UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| [X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ________________________ to _________________________
Commission file number: 000-55730
BLACKSTAR ENTERPRISE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 27-1120628 | |
(State of Incorporation) | (IRS Employer ID Number) |
4450 Arapahoe Ave., Suite 100, Boulder, CO80303
(Address of principal executive offices)
(303) 500-3210
(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 | N/A | 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.
| Yes |
| 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).
| Yes |
| 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”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] | ||
Non-accelerated filer | [X] | Smaller reporting company | [X] | ||
Emerging growth company | [X] | ||||
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. [ ][X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes |
| No | [X] |
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 11, 2021,9, 2022, there were 122,627,383285,357,307 shares of the registrant’s common stock, $.001 par value, issued and outstanding, not including shares reserved for conversion of notes.
TABLE OF CONTENTS
| Page | ||
| PART | ||
Item 1. | Financial Statements (Unaudited) | 3 |
| Consolidated Balance Sheets – December 31, 2021 and June 30, | 3 | |
| Consolidated Statements of Operations – Three and six months ended June 30, | 4 | |
| Consolidated Statements of Stockholder’s Deficit – Three and six months ended June 30, | 5 | |
| Consolidated Statements of Cash Flows – Three and six months ended June 30, | 7 | |
| Notes to the Financial Statements | 8 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk– Not Applicable | |
| Item 4. | Controls and Procedures | |
| PART II- OTHER INFORMATION | ||
| Item 1. | Legal Proceedings– Not Applicable | |
| Item 1A. | Risk Factors – Not Applicable | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. | Defaults Upon Senior Securities | |
| Item 4. | Mine Safety Disclosure – Not Applicable | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 21 |
| Signatures | 22 |
2
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2021 | December 31, 2020 | |||||||
| ||||||||
ASSETS | ||||||||
| ||||||||
Current Assets | ||||||||
Cash | $ | 505,485 | $ | 32,987 | ||||
Prepaid expenses | 14,196 | 51,224 | ||||||
| ||||||||
Total current assets | 519,681 | 84,211 | ||||||
| ||||||||
Fixed assets | 66,000 | 10,000 | ||||||
| ||||||||
Total Assets | $ | 585,681 | $ | 94,211 | ||||
| ||||||||
| ||||||||
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 11,024 | $ | 29,880 | ||||
Accrued expenses | 26,542 | 4,517 | ||||||
Advances to related parties | 18,780 | 18,780 | ||||||
Convertible notes payable, net of discounts of $816,996 | ||||||||
and $158,390 at June 30, 2021 and December 31, 2020 | 148,279 | 25,885 | ||||||
Notes payable | 30,000 | 50,000 | ||||||
| ||||||||
Total current liabilities | 234,625 | 129,062 | ||||||
| ||||||||
| ||||||||
Stockholders' Equity (Deficit) | ||||||||
Preferred stock, 10,000,000 shares authorized; | ||||||||
$0.001 par value; 1,000,000 shares issued and outstanding | 1,000 | 1,000 | ||||||
Common stock, 700,000,000 shares authorized; $0.001 par value | ||||||||
118,078,138 and 101,063,806 shares issued and outstanding | ||||||||
at June 30, 2021 and December 31, 2020 | 118,078 | 101,063 | ||||||
Additional paid in capital | 7,482,400 | 5,829,279 | ||||||
Common stock subject to cancellation | (250,000 | ) | 0— | |||||
Accumulated deficit | (7,000,422 | ) | (5,966,193 | ) | ||||
| ||||||||
Total stockholders' equity (deficit) | 351,056 | (34,851 | ) | |||||
| ||||||||
Total Liabilities and Stockholders' Deficit | $ | 585,681 | $ | 94,211 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| JUNE 30, 2022 AND DECEMBER 31, 2021 | ||||||||
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 232,951 | $ | 518,539 | ||||
| Prepaid expenses | 5,080 | 5,000 | ||||||
| Total current assets | 238,031 | 523,539 | ||||||
| Intangibles | 171,434 | 159,800 | ||||||
| Total Assets | $ | 409,465 | $ | 683,339 | ||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 27,672 | $ | 43,042 | ||||
| Accrued payables | 98,866 | 74,742 | ||||||
| Convertible notes payable, net of discounts of | ||||||||
| $77,561 and $534,856 at June 30, 2022 and December 31, 2021, respectively | 770,592 | 689,169 | ||||||
| Total current liabilities | 897,130 | 806,953 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, 10,000,000 shares authorized; | ||||||||
| $0.001 par value; 1,000,000 shares issued and outstanding | 1,000 | 1,000 | ||||||
| Common stock, 700,000,000 shares authorized; $0.001 par value | ||||||||
| 285,357,307 and 128,689,319 shares issued and outstanding | ||||||||
| at June 30, 2022 and December 31, 2021 | 285,357 | 128,689 | ||||||
| Additional paid in capital | 8,201,373 | 7,896,457 | ||||||
| Accumulated deficit | (8,975,395 | ) | (8,149,760 | ) | ||||
| Total stockholders’ deficit | (487,665 | ) | (123,614 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 409,465 | $ | 683,339 | ||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
| ||||||||||||||||
Operating expenses | ||||||||||||||||
Legal and professional | $ | 23,804 | $ | 46,791 | $ | 46,304 | $ | 49,791 | ||||||||
Management consulting - related party | 98,000 | 9,910 | 149,142 | 26,410 | ||||||||||||
General and administrative | 139,525 | 31,114 | 195,172 | 46,733 | ||||||||||||
| ||||||||||||||||
Total operating expenses | 261,329 | 87,815 | 390,618 | 122,934 | ||||||||||||
| ||||||||||||||||
| ||||||||||||||||
Other expense (income) | ||||||||||||||||
Amortization of discount on convertible notes | 251,507 | 26,273 | 350,089 | 59,516 | ||||||||||||
Amortization of convertible debt issuance costs | 19,531 | 3,077 | 23,964 | 9,577 | ||||||||||||
Loss on note payable conversions | 124,745 | 276,563 | 166,422 | 297,108 | ||||||||||||
Interest expense | 54,807 | 7,315 | 103,136 | 16,017 | ||||||||||||
| ||||||||||||||||
Other expense (income) | 450,590 | 313,228 | 643,611 | 382,218 | ||||||||||||
| ||||||||||||||||
Net (loss) | $ | (711,919 | ) | $ | (401,043 | ) | $ | (1,034,229 | ) | $ | (505,152 | ) | ||||
| ||||||||||||||||
Net (loss) per share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| ||||||||||||||||
Weighted average number of common shares | ||||||||||||||||
outstanding - basic and diluted | 113,331,275 | 52,880,834 | 109,280,076 | 50,562,551 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock Subject to Cancellation | Common Stock to be Issued | Accumulated Deficit | Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - December 31, 2020 | 101,063,806 | $ | 101,063 | 1,000,000 | $ | 1,000 | $ | 5,829,279 | $ | 0— | 0— | $ | (5,966,193 | ) | $ | (34,851 | ) | |||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Shares issued for conversion of notes and interest | 7,468,804 | 7,469 | — | — | 301,998 | — | — | — | 309,467 | |||||||||||||||||||||||||||
Beneficial conversion feature of convertible note | — | — | — | — | 917,000 | — | — | — | 917,000 | |||||||||||||||||||||||||||
Shares issued for loan costs | 300,000 | 300 | — | — | 23,700 | — | — | — | 24,000 | |||||||||||||||||||||||||||
Shares issued for financing fees | 1,078,862 | 1,079 | — | — | 41,923 | — | — | 43,002 | ||||||||||||||||||||||||||||
Shares issued for software development | 500,000 | 500 | — | — | 19,500 | — | — | — | 20,000 | |||||||||||||||||||||||||||
Shares issued subject to cancellation | 7,666,666 | 7,667 | — | — | 349,000 | (356,667 | ) | — | — | — | ||||||||||||||||||||||||||
