The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS
AND BASIS OF PRESENTATION
BlackStar Enterprise Group, Inc.
(the “Company” or “BlackStar”) was incorporated in the State of Delaware on December 18, 2007. On January
25, 2016, International Hedge Group, Inc. (“IHG”) signed an agreement to acquire a 95% interest in the Company. IHG
was 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, 2021 included in the
Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. These unaudited financial statements
are condensed and should be read in conjunction with those financial statements included in the Form 10-K and interim disclosures
generally do not repeat those in the annual statements. In the opinion of management, all adjustments considered necessary for
a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months
ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 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.
NOTE 2 – GOING CONCERN
The Company's financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements for the three months ended March 31, 2022 and the year ended
December 31, 2021, the Company has generated no revenues and has incurred losses. As of March 31, 2022, the Company had cash of
$426,916, working capital deficiency of $504,840 and an accumulated deficit of $8,666,662. These conditions raise substantial doubt
as to the Company'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
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 2 – GOING CONCERN
(continued)
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's planned business. Management cannot provide any assurances that the Company will be successful in accomplishing
any of its plans.
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 March 31, 2022 and does not
expect such pronouncements to have a material impact on the Company’s financial position, operations, or cash flows.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Reclassifications
Certain amounts in the consolidated
financial statements for prior year periods have been reclassified to conform with the current year presentation.
NOTE 4 – INTANGIBLES
Intangibles at March 31, 2022 and
December 31, 2021 consist of capitalized costs for the Company’s proprietary software and patents as follows:
| |
2022 | |
2021 |
| |
| |
|
| Software | | |
$ | 88,000 | | |
$ | 88,000 | |
| Patents | | |
| 72,645 | | |
| 71,800 | |
| | | |
| | | |
| | |
| | | |
$ | 160,645 | | |
$ | 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 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 three months ended March
31, 2022, the Company issued shares of its common stock as follows:
| ● | 63,311,934 shares for conversion of $296,321 principal and interest
on convertible notes payable. |
During the three months ended March
31, 2021, the Company issued shares of its common stock as follows:
| ● | 2,894,231 shares for conversion of $45,150 principal and interest
on convertible note payable, and recognized a loss conversion of $41,677. |
| ● | 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. |
| ● | 382,822 shares valued at $11,200 ($0.029 per share) as consideration
for finders fee for loans made to the Company. |
| ● | 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.
|
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
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 fair value of the warrants was charged
to operations when issued during the year ended December 31, 2019. At March 31, 2021, 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 three months ended March 31, 2022 is presented below:
| |
Shares | |
Weighted Average Exercise Price | |
Weighted Average Remaining Contractual Life (Years) |
| |
| |
| |
|
| Outstanding and exercisable – December 31, 2021 | | |
| 540,000 | | |
$ | 0.31 | | |
| 1.99 | |
| Exercised | | |
| — | | |
| | | |
| | |
| Expired | | |
| — | | |
| | | |
| | |
| Outstanding and exercisable – March 31, 2022 | | |
| 540,000 | | |
$ | 0.31 | | |
| 1.74 | |
NOTE 7 – CONVERTIBLE NOTES
During the three months ended March
31, 2022, the Company had the following transactions related to its convertible note financings:
(i) On February 14, 2022, the Company
entered into a financing agreement with Sixth Street Lending LLC to borrow $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 65% of the average of the two lowest trading price of the Company’s common stock for the previous
fifteen 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 47,871,198
shares for conversion. Net proceeds from the loan were $52,000, after legal fees and offering costs of $3,750.
(ii) In February and March 2022,
Adar Alef LLC (“Adar Alef”) elected to make a partial conversion of $76,500 principal and $6,296 of accrued and unpaid
interest thereon due on their note of April 29, 2021, in three tranches, into an aggregate 21,504,766 shares of the Company’s
common stock at prices of $0.0023 to $0.0064 per share under the conversion provision and terms of the note agreement.
(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
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES
(continued)
Company’s common stock (at
conversion prices of $0.0075 to $0.0088 per share) under the conversion provision and terms of the note agreement
(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 interest 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 2022, Power Up elected
to make a partial conversion of $21,900 principal due on their note of September 1, 2021 into 7,551,724 shares of the Company’s
common stock at a price of $0.0029 per share under the conversion provision and terms of the note agreement.
