BEGI BlackStar Enterprise Group Inc (PK)

ITEM 1. BUSINESS.

GENERAL

The following is a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document to “our Company,” “us,” “we,” “our,” “BlackStar,” or the “Company” are to BlackStar Enterprise Group, Inc.

DESCRIPTION OF BUSINESS

We are based in Boulder, Colorado and are engaged in Merchant Banking and Finance in the United States. Since 2018 we have also been developing a blockchain-based software platform to trade electronic fungible shares of our common stock. Once completed, the platform design might enable us to license the technology as a Platform as a Service (“PaaS”) for other publicly traded companies, providing revenue to finance our merchant banking. The completion of our software platform depends on our ability to license it to an existing Alternative Trading System (“ATS”) or for us to possibly register as an ATS, which we do not intend to do at this time as we would prefer to license our platform to an existing ATS. The platform is not currently operational or in use by anyone. We have recognized net losses of ($1,225,207) in the year ended December 31, 2022. We have relied solely on sales of our securities, convertible note financing, and private loans to fund our operations.

The Company intends to raise additional funds in order to fund operations of the merchant bank, and to expand its services into the blockchain industry. To fund ongoing operations, we may raise funds in the future, which are not yet committed.

Reports to Security Holders

We are subject to the reporting requirements of Section 12(g) of the Exchange Act, and as such, we intend to file all required disclosures.

You may read and copy any materials we file with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.

Jumpstart Our Business Startups Act

We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we did not have more than $1,235,000,000 in annual gross revenue and did not have such amount as of December 31, 2022, our last fiscal year.

We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,235,000,000 or (ii) we issue more than $1,235,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.

As an emerging growth company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable to generally reporting companies. These provisions include:

As an emerging growth company, we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Such sections are provided below:

Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.

Sections 14A(a) and (b) of the Securities and Exchange Act, implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.

We have already taken advantage of these reduced reporting burdens in this Form 10-K, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

As long as we qualify as an emerging growth company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards.  We are choosing to irrevocably opt out of the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act.  

HISTORY

Our Company, BlackStar Enterprise Group, Inc., (“BlackStar,” “we,” “our”) was originally formed on December 17, 2007 as NPI08, Inc. in the State of Delaware. Our name was changed in 2010 to BlackStar Energy Group, Inc. In August of 2016, our name was changed to BlackStar Enterprise Group, Inc.

Our Company was divested from Kingsley Capital, Inc. in a bankruptcy proceeding in 2008, in which Kingsley was the debtor. Our Company attempted to start up in the energy business in 2010 without success, resulting in losses totaling $1,819,530 over a three-year period. Our Company was inactive until 2016 when new management and capital were introduced.

Definitions

As used throughout this Report, capitalized terms used but not defined herein shall have the meanings assigned to such terms in the filing. The following terms shall have the meanings set forth below, unless the context clearly indicates otherwise:

BlackStar Digital Trading Platform ^TM (“BDTP ^TM”): a digital Electronic Fungible Shares trading platform enabling the trading of BlackStar common shares in electronic fungible form. (The BDTP ^TM has not been approved by any regulatory agency or broker dealer and is not currently operational.)

BlackStar Electronic Fungible Shares (“BEFS”): a digitally evidenced share, also known as an electronic share, (see “Digital Share” below) of BlackStar common stock holding the same characteristics as securities evidenced by a paper certificate which has been transmitted electronically and protected by cryptographic protocols on BDTP ^TM. Digital equity shares are the “electronic fungible shares” on account. Electronic Fungible Shares are the same class of common stock as, and are identical to, paper certificated and book-entry shares of common stock; BEFS merely describes the format of the share of common stock.

Blockchain: a disintermediating technology, where each transaction is cryptographically signed, and always appended to an immutable ledger, visible to all participants, and distributed across boundaries of trust. Once a ledger transaction has received a sufficient level of validation, cryptography ensures that it can never be replaced or reversed. Transactions are secure, authenticated, and verifiable.

Blockchain Equity Trading ^TM (“BET”): computer software platforms, including the BDTP ^TM, for the trading of only one SEC regulated security on an immutable blockchain, and for the analysis, monitoring, storing, and tracking of financial investments on an immutable blockchain. The Company will subscribe the platform to individual public companies for the exclusive exchange of cash for free-trading shares of one public company, creating an individual spot market.

Blockchain First ^TM: financial services software for managing the trading of stocks or equities on an immutable blockchain that prevents the disruption of order flow of customer trades.