Shares issued subject to cancellation realized | — | — | — | — | — | 106,667 | — | — | 106,667 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (1,034,229 | ) | (1,034,229 | ) | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - June 30, 2021 | 118,078,138 | $ | 118,078 | 1,000,000 | $ | 1,000 | $ | 7,482,400 | $ | (250,000 | ) | 0— | $ | (7,000,422 | ) | $ | 351,056 | |||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - December 31, 2019 | 48,003,443 | $ | 48,003 | 1,000,000 | $ | 1,000 | $ | 4,117,321 | 0— | 0— | $ | (4,400,602 | ) | $ | (234,278 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Adjust for shares directly from IHG retirement to treasury at December 31, 2019 | (150,000 | ) | (150 | ) | — | — | 150 | — | — | — | — | |||||||||||||||||||||||||
Shares issued for conversion of notes and interest | 12,520,694 | 12,521 | — | — | 351,268 | — | — | — | 363,789 | |||||||||||||||||||||||||||
Conversion feature of convertible note | — | — | — | — | 103,000 | — | — | — | 103,000 | |||||||||||||||||||||||||||
Common stock to be issued for loans made to the Company – 550,000 shares | — | — | — | — | — | — | 11,000 | — | 11,000 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (505,152 | ) | (505,152 | ) | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - June 30, 2020 | 60,374,137 | $ | 60,374 | 1,000,000 | $ | 1,000 | $ | 4,571,739 | $ | 0— | 11,000 | $ | (4,905,754 | ) | $ | (261,641 | ) | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
| 3 |
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock Subject to Cancellation | Common Stock to be Issued | Accumulated Deficit | Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - March 31, 2021 | 107,307,525 | $ | 107,308 | 1,000,000 | $ | 1,000 | $ | 6,315,228 | $ | (106,667 | ) | $ | 0— | $ | (6,288,502 | ) | $ | 28,367 | ||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Shares issued for conversion of notes and interest | 4,574,573 | 4,574 | — | — | 218,066 | — | — | — | 222,640 | |||||||||||||||||||||||||||
Beneficial conversion feature of convertible note | — | — | — | — | 653,500 | — | — | — | 653,500 | |||||||||||||||||||||||||||
Shares issued for loan costs | 300,000 | 300 | — | — | 11,700 | — | — | — | 12,000 | |||||||||||||||||||||||||||
Shares issued for financing fees | 396,040 | 396 | — | — | 19,406 | — | — | — | 19,802 | |||||||||||||||||||||||||||
Shares issued for software development | 500,000 | 500 | — | — | 19,500 | — | — | — | 20,000 | |||||||||||||||||||||||||||
Shares issued subject to cancellation | 5,000,000 | 5,000 | — | — | 245,000 | (250,000 | ) | — | — | — | ||||||||||||||||||||||||||
Shares issued subject to cancellation realized | — | — | — | — | — | 106,667 | — | — | 106,667 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (711,920 | ) | (711,920 | ) | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - June 30, 2021 | 118,078,138 | $ | 118,078 | 1,000,000 | $ | 1,000 | $ | 7,482,400 | $ | (250,000 | ) | $ | 0— | $ | (7,000,422 | ) | $ | 351,056 | ||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances -March 31, 2020 | 50,241,238 | $ | 50,241 | 1,000,000 | $ | 1,000 | $ | 4,139,711 | $ | 0— | $ | 0— | $ | (4,504,710 | ) | $ | (313,758 | ) | ||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Shares issued for conversion of notes and interest | 10,132,899 | 10,133 | — | — | 329,028 | — | — | — | 339,161 | |||||||||||||||||||||||||||
Conversion feature of convertible note | — | — | — | — | 103,000 | — | — | — | 103,000 | |||||||||||||||||||||||||||
Common stock to be issued for loans made to the Company - 550,000 shares | — | — | — | — | — | — | 11,000 | — | 11,000 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (401,044 | ) | (401,044 | ) | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Balances - June 30, 2020 | 60,374,137 | $ | 60,374 | 1,000,000 | $ | 1,000 | $ | 4,571,739 | $ | 0— | $ | 11,000 | $ | (4,905,754 | ) | $ | (261,641 | ) | ||||||||||||||||||
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||
| Operating expenses | ||||||||||||||||
| Legal and professional | 40,426 | $ | 23,804 | 76,625 | $ | 46,304 | ||||||||||
| Management consulting - related party | 78,661 | 98,000 | 165,274 | 149,142 | ||||||||||||
| General and administrative | 32,138 | 139,526 | 45,605 | 195,172 | ||||||||||||
| Total operating expenses | 151,225 | 261,330 | 287,504 | 390,618 | ||||||||||||
| Other expense (income) | ||||||||||||||||
| Amortization of discount on convertible notes | 102,446 | 251,507 | 416,369 | 350,089 | ||||||||||||
| Amortization of convertible debt issuance costs | 9,142 | 19,531 | 29,470 | 23,964 | ||||||||||||
| Loss on note payable conversions | — | 124,745 | . | 166,422 | ||||||||||||
| Interest expense | 45,920 | 54,807 | 92,292 | 103,136 | ||||||||||||
| Other expense (income) | 157,508 | 450,590 | 538,131 | 643,611 | ||||||||||||
| Net (loss) | $ | (308,733 | ) | $ | (711,920 | ) | $ | (825,635 | ) | $ | (1,034,229 | ) | ||||
| Net (loss) per share - basic and diluted | ||||||||||||||||
| $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | |||||
| Weighted average number of common shares | ||||||||||||||||
| outstanding - basic and diluted | 228,836,254 | 113,331,275 | 187,649,684 | 109,280,076 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
| 4 |
BLACKSTAR ENTERPRISE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
2021 | 2020 | |||||||
| ||||||||
Cash Flows From Operating Activities | ||||||||
Net (loss) | $ | (1,034,229 | ) | $ | (505,152 | ) | ||
Adjustments to reconcile net loss to net cash used | ||||||||
in operating activities | ||||||||
Amortization of convertible note issue costs | 23,964 | 9,577 | ||||||
Amortization of discounts on convertible notes | 350,089 | 59,516 | ||||||
Amortization of discounts on convertible note interest | 21,841 | |||||||
Effects of conversions on convertible debt discounts | 0— | 10,404 | ||||||
Loss on conversion of notes payable | 166,422 | 297,108 | ||||||
Interest and loan fees paid in stock | 173,669 | 23,162 | ||||||
Changes in operating assets and liabilities | ||||||||
Decrease in prepaids | 37,028 | 94 | ||||||
(Decrease) in accounts payable | (18,856 | ) | (2,942 | ) | ||||
Increase in accrued payables | 29,070 | 10,547 | ||||||
| ||||||||
Cash used in operating activities | (251,002 | ) | (97,686 | ) | ||||
| ||||||||
Cash Flows From Investing Activities | ||||||||
Purchase of software | (36,000 | ) | 0— | |||||
| ||||||||
Cash used in investing activities | (36,000 | ) | 0— | |||||
| ||||||||
Cash Flows From Financing Activities | ||||||||
Increase in notes payable | 0— | 125,000 | ||||||
Repayments of notes payable | (20,000 | ) | 0— | |||||
Repayments in advances from related party | 0— | (22,590 | ) | |||||
Proceeds from convertible notes, net of offering costs | ||||||||
and original issue discount | 779,500 | 0— | ||||||
| ||||||||
Net cash provided by financing activities | 759,500 | 102,410 | ||||||
| ||||||||
Net increase (decrease) in cash | 472,498 | 4,724 | ||||||
| ||||||||
Cash, beginning of period | 32,987 | 33,251 | ||||||
| ||||||||
Cash, end of period | $ | 505,485 | $ | 37,975 | ||||
| ||||||||
| ||||||||
Supplemental disclosure of non-cash investing | ||||||||
and financing activities | ||||||||
| ||||||||
Beneficial conversion feature initially recorded as debt discount | $ | 917,000 | $ | 0— | ||||
Notes payable and interest converted to common stock | $ | 142,856 | $ | 87,225 | ||||
Common stock issued for software | $ | 20,000 | $ | 0— | ||||
Common stock to be issued for loan costs | $ | 0— | $ | 11,000 | ||||
| ||||||||
Cash paid for interest on debt | $ | 2,750 | $ | 0— | ||||
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||
| FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2022 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock Subject to Cancellation | Accumulated Deficit | Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balances - December 31, 2020 | 101,063,806 | $ | 101,063 | 1,000,000 | $ | 1,000 | $ | 5,829,279 | $ | — | $ | (5,966,193 | ) | $ | (34,851 | ) | ||||||||||||||||
| Shares issued for conversion of notes and interest | 7,468,804 | 7,469 | — | — | 301,998 | — | — | 309,467 | ||||||||||||||||||||||||
| Beneficial conversion feature of convertible note | — | — | — | — | 917,000 | — | — | 917,000 | ||||||||||||||||||||||||
| Shares issued for loan costs | 300,000 | 300 | — | — | 23,700 | — | — | 24,000 | ||||||||||||||||||||||||
| Shares issued for financing fees | 1,078,862 | 1,079 | — | — | 41,923 | — | — | 43,002 | ||||||||||||||||||||||||
| Shares issued for software development | 500,000 | 500 | — | — | 19,500 | — | — | 20,000 | ||||||||||||||||||||||||
| Shares issued subject to cancellation | 7,666,666 | 7,667 | — | — | 349,000 | (356,667 | ) | — | — | |||||||||||||||||||||||
| Shares issued subject to cancellation realized | — | — | — | — | — | 106,667 | — | 106,667 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (1,034,229 | ) | (1,034,229 | ) | ||||||||||||||||||||||
| Balances - June 30, 2021 | 118,078,138 | $ | 118,078 | 1,000,000 | $ | 1,000 | $ | 7,482,400 | $ | (250,000 | ) | $ | (7,000,422 | ) | $ | 351,056 | ||||||||||||||||
| Balances - December 31, 2021 | 128,689,319 | $ | 128,689 | 1,000,000 | $ | 1,000 | $ | 7,896,457 | $ | — | $ | (8,149,760 | ) | $ | (123,614 | ) | ||||||||||||||||
| Shares issued for conversion of notes and interest | 143,872,288 | 143,872 | — | — | 317,712 | — | — | 461,584 | ||||||||||||||||||||||||
| Shares issued for cashless warrant exercise | 12,795,700 | 12,796 | — | — | (12,796 | ) | — | — | — | |||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (825,635 | ) | (825,635 | ) | ||||||||||||||||||||||
| Balances - June 30, 2022 | 285,357,307 | $ | 285,357 | 1,000,000 | $ | 1,000 | $ | 8,201,373 | $ | — | $ | (8,975,395 | ) | $ | (487,665 | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
| 5 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2022 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid in Capital | Common Stock Subject to Cancellation | Accumulated Deficit | Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balances - March 31, 2021 | 107,307,525 | $ | 107,308 | 1,000,000 | $ | 1,000 | $ | 6,315,228 | $ | (106,667 | ) | $ | (6,288,502 | ) | $ | 28,367 | ||||||||||||||||
| Shares issued for conversion of notes and interest | 4,574,573 | 4,574 | — | — | 218,066 | — | — | 222,640 | ||||||||||||||||||||||||
| Beneficial conversion feature of convertible note | — | — | — | — | 653,500 | — | — | 653,500 | ||||||||||||||||||||||||
| Shares issued for loan costs | 300,000 | 300 | — | — | 11,700 | — | — | 12,000 | ||||||||||||||||||||||||
| Shares issued for financing fees | 396,040 | 396 | — | — | 19,406 | — | — | 19,802 | ||||||||||||||||||||||||
| Shares issued for software development | 500,000 | 500 | — | — | 19,500 | — | — | 20,000 | ||||||||||||||||||||||||
| Shares issued subject to cancellation | 5,000,000 | 5,000 | — | — | 245,000 | (250,000 | ) | — | — | |||||||||||||||||||||||
| Shares issued subject to cancellation realized | — | — | — | — | — | 106,667 | — | 106,667 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (711,920 | ) | (711,920 | ) | ||||||||||||||||||||||
| Balances - June 30, 2021 | 118,078,138 | $ | 118,078 | 1,000,000 | $ | 1,000 | $ | 7,482,400 | $ | (250,000 | ) | $ | (7,000,422 | ) | $ | 351,056 | ||||||||||||||||
| Balances - March 31, 2022 | 192,001,253 | $ | 192,001 | 1,000,000 | $ | 1,000 | $ | 8,129,466 | $ | — | $ | (8,666,662 | ) | $ | (344,195 | ) | ||||||||||||||||
| Shares issued for conversion of notes and interest | 80,560,354 | 80,560 | — | — | 84,703 | — | — | 165,263 | ||||||||||||||||||||||||
| Shares issued for cashless warrant exercise | 12,795,700 | 12,796 | — | — | (12,796 | ) | — | — | — | |||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (308,733 | ) | (308,733 | ) | ||||||||||||||||||||||
| Balances - June 30, 2022 | 285,357,307 | $ | 285,357 | 1,000,000 | $ | 1,000 | $ | 8,201,373 | $ | — | $ | (8,975,395 | ) | $ | (487,665 | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
| BLACKSTAR ENTERPRISE GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 | ||||||||
| (Unaudited) | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net (loss) | $ | (825,635 | ) | $ | (1,034,229 | ) | ||
| Adjustments to reconcile net loss to net cash used | ||||||||
| in operating activities | ||||||||
| Amortization of convertible note issue costs | 29,470 | 23,964 | ||||||
| Amortization of discounts on convertible notes | 416,369 | 350,089 | ||||||
| Amortization of discounts on convertible note interest | 18,956 | 21,841 | ||||||
| Loss on conversion of notes payable | — | 166,422 | ||||||
| Interest and loan fees paid in stock | — | 173,669 | ||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in prepaids | (80 | ) | 37,028 | |||||
| (Decrease) in accounts payable | (17,370 | ) | (18,856 | ) | ||||
| Increase in accrued payables | 48,458 | 29,070 | ||||||
| Cash used in operating activities | (329,832 | ) | (251,002 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchase of software | (9,634 | ) | (36,000 | ) | ||||
| Cash used in investing activities | (9,634 | ) | (36,000 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Repayments of notes payable | — | (20,000 | ) | |||||
| Payments on convertible debt | (50,122 | ) | — | |||||
| Proceeds from convertible notes, net of offering costs | ||||||||
| and original issue discount | 104,000 | 779,500 | ||||||
| Net cash provided by financing activities | 53,878 | 759,500 | ||||||
| Net increase (decrease) in cash | (285,588 | ) | 472,498 | |||||
| Cash, beginning of period | 518,539 | 32,987 | ||||||
| Cash, end of period | $ | 232,951 | $ | 505,485 | ||||
| Supplemental disclosure of non-cash investing | ||||||||
| and financing activities | ||||||||
| Beneficial conversion feature initially recorded as debt discount | $ | — | $ | 917,000 | ||||
| Notes payable and interest converted to common stock | $ | 461,584 | $ | 142,856 | ||||
| Common stock issued for software | $ | — | $ | 20,000 | ||||
| Accounts payable for software costs | $ | 2,000 | $ | — | ||||
| Cashless exercise of common stock warrant | $ | 29,430 | $ | — | ||||
| Cash paid for interest on debt | $ | 4,829 | $ | 2,750 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30, 20212022
(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 as NPI08, Inc. The Company changed its name to BlackStar Enterprise Group, Inc. in 2016 when new management and capital were introduced.
2007. On January 25, 2016, International Hedge Group, Inc. (“IHG”) signed an agreement to acquire a 95% interest in the Company. In lieu of the 95% of common shares originally agreed upon, IHG receivedwas issued 44,400,000 shares of common stock and 1,000,000 shares of Series A Preferred Stock. IHG is our controlling shareholder and is engaged in providing management services and capital consulting to companies. IHG and BlackStar are currently managed and controlled by two individuals each of whom is a beneficial owner of an additional 9% of the Company’s common stock.
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, Crypto Equity Management Corp (“CEMC”). 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, Crypto Industry SRO Inc. (“Crypto”) in 2017. Crypto’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, 20202021 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, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022.
