits for similar issues.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 1, 2023, the Board of Directors approved and authorized the issuance of shares of the Company’s common stock as follows: 1,000,000 shares each to Directors of the Company; 2,000,000 shares each to new officers of the Company; 1,000,000 shares each to new advisors of the Company. During the period ended September 30, 2023, the Company issued an aggregate 8,000,000 shares of its common stock to four individuals, valued at $3,200 ($0.0004 per share), based on the trading price of the Company’s common stock as of the date of grant. The shares were issued for services rendered and the issuance was made by us in reliance upon Section 4(a)(2) of the Act and under an exemption of Rule 506(b) of Regulation D, or any other such exemptions as the transaction may qualify. The officers and directors are well known to us and our management, through pre-existing business relationships. The individuals were provided access to all material information and all information necessary to verify such information and were afforded access to our management in connection with the issuance. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.
In August 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. 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. 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.
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In September 2023, the Company borrowed $50,000 from an unrelated individual, repayable June 29, 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. 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. 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.
In November 2023, the Company borrowed $50,000 and $25,000 from each of two unrelated individuals, repayable nine months 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, will issue 7,500,000 and 3,750,000 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 7,500,000 and 3,750,000 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. 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
None.
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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: November 19, 2023 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Executive Officer, | ||
|
Principal Executive Officer)
| ||
| Dated: November 19, 2023 | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer, | ||
| Principal Accounting Officer) | ||
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