Digital Shares: common shares holding the same characteristics as securities evidenced by a paper certificate but are recorded via electronic book-entry through the Deposit and Withdrawal at Custodian (“DWAC”) system in digital form and are protected by cryptographic protocols, sometimes also referred to as an electronic share, an electronic fungible share, or an electronic fungible common share in this document. Digital shares are the same class of common stock as, and are identical to, paper certificated and book-entry shares of common stock; digital share merely describes the format of the share of common stock.

Internet Digital Offering ^TM (“IDO ^TM”): financial services software for managing and hosting indications of interest for potential initial or secondary future offerings on an immutable blockchain. 

CORPORATE STRUCTURE

Our corporate structure is as follows:

COMPANY OVERVIEW

We are based in Boulder, Colorado and are engaged in Merchant Banking and Finance in the United States. BlackStar’s venue is private early-stage companies throughout various industries that, in our judgement, exhibit a potential for sustained growth. We are a publicly traded specialized merchant banking firm, facilitating joint venture capital to early-stage revenue companies. We are actively seeking opportunity for discussion with revenue generating enterprises and emerging companies for financing. BlackStar Enterprise Group, Inc. is traded on the OTC Pink under the symbol “BEGI.”

Since 2018 we have also been developing a blockchain-based software platform to trade electronic fungible shares of our common stock. Once completed, the platform should enable us to become a Platform as a Service (“PaaS”) provider for other publicly traded companies, providing revenue to finance our merchant banking. We have recognized net losses of ($1,225,207) in the year ended December 31, 2022. We have relied solely on sales of our securities, convertible note financing, and private loans to fund our operations. The completion of our software platform depends on our ability to license it to an existing Alternative Trading System (“ATS”) or registration as an ATS.

The Company has designed and is finalizing development of a BlackStar Digital Trading Platform ^TM (“BDTP ^TM”) referenced above and anticipates completion of the platform in the next several months. The Company has designed the BDTP ^TM to trade electronic fungible shares of BEGI (or any other company), and intends to use the BDTP ^TM as proof-of-concept to other companies looking for a similar market solution. The platform can be adapted and customized to meet the needs of the particular registered issuer and a yearly subscription fee will be charged for the design and monitoring of the digital platform technology and execution; the issuer would decide who would quote and host their particular platform. This subscription income will then become the basis of our revenues. We have completed a working demonstration on Amazon Web Services Quantum Ledger Database (“QLDB”) designed to facilitate shareholder trading activity. We are in the process of finalizing the software design and are now trying to organize an arrangement with a broker-dealer, clearing firm, existing ATS, or other trading system in order to begin trading electronic fungible BEGI shares over the BDTP ^TM subject to approval by the SEC.

BlackStar intends to offer consulting and regulatory compliance services to companies desiring to issue electronic fungible shares and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in electronic fungible share-related ventures though our wholly-owned subsidiary, Blockchain Equity Management Corp. (“BEMC”) formed in September 2017. BEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTP ^TM. BEMC has not established any anticipated time frames or key milestones for BEMC business.

As to the BEMC business model, the primary factor for its development is dependent upon whether the BDTP ^TM achieves regulatory approval by the SEC for the platform and an ATS arrangement has been achieved and approved as necessary by the SEC.

In addition to the services described above, on December 31, 2017, BlackStar formed a subsidiary nonprofit company, Blockchain Equity SRO, Inc., formerly known as Crypto Industry SRO Inc., a self-regulatory membership organization for the digital share industry. Further details about the business plan for BEMC, the operating subsidiary of BlackStar, and Blockchain Equity SRO can be found in the section below. 

The Company intends to raise additional funds in order to fund operations of the merchant bank, and to expand its services into the blockchain industry. To fund ongoing operations, we may raise funds in the future, which are not yet committed.

International Hedge Group, Inc. (“IHG”), our parent company, contracted to acquire 95% of our outstanding stock in January 2016 and closed on the purchase in summer of 2016. In lieu of the 95% of common shares originally agreed upon, IHG initially received 44,400,000 shares of common stock and 1,000,000 of Class A Preferred Stock. IHG is our controlling shareholder and is engaged in providing management services to companies, and, on occasion, capital consulting. IHG’s strategy in investing in BlackStar Enterprise Group, Inc. is to own a controlling interest in a publicly quoted company which has the mission to engage in funding of start-up and developed business ventures using its stock for private placement or public offerings. IHG and BlackStar are currently managed and controlled by the same individual, but IHG and BlackStar may each seek funding from different and as yet, undetermined sources, with funding structures of different natures.