As of March 31, 2022, the Company
was in default on its certain of its convertible debt obligations as follows:
| ● | Quick Capital LLC convertible note under the financing agreement
entered into on November 23, 2020 in the principal amount of $33,275 due July 16, 2021. The Company has continued to accure interest
on the note at the rate of 10% per annum. |
| ● | SE Holdings LLC (“SE Holdings”) convertible note under
the financing agreement entered into on January 26, 2021 in the principal amount of $220,000 due January 26, 2022. The Company
has accured default interest on the note at the rate of 24% per annum subsequent to the due date (See Note 9). |
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES (continued)
Convertible notes payable at March 31, 2022
and December 31, 2021 are summarized as follows:
Note Holder | |
Face Amount | |
Interest Rate | |
Due Date | |
March 31, 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 | |
$ | 31,850 | | |
$ | 53,750 | |
| |
$ | 78,750 | | |
| 10 | % | |
October 1, 2022 | |
$ | 78,750 | | |
$ | 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 | |
$ | 473,500 | | |
$ | 550,000 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Sixth Street Lending LLC | |
$ | 45,750 | | |
| 10 | % | |
November 29, 2022 | |
$ | 45,750 | | |
$ | 45,750 | |
| |
$ | 55,750 | | |
| 10 | % | |
February 14, 2023 | |
$ | 55,750 | | |
$ | — | |
| |
| | | |
| | | |
| |
| | | |
| | |
Discount | |
| | | |
| | | |
| |
$ | (189,989 | ) | |
$ | (534,856 | ) |
| |
| | | |
| | | |
| |
| | | |
| | |
| |
| | | |
| | | |
| |
$ | 808,886 | | |
$ | 689,169 | |
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 three months ended March 31, 2022 and 2021 the Company recorded related party management fees of $86,613 and
$51,142, respectively.
BLACKSTAR ENTERPRISE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS (continued)
During the three months ended March 31, 2022 and 2021, there were
no advances from related parties. At March 31, 2021, a former officer of the Company was owed $18,780, which amount was repaid
during the year ended December 31, 2021.
NOTE 9 – SUBSEQUENT EVENTS
In April 2022, Power Up elected
to convert, in two tranches, the remaining principal balance of $31,850 and accrued and upaid interest thereon of $2,688 due on
their note of September 1, 2021 into 12,400,682 shares of the Company’s common stock at prices of $0.0024 to $0.0029 per
share under the conversion provision and terms of the note agreement.
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 that the conversion price is the lowest trading price during the delinquency
period with a 50% discount.
In April and May 2022, Power Up
elected to convert, in five tranches, the total principal balance of $78,750 and accrued and upaid interest thereon of $3,938 due
on their note of October 1, 2021 into 40,260,417 shares of the Company’s common stock at prices of $0.0020 to $0.0024 per
share under the conversion provision and terms of the note agreement.
In May 2022, GS Captial Partners
LLC elected to make a partial conversion of $3,000 principal and accrued and upaid interest of $133 due on their note of October
11, 2021 into 1,898,679 shares of the Company’s common stock at a price of $0.0017 per share under the conversion provision
and terms of the note agreement.
On April 29, 2022, the Company
did not satisfy its obligations for final payment of outstanding principal of $473,500 and accured interest under a financing agreement
entered into on April 29, 2021 with Adar Alef. Under the terms of the financing agreement, the stated interest rate of the note
was 10% with default interest of 24%, and was convertible into common shares of the Company’s common stock at the option
of the holder. The Company has accrued default interest of 24% on the outstanding principal amount subsequent to the due date of
the note through March 31, 2022.
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.
Under the terms of the Abatement Agreement, the Parties agreed to abate the conversion features under the notes for a period of
fourty five (45) days from April 15, 2022, with the conversion features resuming no sooner than May 30, 2022. The Company has agreed
to pay to Adar Alef a total of $50,000 upon execution of the Abatement Agreemet for principal, redemption penalty and accrued interest.
The remaining principal and accrued interest on the both of the notes to SE Holdings and Adar Alef will be due on May 30, 2022,
unless further extended under the terms of the Abatement Agreement. The notes may be extended for an additional thirty (30) days
through June 30, 2022 upon an additional payment of $25,000 to Adar Alef on or before May 30, 2022.
The Company has analyzed its operations
subsequent to March 31, 2022 through the date that these financial statements were issued, and has determined that it does not
have any additional material subsequent events to disclose.