Forward-Looking Statements and Associated Risks.
This Form 10-Q contains certain statements that are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Form 10-Q that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate," or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors
include but are not limited to economic conditions generally and in the
industries in which we may participate; competition within our chosen industry,
including competition from much larger competitors; technological advances and
failure to successfully develop business relationships.
Based on our financial history since inception, our auditor has expressed
substantial doubt as to our ability to continue as a going concern. As reflected
in the accompanying financial statements, as of March 31, 2022, we had an
accumulated deficit of $(8,666,662) and a working capital deficiency of
$504,840. 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 QB under the symbol "BEGI". The Company is a merchant banking
firm seeking to facilitate venture capital to early-stage revenue companies.
BlackStar intends to offer consulting and regulatory compliance services to
crypto-equity companies and blockchain entrepreneurs for securities, tax, and
commodity issues. BlackStar is conducting ongoing analysis for opportunities in
involvement in crypto-related ventures though our newly formed wholly-owned
subsidiary, Crypto Equity Management Corp., ("CEMC"), mainly in the areas of
blockchain and distributed ledger technologies ("DLT"). BlackStar intends to
serve businesses in their early corporate lifecycles and may provide funding in
the forms of ventures in which we control the venture until divestiture or
spin-off by developing the businesses with capital. We have only engaged in one
transaction as a merchant bank form to date.
Our investment strategy focuses primarily on ventures with companies that we
believe are poised to grow at above-average rates relative to other sectors of
the U.S. economy, which we refer to as "emerging growth companies." Under no
circumstances does the Company intend to become an investment company and its
activities and its financial statement ratios of assets and cash will be
carefully monitored and other activities reviewed by 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 CEMC. BlackStar, through CEMC, intends to initially control and
manage each venture. Potential ventures for both BlackStar and CEMC will be
analyzed using the combined business experience of its executives, with CEMC
looking to fill those venture criteria with companies in crypto-related
businesses such as blockchain or DLT technologies. The Company does not intend
to develop Investment Objectives or "criteria" in any manner but will rely on
the acumen and experience of its executives. BlackStar is currently building a
digital equity trading platform in order to trade registered BlackStar common
shares in digital form (DWAC), and intends to use the platform design to provide
custom subscription services to other public companies.
Recent Updates
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. The
Company is currently evaluating its options for the next major step in its main
feature. BlackStar's Digital Trading Platform ("BDTP TM") will need to be paired
with an operating partner (a broker-dealer, clearing firm, and/or registered
Alternative Trading System ("ATS")) to quote the shares prior to implementation.
To that end, the Company is exploring relationships
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with broker-dealers and existing ATS's and other strategies to go live with BDTP
in accordance with existing laws and regulations. As of the date of this filing,
the core platform of BDTP 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 several 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. During the year ended December 31, 2021, BlackStar and
Artuova successfully completed a production ready and feature-complete user
interface for the digital platform which is now in the final stages of quality
assurance. BlackStar is actively pursuing relationships with various
broker-dealers, clearing firms, and ATS's to complete the final stages of this
multi-year engineering effort. Additionally, during 2021, BlackStar has filed
with the U.S. Patent and Trademark Office ("USPTO") for patent protection of its
proprietary software.
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, the operationality of its digital trading platform.
Currently in the demonstration phase, we estimate $30,000 to be expended over
the next three months. This budget will be used to finalize the integration of
the digital platform into the broker-dealer ecosystem after the appropriate ATS
and broker-dealer relationships are established.
Based on our current cash reserves of approximately $426,916 as of March 31,
2022, we have the cash for an operational budget of approximately twelve
months. We intend to offer a private placement of common 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 mid-summer of 2022. 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.
The independent registered public accounting firm's report on our financial
statements as of December 31, 2021, 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 March 31, 2022 compared to same period in 2021
Net loss for the three months ended March 31, 2022 was $516,902 as compared to
$322,309 for the three months ended March 31, 2021, an increase of $194,593. As
explained below, most of the losses in those periods was attributable to
non-cash transactions from the issuance of convertible debt and other
financings.