These unaudited consolidated financial statements include BlackStar and its wholly owned subsidiaries: Crypto Equity Management Corp. and Crypto 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.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 2 – GOING CONCERN
The Company'sCompany’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, 20212022 and the year ended December 31, 2020,2021, the Company has generated no revenues and has incurred losses. As of June 30, 2021,2022, the Company had cash of $505,485,$232,951, working capital deficiency of $285,056$659,099 and an accumulated deficit of $7,000,422.$8,975,395. These conditions raise substantial doubt as to the Company'sCompany’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The continuation of the Company as a going concern is dependent upon the ability to raise equity or debt financing, and the attainment of profitable operations from the Company'sCompany’s planned business. Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
| 8 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2022
(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
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from Generally Accepted Accounting Principles (“GAAP”) separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. The Company has elected to adopt the guidance under ASU 2020-06 for the fiscal year commencing January 1, 2022.
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, 2021,2022 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.
9
| 9 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30, 20212022
(Unaudited)
NOTE 4 – INTANGIBLES
Intangibles at June 30, 2022 and December 31, 2021 consist of capitalized costs for the Company’s proprietary software and patents as follows:
| 2022 | 2021 | |||||||||
| Software | $ | 90,000 | $ | 88,000 | ||||||
| Patents | 81,434 | 71,800 | ||||||||
| $ | 171,434 | $ | 159,800 | |||||||
NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company has an authorized number of preferred shares of 10,000,000, with a par value of $0.001 per share. On August 25, 2016, the Company issued 1,000,000 shares of its Series A Preferred Series stock to International Hedge Group, Inc.stockto IHG in fulfillment of the purchase agreement. These shares are convertible at a ratio of 100 shares of the common stock of the Company for each share of preferred stock of the Company.
Common Stock
During the six months ended June 30, 2022, the Company issued shares of its common stock as follows:
| ● | 143,872,288 shares for conversion of $461,584 principal and interest on convertible notes payable. |
| ● | 12,795,700 shares for exercise of previously issued warrants at $0.0023 per share. The exercise price was revised to $0.0023 per share from $0.25 per share as per antidilution provision of the warrant agreement. The warrants were exercised on a cashless or “net” basis. Accordingly, we did not receive any proceeds from such exercises. The cashless exercise of such warrants resulted in the cancellation of previously issued warrants to purchase an aggregate of 118,800 shares of common stock. |
During the six months ended June 30, 2021, the Company issued shares of its common stock as follows:
| ● | 7,468,804 shares for conversion of $148,856 principal and interest on convertible note payable, and recognized a loss conversion of $166,422. |
| ● | 300,000 shares valued at $24,000 ($0.08 per share) to a convertible note holder as consideration for the Company’s entering into certain third party transactions which were in default of the convertible promissory note, security purchase agreement and other related documents entered into on November 16, 2020. |
| ● | 1,078,8623 shares valued at $43,002 as consideration for financing fees for loans made to the Company. |
| ● | 500,000 shares valued at $0.04 per share as partial consideration for software development costs. |
| ● | 2,666,666 shares valued at $106,667 ($0.04 per share) to a convertible note holder. These shares have been issued as condition that the Company files a resale registration statement covering the underlying convertible shares. The shares are returnable to the Company upon the effective date of the registration statement. The resale registration statement was not filed in the period stipulated in the agreement with the note holder, and accordingly the $106,667 value of the shares has been charged to operations as of June 30, 2021. |
•
7,468,804 shares for conversion of $148,856 principal and interest on convertible note payable, and recognized a loss conversion of $166,422.
•
300,000 shares valued at $24,000 ($0.08 per share) to a convertible note holder as consideration for the Company’s entering into certain third party transactions which were in default of the convertible promissory note, security purchase agreement and other related documents entered into on November 16, 2020.
•
1,078,862 shares valued at $43,002 as consideration for financing fees for loans made to the Company.
•
500,000 shares valued at $0.04 per share as partial consideration for software development costs.
•
2,666,666 shares valued at $106,667 ($0.04 per share) to a convertible note holder. These shares have been issued as condition that the Company files a resale registration statement covering the underlying convertible shares. The shares are returnable to the Company upon the effective date of the registration statement. The resale registration statement was not filed in the period stipulated in the agreement with the note holder, and accordingly the $106,667 value of the shares has been charged to operations as of June 30, 2021.
•
5,000,000 shares valued at $250,000 ($0.05 per share) to a convertible note holder. These shares have been issued as condition that the Company files a resale registration statement covering the underlying convertible shares. The shares are returnable to the Company upon the effective date of the registration statement.
10
| 10 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30, 20212022
(Unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
| ● | 5,000,000 shares valued at $250,000 ($0.05 per share) to a convertible note holder. These shares have been issued as condition that the Company files a resale registration statement covering the underlying convertible shares. The shares are returnable to the Company upon the effective date of the registration statement. |
NOTE 6 – WARRANTS
In April 2019, the Company issued a convertible note for $110,000. Pursuant to the terms of the note agreement, the Company issued warrants to the holder for the purchase 440,000 shares of the Company’s common stock. The warrants are exerecisable at $0.25 per share for a term of 5 years. The $132,953 fair value of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: stock price $0.38; strike price $0.25; volatility 98%; risk free rate 2.25% and term of 5 years. The $132,953$132.953 fair value of the warrants was charged to operations when issued during the year ended December 31, 2019. At June 30, 2021,2022, the intrinsic value of the outstanding warrants was $0, as the trading price of the Company’s common stock at that date was less than the underlying exercise price of the warrants.
A summary of warrant activity during the threesix months ended June 30, 20212022 is presented below:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||
| |||||||||||
Outstanding and exercisable – December 31, 2020 | 540,000 | $ | 0.31 | 2.99 | |||||||
Exercised | 0— | ||||||||||
Expired | 0— | ||||||||||
Outstanding and exercisable – June 30, 2021 | 540,000 | $ | 0.31 | 2.49 | |||||||
Shares |
Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| Outstanding and exercisable – December 31, 2021 | 540,000 | $ | 0.31 | 1.99 | ||||||||||
| Exercised | (118,800 | ) | ||||||||||||
| Expired | — | |||||||||||||
| Outstanding and exercisable – June 30, 2022 | 421,200 | $ | 0.40 | 1.91 | ||||||||||
NOTE 67 – CONVERTIBLE NOTES
GS CAPITAL PARTNERS
On December 4, 2020,During the six months ended June 30, 2022, the Company entered into a financing arrangement with GS Capital Partners LLC. The face value ofhad the following transactions related to its convertible note is $55,000 at an interest rate of 10% and the maturity date is December 2, 2021. At the time of the disbursement the Company received $45,000 net cash proceeds, as there was a deduction from proceeds to the Company of $10,000 for original interest discount and placement costs. The repayment is a lump sum payment on the due date or is convertible into Company common stock at the discretion of the lender. The conversion, if chosen, will be at 50% of the two lowest trading days in the previous ten-day period prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note.
The Company has recorded the conversion feature as a beneficial conversion feature of $55,000. The fair value of $55,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the current trading prices of the Company’s common stock. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
In June 2021, GS Capital elected to convert $40,000 principal and $2,056 accrued interest due on the note into 2,635,549 shares of the Company’s common stock under the conversion provision and terms of the note agreement. The Company recognized a loss on conversion of $44,663. As of June 30, 2021, $15,000 principal was remaining on the note. (See Note 9).
financings:
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
POWER UP LENDING GROUP
(i) On July 24, 2020,February 14, 2022, the Company entered into a financing agreement with Power UpSixth Street Lending LLC to borrow $43,000 with a due date of July 24, 2021.$55,750. The note matures on February 14, 2023, bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 61%65% of the average of the two lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note.The Company has reserved 41,876,318 shares for conversion. Net proceeds from the loan were $40,000, after legal fees and offering costs of $3,000. These fees and costs are being amortized over the term of the note. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $43,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
On January 28, 2021, Power Up elected to convert the total principal and interest due on their note of July 24, 2020 in the principal amount of $43,000 and $2,150 of accrued and unpaid interest thereon into 2,894,231 shares of the Company’s common stock at $0.0156 per share. The Company recognized a loss on conversion of $41,677.
(ii) On October 8, 2020, the Company received the proceeds from a financing agreement entered into with Power Up Lending Group on September 24, 2020 to borrow $53,000. The note bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 61% of the lowest trading price of the Company’s common stock for the previous 20fifteen trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 25,429,82847,871,198 shares for conversion. Net proceeds from the loan were $50,000,$52,000, after legal fees and offering costs of $3,000. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $53,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note.$3,750.
Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company(ii) In February and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
On April 12, 2021, Power UpMarch 2022, Adar Alef LLC (“Adar Alef”) elected to convert the totalmake a partial conversion of $76,500 principal and interest due on their note of October 8, 2020 in the principal amount of $53,000 and $2,650$6,296 of accrued and unpaid interest thereon due on their note of April 29, 2021, in three tranches, into 1,939,024an aggregate 21,504,766 shares of the Company’s common stock at $0.0287prices of $0.0023 to $0.0064 per share. The Company recognized a lossshare under the conversion provision and terms of the note agreement.
| 11 |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2022
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES (continued)
(iii) In January and February 2022, Power Up elected to convert, in five tranches, the total principal of $103,750 due on their note of July 26, 2021, together with accrued and upaid interest thereon of $5,188, into an aggregate 12,982,155 shares of the Company’s common stock (at conversion prices of $80,082.$0.0075 to $0.0088 per share) under the conversion provision and terms of the note agreement.
(iii)(iv) In February and March 2022, Power Up Lending Group Ltd. (Power Up) elected to convert, in four tranches, the total principal due on their note of July 28, 2021 of $78,750 and accrued and unpaid interst thereon of $3,938 into 21,273,289 shares of the Company���s common stock at conversion prices of $0.0029 to $0.0073 per share under the conversion provision and terms of the note agreement.
(v) In March and April 2022, Power Up elected to convert, in three tranches, the total principal due on their note of September 1, 2021 of $53,750 and accrued and unpaid interst thereon of $2,688, into 19,952,406 shares of the Company’s common stock at conversion prices of $0.0024 to $0.0029 per share under the conversion provision and terms of the note agreement.
(vi) On January 15, 2021,May 5, 2022, the Company entered into a financing agreement with Power Up1800 Diagonal Lending GroupLLC (formerly Sixth Street Lending LLC) to borrow $43,500.$55,750. The note matures on May 5, 2023, bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 61%65% of the average of the two lowest trading price of the Company’s common stock for the previous 20fifteen trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 20,871,65143,537,683 shares for conversion. Net proceeds from the loan were $40,000, after legal fees of $3,500. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $43,500 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock. (See Note 9)
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
NOTE 6 – CONVERTIBLE NOTES (continued)
(iv) On March 31, 2021, the Company entered into a financing agreement with Power Up Lending Group to borrow $103,500. The note bears interest at 10%, with a default rate of 22%, and is convertible, commencing 180 days after the date of issuance. The conversion price is to be calculated at 63% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 20,535,714 shares for conversion. On April 1, 2021, the Company received the net proceeds from the loan of $100,000,$52,000, after legal fees and offering costs of $3,500.$3,750.
QUICK CAPITAL LLC
On November 23, 2020,(vii) In April and May 2022, Power Up elected to convert, in five tranches, the Company enteredtotal principal balance of $78,750 and accrued and upaid interest thereon of $3,938 due on their note of October 1, 2021 into a financing agreement with Quick Capital LLC to borrow $33,275 with a due date of July 16, 2021. The note bears interest at 10%, with a default rate of 24%, and is convertible inton40,260,417 shares of the Company’s common stock. Thestock at prices of $0.0020 to $0.0024 per share under the conversion price is to be calculated at 60%provision and terms of the 2 lowest trading pricesnote agreement.
(viii) In June 2022, Sixth Street Lending LLC elected to convert, in three tranches, the total principal of $45,750 due on their note of November 29, 2021, together with accrued and upaid interest thereon of $2,288, into an aggregate 27,899,255 shares of the Company’s common stock for(at conversion prices of $0.0016 to $0.0018 per share) under the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99%conversion provision and terms of the totalnote agreement.
(ix) In April 2022, Quick Capital, LLC issued a notice of default on the $33,275 convertible note dated November 16, 2020 and stated that the outstanding common stock. There are no warrants or options attached to thisamount due on the note is $133,317.38, the default interest per annum is 24%, and that the Company has reserved 12,000,000 shares for conversion. Net proceeds fromconversion price is the loan were $25,000, after legal fees and offering costs of $8,275.lowest trading price during the delinquency period with a 50% discount. The Company has recordedcontinued to accure interest on the conversion feature asnote at the rate of 10% per annum.
(x) On April 29, 2022, the Company did not satisfy its obligations for final payment of outstanding principal of $473,500 and accrued interest under a beneficial conversion feature. The fair valuefinancing agreement entered into on April 29, 2021 with Adar Alef. Under the terms of $33,275 for the expense portionfinancing agreement, the stated interest rate of the note is being amortized over the termwas 10% with default interest of the note. This fair value has been determined based on the trading price24%, and was convertible into common shares of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
SE HOLDINGS LLC
On January 26, 2021, the Company entered into a financing agreement with SE Holdings LLC to borrow $220,000. The note bears interest at 10%, with a default rate of 24%, and is convertible, at any time after the date of issuance. The conversion price is to be calculated at 50% of the average of the three lowest trading price of the Company’s common stock for the previous twenty trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 44,000,000 shares for conversion. Net proceeds from the loan were $177,500, after original issue discount of $20,000 and legal fees and offering costs of $22,500. The Company has recorded the conversion feature as a beneficial conversion feature. The fair value of $220,000 for the expense portion of the note is being amortized over the term of the note. This fair value has been determined based on the trading price of the Company’s common stock as of the date of the note. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock.
ADAR ALEF LLC
On April 29, 2021, the Company entered into a financing agreement with Adar Alef, LLC to borrow $550,000. The note bears interest at 10%, with a default rate of 24%, and is convertible at the option of the holder, at any time after the date of issuance. The conversion price is to be calculated at 50% of the average of the three lowest closing bid prices of the Company’s common stock for the previous 20 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to this note, and the Company has reserved 86,105,000 shares for conversion The Company received the net proceeds from the loan of $462,000, after original issue discount, legal fees and offering costs of $88,000.holder.
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BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30, 20212022
(Unaudited)
NOTE 67 – CONVERTIBLE NOTES (continued)
(xi) On April 27, 2022, the Company entered into an Amendment and Abatement Agreement (“Abatement Agreement”) with SE Holdings and Adar Alef (collectively “the Parties”) to address the Company’s default on the two outstanding convertible notes between the Parties, consisting of the remaining $473,500 principal balance to Adar Alef and face amount $220,000 note with SE Holdings. Under the terms of the Abatement Agreement, the Parties agreed to abate the conversion features under the notes for a period of forty five (45) days from April 15, 2022, with the conversion features resuming no sooner than May 30, 2022. The Company has paid to Adar Alef a total of $50,000 upon execution of the Abatement Agreement for principal, redemption penalty and accrued interest. The remaining principal and accrued interest on the notes to SE Holdings and Adar Alef would be due on May 30, 2022. On May 25, 2022, the Abatement Agreement was extended for an additional thirty (30) days through June 30, 2022, upon an additional payment by the Company of $25,000 to Adar Alef for principal, redemption penalty and accrued interest.