For the three months ended March 31, 2022, we had significantly higher
non-operating (other) expenses, substantially all of which are non-cash,
predominately due to amortization of discounts on debt issuance and conversion
features of the convertible promissory notes that we have used to finance our
continued operations. This resulted in total other expenses of $380,622 for the
three months ended March 31, 2022 as compared to $193,021 for the same period in
2021. For the three months ended March 31, 2022, the Company recognized $313,923
for amortization of discount on convertible notes, as compared to $98,582 for
the three months ended March 31, 2021. During the three months ended March 31,
2021, we recognized a loss of $41,677on notes payable conversions as compared to
none in the three months ended March 31, 2022. This reduction is due to a change
in the Company's accounting treatment for conversion of debt to equity. The
increase in amortization of discount on convertible notes is attributable to an
increase in debt conversions in 2022 as compared to 2021.
General and administrative expenses in 2022 were $13,468 a decrease of $42,178
from general and administrative expenses of $55,646 in 2021. In 2021, the
Company recorded an expense of $35,200 for cash and stock payments for fund
raising fees as compared to no costs incurred of this nature in 2022. General
and administrative costs, exclusive of fees for fund raising, were for investor
relations, filing fees, transfer agent fees and overhead operational costs which
were comparable for the 2022 and 2021 quarterly periods.
In 2022, the Company paid management consulting fees to IHG of $86,613 as
compared to $51,142 paid in 2021.
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Legal and professional fees of $36,199 for the three months ended March 31, 2022
increased by $13,699 from $22,500 for the comparable period ended March 31,
2021. Fees for the 2022 and 2021 periods were predominately for SEC regulatory
and statutory filings and audit and related fees for annual audits.
Liquidity and Capital Resources
At March 31, 2022, we had a working capital deficit of $504,840 and cash of
$426,916 as compared to a working capital deficit of $283,414 and cash of
$518,539, at December 31, 2021. 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 December 31, 2021 as compared to
March 31, 2022, with all new debt issuances maturing within one year from the
date of issuance. The Company used new and existing fundings to maintain
operating activities and complete software development and patent filings with
the USPTO for its digital trading platform. During the three months ended March
31, 2022, we used $142,778 of cash for operating activities and paid $845 in
investing activities for patent costs. In the comparable 2021 period, operating
activities utilized cash of $110,537 and investing activities for software
development and patent costs utilized cash of $11,000.
Substantially all of our funding has been from convertible debt financings in
2022 and 2021. The 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 three
months ended March 31,2022, we issued convertible debt with a face value of
$55,750, receiving cash proceeds, net of financing costs, of $52,000. During the
three months ended March 31,2021, we issued convertible debt with a face value
of $220,000, receiving cash proceeds, net of financing costs, of $217,500.
During the three months ended March 31, 2022, convertible note holders were
issued 63,311,934 shares of common stock for conversion of $296,321 face value
of debt and related accrued interest and fees in 2022. In the comparable 2021
period, note holders were issued 2,894,231 shares of common stock for conversion
of $86,827 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 success in raising net cash proceeds of $52,000 and $217,500
from convertible debt financing in the periods ended March 31,2022 and 2021,
respectively, 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 feels it has
sufficient capital to pay 2022 expenses and implement our platform of blockchain
features in third quarter of 2022.
Any additional financings may be dilutive to our stockholders, new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our shares of Common Stock. Debt or equity financing may
subject us to restrictive covenants and significant interest costs.
Going Concern
We have only a very limited amount of cash and have incurred operating losses
and limited cash flows from operations since inception. As of March 31, 2022 and
December 31, 2021, we had accumulated deficit of $8,666,662 and $8,149,760,
respectively and we will require additional working capital to fund operations
through 2022 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
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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, 2021 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 our digital trading platform has been approved to begin
trading. 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.
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BLACKSTAR ENTERPRISE GROUP, INC. 