Convertible notes payable at June 30, 20212022 and December 31, 20202021 are summarized as follows:
Holder | Face Amount | Interest Rate | Due Date | 2021 | 2020 | |||||||||||
| ||||||||||||||||
GS Capital Partners | $ | 55,000 | 10% | December 2, 2021 | $ | 15,000 | $ | 55,000 | ||||||||
| ||||||||||||||||
Power UP Lending Group | $ | 43,000 | 10% | July 24, 2021 | $ | 0— | $ | 43,000 | ||||||||
| $ | 53,000 | 10% | September 24, 2021 | $ | 0— | $ | 53,000 | ||||||||
$ | 43,500 | 10% | January 15, 2022 | $ | 43,500 | $ | 0— | |||||||||
$ | 103,500 | 10% | March 31, 2022 | $ | 103,500 | $ | 0— | |||||||||
| ||||||||||||||||
SE Holdings LLC | $ | 220,000 | 10% | January 26, 2022 | $ | 220,000 | $ | 0— | ||||||||
| ||||||||||||||||
Quick Capital LLC | $ | 33,275 | 10% | July 16, 2021 | $ | 33,275 | $ | 33,275 | ||||||||
| ||||||||||||||||
Adar Alef LLC | $ | 550,000 | 10% | April 29, 2022 | $ | 550,000 | $ | 0— | ||||||||
| ||||||||||||||||
Discount | $ | (816,996 | ) | $ | (158,390 | ) | ||||||||||
| ||||||||||||||||
$ | 148,279 | $ | 25,885 | |||||||||||||
NOTE 7 – NOTES PAYABLE
On November 18, 2020, outstanding loans to the two individuals were rolled over and extended into two new loans in the amounts of $20,000 and $30,000, due May 18, 2021 with interest at 11%. Each of the two loan holders was paid $2,500 principal (an aggregate $5,000) and aggregate accrued interest of $3,026. In addition, the two individuals were issued an aggregate 1,550,000 shares of the Company’s common stock valued at $46,500 ($0.03 per share), under the default penalty provisions of the original notes.
Effective May 18, 2021, each of the loan holders was repaid $10,000 principal and accrued interest of $1,100 and $1,650. The two notes were rolled into new loans in the amounts of $10,000 and $20,000, due November 18, 2021 with interest at 11%. In addition, the two individuals were issued an aggregate 300,000 shares of the Company’s common stock valued at $12,000 ($0.04 per share).
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| Note Holder | Face Amount | Interest Rate | Due Date | June 30, 2022 | December 31, 2021 | |||||||||||||
| GS Capital Partners LLC | $ | 60,000 | 8 | % | October 11, 2022 | $ | 60,000 | $ | 60,000 | |||||||||
| Power UP Lending Group Ltd. | $ | 103,750 | 10 | % | July 26, 2022 | — | $ | 103,750 | ||||||||||
| $ | 78,750 | 10 | % | July 28, 2022 | — | $ | 78,750 | |||||||||||
| $ | 53,750 | 10 | % | September 1, 2022 | — | $ | 53,750 | |||||||||||
| $ | 78,750 | 10 | % | October 1, 2022 | — | $ | 78,750 | |||||||||||
| SE Holdings LLC | $ | 220,000 | 10 | % | January 26, 2022 | $ | 220,000 | $ | 220,000 | |||||||||
| Quick Capital LLC | $ | 33,275 | 10 | % | July 16, 2021 | $ | 33,275 | $ | 33,275 | |||||||||
| Adar Alef LLC | $ | 550,000 | 10 | % | April 29, 2022 | $ | 423,378 | $ | 550,000 | |||||||||
| Sixth Street Lending LLC | $ | 45,750 | 10 | % | November 29, 2022 | — | $ | 45,750 | ||||||||||
| $ | 55,750 | 10 | % | February 14, 2023 | $ | 55,750 | — | |||||||||||
| 1800 Diagonal Lending LLC | $ | 55,750 | 10 | % | May 5, 2023 | $ | 55,750 | — | ||||||||||
| Discount | $ | (77,561 | ) | $ | (534,856 | ) | ||||||||||||
| $ | 770,592 | $ | 689,169 | |||||||||||||||
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BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30, 20212022
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it must rely 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, 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, 20212022 and 20202021 the Company recorded related party management fees of $165,274 and $149,142, and $26,410, respectively.
During the yearsix months ended December 31, 2020,June 30, 2022 and 2021, there were no advances from related parties, and the Company repaid $23,070 to its parent company, IHG.parties. At June 30, 2021, a former officer of the Company was owed $18,780.$18,780, which amount was repaid during the year ended December 31, 2021.
NOTE 9 – SUBSEQUENT EVENTS
•
On July 6, 2021, GS Capital elected1, 2022, the Abatement Agreement was extended for an additional thirty (30) days through July 31, 2022, upon an additional payment by the Company of $25,000 to convert the remaining $15,000Adar Alef for principal, redemption penalty and accrued interestinterest.
On July 8, 2022, the majority shareholder of $879 due on their note into 976,954BlackStar Enterprise Group, Inc. submitted written consent to the resolution to increase the authorized common stock from 700,000,000 to 2,000,000,000, with an effective date of the Amendment to the Articles of Incorporation of August 5, 2022. Following the increase in authorized shares proposed by the Company’s Board of Directors, we will have 2,000,000,000 shares of the Company’sauthorized common stock ($0.016375 per share) underand 10,000,000 shares of authorized preferred stock (no change in preferred), with no changes in the conversion provision and termsshares outstanding of either the common stock or preferred stock as a result of the note agreement.increase.
•
In July 2021, Power Up elected to convert (in two tranches) the total principal of $43,500 due on their note of January 15, 2021 together with accrued upaid interest thereon of $2,175 into an aggregate 3,572,791 shares of the Company’s common stock (1,304,348 shares at $0.0138 per share and 2,268,443 shares at $0.0122 per share) under the conversion provision and terms of the note agreement.
•
On July 26, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $103,750. The note matures on July 26, 2022, bears interest at 10%, with a default rate of 22%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest closing bid prices of the Company’s common stock for the previous 15 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note, and the Company has reserved 34,220,756 shares for conversion. The Company received net proceeds from the loan of $100,000, after legal and financing fees of $3,750.
•
On July 28, 2021, the Company entered into a financing agreement with Power Up Lending Group Ltd. to borrow $78,750. The note matures on July 28, 2022, bears interest at 10%, with a default rate of 22%, and is convertible at the option of the holder, at any time after 180 days of the date of issuance. The conversion price is to be calculated at 65% of the average of the two lowest closing bid prices of the Company’s common stock for the previous 15 trading days prior to the date of conversion. The lender agrees to limit the amount of stock received to less than 4.99% of the total outstanding common stock. There are no warrants or options attached to the note. There are no warrants or options attached to this note, and the Company has reserved 36,346,153 shares for conversion. The Company received net proceeds from the loan of $75,000, after legal and financing fees of $3,750.
The Company has analyzed its operations subsequent to June 30, 20212022 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.
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, 2021,2022, we had an accumulated deficit totaling ($7,000,422).of $8,975,395 and a working capital deficiency of $659,099. This raises substantial doubts about our ability to continue as a going concern.
Plan of OperationOverview
BlackStar Enterprise Group, Inc. (the “Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007 as NPI08, Inc. (“NPI08”). In January 2010, NPI08 acquired an ownership interest in Black Star Energy Group, Inc., a Colorado Corporation. BlackStar Energy then merged into NPI08, with NPI08 being the surviving entity. Concurrently, NPI08 changed its name to BlackStar Energy Group, Inc. On January 25, 2016, International Hedge Group, Inc. signed an agreement to acquire a 95% interest in the Company. In lieu of the 95% of common shares originally agreed upon, IHG received 44,400,000 shares of common stock and 1,000,000 shares of Class A Preferred Stock. The name was changed to BlackStar Enterprise Group, Inc. in August of 2016.
The Company is a Delaware corporation organized for the purpose of engaging in any lawful business. The Company intends to act as a merchant bank as of the date of these financial statements. We currently trade on the OTC QBPink under the symbol “BEGI”.“BEGI.” The Company is a merchant banking firm seeking to facilitate venture capital to early stageearly-stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services to crypto-equityblockchain and DLT companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in crypto-relatedelectronic fungible share-related ventures though our newly formed wholly-owned subsidiary, Crypto Equity Management Corp., (“CEMC”), mainly formed in September 2017. CEMC 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 areasclient’s equity based off of blockchain and distributed ledger technologies (“DLT”)the BDTP TM. CEMC has not established any anticipated time frames or key milestones for CEMC 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“emerging growth companies."” Under no circumstances does the companyCompany 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 theits 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. CEMC 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 BDTP TM. CEMC has not established any anticipated time frames or key milestones for CEMC business.
BlackStar is currently building a digital equity trading platform in order to trade registered BlackStarelectronic fungible common shares in digital formequal to the shares held by DTCC (DWAC), and. BlackStar intends to use the platform design to provide custom subscription services to other public companies. More details regarding the BDTP TM can be found in the most recent registration statement on Form S-1, as amended.
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Recent Updates –
The Company is finalizing the designmarketing plan to promote and buildroll out the three features of the BlackStar Digital Trading Platform (“BDTP”), subjectits blockchain platform. The Company plans to obtaining sufficient funding.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 the process – BDTPits main feature. BlackStars Digital Trading Platform (“BDTP”) will need to be paired with aan operating licensee (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 partnershipslicensing and contractual relationships 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 initial democore platform of BDTP is complete and will remain in the testing phase until we obtain an operating licensee. BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP over the next several months. The BDTP 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
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recording activity using an immutable blockchain ledger. Currently, the working model platform is hosted on Amazon’s Quantum Ledger Database. In June ofDuring 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. BlackstarBlackStar is actively pursuing relationships with various broker-dealerbroker-dealers, clearing firms, and clearing firmsATS’s to complete the final stages of this multi-year engineering effort. During 2021, BlackStar filed with the USPTO patent protection for its proprietary software.
The Company’s success will be dependent upon the Company’sit’s ability to analyze and manage the opportunities presented.
Contingentpresented and is contingent upon successfully raising funds we intend to expend funds over the next four quarters as follows:and ultimately SEC approval of our digital trading platform.
Our Budget for operationsCurrently in the next yeartesting phase, we estimate $30,000 to finalize the integration of the digital platform into the broker-dealer eco system once the SEC and FINRA clears 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 as follows:
| BDTP Development and Testing | $ | 500,000 | ||
| Working Capital – Joint Ventures | $ | 500,000 | ||
| Legal, Audit and Accounting | $ | 150,000 | ||
| Fees, rent, travel and general & administrative expenses | $ | 150,000 | ||
| $ | 1,300,000 |
Thethe case, the Company may change anyalternatively 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 allATS for the budget categories in the execution of its business model. Noneoperations of the line items areBDTP 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 considered fixed or unchangeable.managed by Artuova, through our oversight and direction. The Companysoftware building of additional platforms for subscriber companies may need substantial additional capital to support its budget.take as little as 48 hours. We have not recognized revenues fromyet developed our operational activitiesmarketing campaign to date.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.
Based on our current cash reserves of approximately $554,657$232,951 as of July 31, 2021,June 30, 2022, we have the cash for an operational budget of less thanapproximately six (6) months. We intend to offer a private placement of common shares to investors in order to achieve at least $1,000,000$5,000,000 in funding in the next year.year to scale our business plan. We intend to commence this offering in the winterfall of 2021.2022. 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 additional 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, 2020,2021, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
While our cash reserves were only $32,987On July 8, 2022, the majority shareholder of BlackStar Enterprise Group, Inc., CFO Joseph Kurczodyna, submitted written consent to the resolution to increase the authorized common stock from 700,000,000 to 2,000,000,000, with an effective date of the Amendment to the Articles of Incorporation of August 5, 2022. Following the increase in December 2020, our parent company, IHG, has agreed to fund on an interim basis any shortfallauthorized shares proposed by the Company’s Board of Directors, we will have 2,000,000,000 shares of authorized common stock and 10,000,000 shares of authorized preferred stock (no change in our cash reserves. We would use our funds to pay legal, accounting, office rent and general and administrative expense. We have estimated $50,000 for the first and fourth quarters and $100,000preferred), with no changes in the secondshares outstanding of either the common stock or preferred stock as a result of the increase. Further information can be found in the Schedule 14C Information Statement filed on July 8, 2022. A copy of the Amendment to the Articles of Incorporation are attached hereto as Exhibit 3(i).8 and third quarters in 2021 in operations costs which includes legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. In early 2018, we completed a private placement of units for $165,000, and in November 2018 we raised $53,000 through a convertible promissory note which increased our working capital. In the year ended December 31, 2019, we received funding through various promissory notes and convertible promissory notes, totaling $280,000 with $236,150 being received in net cash proceeds. In the year ended December 31, 2020, we received funding through promissory notes totaling $25,000, and convertible promissory notes totaling $287,275 with $260,000 being received in net cash proceeds.incorporated herein by reference.
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Results of Operations
For the Three Months Ended June 30, 20212022 compared to same period in 20202021
During the three months ended June 30, 2021 and 2020, we had no revenue. For the three months ended June 30, 2021, we recognized a netNet loss of $711,920 as compared to a net loss of $401,043 for the three months ended June 30, 2020. Our operating expenses included $98,000 in related party management consulting fees, $23,804 in legal and professional fees, and $139,526 in general and administrative fees, for a total of $261,330 for the three months ended June 30, 2021. Higher related party management consulting fees and an increase in costs for fund raising increased the total operating expenses in the three months ended June 30,
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2021 by $173,5142022 was $308,733 as compared to the three months ended June 30, 2020. Our net loss from operations was $261,329$711,920 for the three months ended June 30, 2021, compareda decrease of $403,187. As explained below, a significant portion of the losses in those periods was attributable to net lossnon-cash transactions from operationsthe issuance of $87,815 for the same period ended June 30, 2020.convertible debt and other financings.
For the three months ended June 30, 2021,2022, we had significantly higher otherlower 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 nettotal other expenses of $450,590$157,508 for the three months ended June 30, 2021 a2022 as compared to $313,228$450,590 for the same period in 2020.2021. For the three months ended June 30, 20202022, the Company recognized $26,273$102,446 for amortization of discount on convertible notes, as compared to $251,507 for the three months ended June 30, 2021. This increase was due to increased funding from convertible note issuances forDuring the three months ended June 30, 2021, three month periodwe recognized a loss of $124,745 on notes payable conversions as compared to none in the 2020 three month2022 comparable period. This reduction is due to a change in the Company’s accounting treatment for conversion of debt to equity. The decrease in amortization of discount on convertible notes is attributable to a decrease in debt conversions in 2022 as compared to 2021.
Net loss per shareGeneral and administrative expenses in 2022 were $32,138 a decrease of $107,388 from general and administrative expenses of $139,526 in 2021. In 2021, the Company recorded 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 and 2020 three-month periods was $0.01 in each of thequarterly periods.
In 2022, the Company paid management consulting fees to IHG of $78,661 as compared to $98,000 paid in 2021.
Legal and professional fees of $40,426 for the three months ended June 30, 2022 increased by $16,622 from $23,804 for the comparable period ended June 30, 2021. In 2022, the Company incurred legal fees for filing of its Registration Statement which were not incurred in 2021. Recurring professional fees for the 2022 and 2021 periods were predominately for SEC regulatory and statutory filings and auditor and related fees for quarterly reviews and annual audits.
For the Six Months Ended June 30, 20212022 compared to same period in 20202021
DuringNet loss for the six months ended June 30, 2022 was $825,635 as compared to $1,034,229 for the six months ended June 30, 2021, a decrease of $208,594. 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 2020, we had no revenue. For the six months ended June 30, 2021, we recognized a net loss of $1,034,229 compared to a net loss of $505,152 for the six months ended June 30, 2020. other financings.
Our operating expenses included $149,142$165,274 in related party management consulting fees, $46,304$76,625 in legal and professional fees, and $195,172$45,605 in general and administrative fees, for a total of $390,618$287,504 for the six months ended June 30, 2021.2022. Higher related party management consulting fees and an increase in costs for fund raising increased the total operating expenses in the six months ended June 30, 2021 by $122,732$103,114 as compared to the six months ended June 30, 2020.2022. Our net loss from operations was $1,034,229 for the six months ended June 30, 2021 compared to a net loss from operations of $122,934$825,635 for the same period ended June 30, 2020.2022.
For the six months ended June 30, 2021, we had significantly higher other expenses, substantially all of which are non-cash, and were predominately due to amortization of discounts on debt issuanceissuances and conversion features of the convertible promissory notes that we have used to finance our continued operations. This resulted in net other expenses of $643,611 for the six months ended June 30, 2021 as compared to $382,218$538,131 for the same period in 2020.2022. For the six months ended June 30, 20202022 the Company recognized $59,516$416,369 for amortization of discount on convertible notes, as compared to $350,089 for the six months ended June 30, 2021. This increase was due to increased funding from convertible note issuances for the 20212022 period as compared to the 20202021 period.
Net loss per share for the 2021 and 2020 six-month periods was $0.01 in each of the periods.
Management has evaluated the current business plan, ongoing operations and financial position of the Company as of June 30, 2021, and has determined that there is substantial doubt as to whether the Company will be able to continue to operate as a “going concern”. The Company has an accumulated deficit of $7,000,422 as of June 30, 2021, compared to an accumulated deficit of $4,905,754 as of December 31, 2020, and has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining the adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Liquidity and Capital Resources
As of June 30, 2021, we had total current assets of $519,681 comprised of $505,485 in cash and $14,196 in prepaid expenses, compared to $84,211 total current assets as of December 31, 2020. Our total assets as of June 30, 2021 were $585,681 compared to $94,211 as of December 31, 2020. Current liabilities as of June 30, 2021 were $234,625 compared to $129,062 as of December 31, 2020. Current liabilities as of June 30, 2021 consisted of accounts payable of $11,024, accrued liabilities of $26,542, advances payable to related parties of $18,780, convertible promissory notes of $148,279, net of discounts of $816,996, and notes payable of $30,000. As of June 30, 2021, we had $285,056 in working capital, compared to a negative working capital of of $44,851 as of December 31, 2020.
We intend to attempt to raise capital through several sources: a) partner venture funds, b) private placements of our stock, and/or c) loans from our parent company IHG. We do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to ensure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.
We do not have terms or committed sources of capital of any type at this time. If we are able to raise additional capital, we intend to enter into additional joint ventures and would intend to use the funds repaid from the joint ventures to a) retire debt, and b) fund additional joint ventures with companies, and c) to provide operational funds.
We have been, and intend to continue, working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause
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significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts.
We do not anticipate that we will purchase any significant equipment over the next twelve months.
We do not anticipate any significant changes in the number of employees unless we significantly increase the size of our operations. We believe that we do not require the services of additional independent contractors to operate at our current level of activity. However, if our level of operations increases beyond the level that our current staff can provide, we may need to supplement our staff in this manner.
Financing Activities
During the six months ended June 30, 2021, we recognized a loss of $166,422 on notes payable conversions as compared to none in the Company had no cash received from equity offerings or shareholder contributions, and we received $779,500 from2022 comparable period. 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 netis attributable to an increase in debt conversions in 2022 as compared to 2021.
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Liquidity and Capital Resources
At June 30, 2022, we had a working capital deficit of offering costs$659,099 and original issue discounts;cash of $232,951 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 June 30, 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 six months ended June 30, 20212022, we used $329,832 of cash for operating activities and 2020, $142,856 and $87,225, respectively in principal and and interest on convertible notes was converted to common stock
Investing Activities
Net cash usedpaid $9,634 in investing activities was $36,000for patent costs. In the comparable 2021 period, operating activities utilized cash of $251,002 and investing activities for software development forand patent costs utilized cash of $36,000.
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 six-month periodCompany’s common stock at a discount to the trading prices of the common shares of 35% to 40%. During six months ended June 30, 2021, as compared to $0 for2022, we issued convertible debt with a face value of $111,500, receiving cash proceeds, net of financing costs, of $104,000. During the six months ended June 30, 2020.
Operating Activities
30,2021, we issued convertible debt with a face value of $917,000, receiving cash proceeds, net of financing costs, of $779,500. During the six months ended June 30, 2022, convertible note holders were issued 143,872,288 shares of common stock for conversion of $461,854 face value of debt and related accrued interest in 2022. In the comparable 2021 period, note holders were issued 7,468,804 shares of common stock for conversion of $309,467 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 usedproceeds of $104,000 and $779,500 from convertible debt financing in operating activities was $251,002, compared to $97,686 used in operating activities for the same period in 2020. The increased amount of cash used in operating activities is attributable to increases in operating and other expenses, increasing the net loss for the six monthssix-month periods ended June 30, 2021. 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 June 30, 20212022 and December 31, 2020,2021, we had accumulated deficit of $7,000,422$8,975,395 and $5,966,193,$8,149,760, respectively and we will require additional working capital to fund operations through 20212022 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.
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BasedOur registered independent auditors have issued an opinion on our financial history since inception, in their report on the 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 period ended December 31, 2020,next twelve months unless we obtain additional capital to pay our independent registered public accounting firm has expressed substantial doubt as tobills and meet our ability to continue as a going concern.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.
Short Term
On a short-term basis, we have not generated revenues sufficient to cover our growth oriented operations plan. Based on prior history, we may continue to incur losses until such a time that our revenues are sufficient to cover our operating expenses and growth oriented operations plan. As a result we may need additional capital in the form of equity or loans, none of which is committed as of this filing.
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Capital Resources
We have only common stock as our capital resource, and our assets, cash and receivables.
We have no material commitments for capital expenditures within the next year, however, as operations are expanded substantial capital will be needed to pay for expansion and working capital.
Need for Additional Financing
We do not have capital sufficient to meet our growth plans. We have made equity and debt offerings in order to support our growth plans, to date, and may do so in the future.
No commitments to provide additional funds have been made by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow coverage of our expenses as they may be incurred.
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 aremay be deficiencies in these controls and procedures.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, 20212022 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
There are no material changes toThe following risk factors asfactor has been updated since previously disclosed in the Company’s Form 10-K for the year ended December 31, 2020.2021 to disclose current OTC Market status.
OUR OTC MARKET STATUS HAS BEEN LOWERED FROM OTCQB TO OTC PINK.
Due to the low trading price of the common stock of the Company, we have been demoted from the OTCQB to OTC PINK for not maintaining the $0.01 bid test. The Company has sought financing through convertible promissory notes in order to develop the BDTP TM app; some of the notes have in turn been converted to common stock and then traded on the market in large quantities, lowering the bid prices. The change in status from OTCQB to Pink may make it harder to access investors and financing to continue to fund our operations.
Additionally, OTC Markets has removed the “Shell Risk” label on the Company’s profile, indicating that they believe we now meet certain criteria. We believe that we are not a shell company based on our history of operations and specific software development, the label has been removed from the BEGI profile on OTC Markets. OTC Markets may choose to downgrade our profile if we do not maintain adequate proof that we are not, in fact, a shell company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Aside from what has been disclosed in our Registration Statement on Form S-1 filed July 16, 2021,For the Quarterly Report on Form 10-Q filed May 17, 2021, the Annual Report on Form 10-K filed April 12, 2021, and in the Current Reports on Form 8-K filed April 8, 2021 and August 3, 2021,three months ended June 30, 2022, the Company had no unregistered sales of equity securities forsecurities. Prior to the three months ended June 30, 2021 and through the datefiling of this filing.report, the Company entered into no unregistered transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.In April 2022, Quick Capital, LLC issued a notice of default on the convertible note dated November 16, 2020 and stated that the outstanding amount due on the note is $133,317.38, the default interest per annum is 24% and continues to accrue, and that the conversion price is the lowest trading price during the delinquency period with a 50% discount. As interest is accruing daily, the Company is exploring its options for resolving the default. The Company has not yet resolved this default.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
Press Release
On August 8, 2022, the Company issued a press release. A copy of the press release is attached hereto as Exhibit 99.1.
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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.
| 3(i).8 | Certificate of Amendment effective August 5, 2022 |
| 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 |
| 99.1 | Press Release dated August 8, 2022 |
| 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
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 | By: | /s/ John Noble Harris |
| John Noble Harris | ||
| (Chief Executive Officer, Principal Executive | ||
| Officer) | ||
| Dated: August | By: | /s/ Joseph E. Kurczodyna |
| Joseph E. Kurczodyna | ||
| (Chief Financial Officer, Principal Accounting | ||
| Officer) | ||
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