Our principal executive offices are located at 4450 Arapahoe Ave., Suite 100, Boulder, CO 80303 and our office telephone number is (303) 500-3210. We maintain a website at www.blackstarenterprisegroup.com, and such website is not incorporated into or a part of this filing.

CURRENT BUSINESS – MERCHANT BANKING

Our Company, BlackStar Enterprise Group, Inc. (OTC Pink: BEGI) is a publicly traded merchant banking firm seeking to facilitate venture capital to early-stage revenue companies. 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 and we did not control that venture.

Our investment strategy focuses primarily on ventures with companies that we believe are poised to grow at above-average rates relative to other sectors of the U.S. economy, which we refer to as “emerging growth companies.” Under no circumstances does the company intend to become an investment company and its activities and its financial statement ratios of assets and cash will be carefully monitored and other activities reviewed by the Board to prevent being classified or inadvertently becoming an investment company which would be subject to regulation under the Investment Company Act of 1940.

Services

As BlackStar focuses its merchant banking efforts on the DLT industry, BlackStar intends to seek investments through joint ventures in private or public emerging commercial-stage businesses within the blockchain ecosystem. BlackStar also intends to offer consulting and compliance services to member companies and blockchain entrepreneurs on securities and commodity futures.

The Company will seek targeted joint ventures in the sector, primarily focusing on distributed ledger security features and technology, and the global equity trading arena. BlackStar, through BEMC, will seek to initially control and manage each venture into which it enters. While remaining compliant with current SEC disclosure and reporting guidelines, BlackStar is conducting an in-depth analysis into the Company’s involvement in DLT-related ventures.

BlackStar Enterprise Group intends to leverage its experience in the traditional world of public finance, including experience with securities, options, and SEC registration and compliance, into working with select organizations supporting the development and implementation of new technologies in the electronic share and DLT world. To facilitate this process, BlackStar plans to establish an advisory board in its subsidiary, Blockchain Equity SRO, Inc. , with applicable technical and practical experience.

The Company’s success will be dependent upon the Company’s ability to analyze and manage the opportunities presented.

BlackStar’s Operating Principles:

We seek venture investments in private, or public emerging commercial-stage businesses with perceived strong growth prospects within certain industry sectors. Companies that we work with may engage in consulting agreements with our parent company, International Hedge Group, Inc. (“IHG”), to add additional monitoring as to their financial situations. We seek to invest up to $1 million per company in business ventures. We may provide off-balance sheet financing to venture companies, through joint ventures or limited liability companies under structures we cannot now predict.

Our success will be dependent upon are our abilities to analyze and manage the lending opportunities presented to us.

Our management may earn shares of our Company under our Stock Option and Award Plan as incentives on the basis of achievement. All are accountable to each other, as well as the shareholders, and bonus awards are intended based upon individual performance, as well as team cooperation, and enterprise building.

INVESTMENT OBJECTIVES

CAPITAL APPRECIATION. Our primary investment objective is to provide our shareholders with long term capital appreciation by investing primarily in business ventures in which we maintain majority control with selective private companies. We believe that a typical new business venture will have a five-year window. Our investment objective is to restrict our investments to emerging growth companies we believe offer special opportunities and meet our growth criteria, and we intend to reduce the risks associated with investments in startups. Our goal is to provide mezzanine and expansion capital to companies through legally formed joint venture entities through which we control in order to develop a comprehensive growth strategy, possibly involving a consolidation of similarly situated businesses or a geographic expansion of existing product or service offerings. We are currently exploring options for investments in companies involved in the electronic share and blockchain (DLT) technology industry.

CAPITAL PRESERVATION. A second investment objective is to preserve investor capital through risk management and monitoring the management of our loan portfolio. Among the risk management techniques which we expect to employ are: (i) limiting our investments in very early-stage companies, (ii) holding majority ventures interests in venture companies that have a positive cash flow; (iii) co-investing in venture companies with other professional venture capital. Many ventures will not provide any gain, and some will be complete losses. BlackStar, through BEMC, will initially control and manage each venture it enters into in the electronic share and blockchain technology industry.

OUR APPROACH COMPARED TO TRADITIONAL SOURCES OF VENTURE FINANCING

Emerging companies traditionally seek financing for growth from three primary sources: small private placements, independent private venture capital funds and corporate strategic investors. Each of these sources has advantages but also notable disadvantages for the emerging company. Small Private Placements are often underfunded and untimely. Venture capital funds generally are established for a limited term and their primary goal is to maximize their financial return within a short time frame, often two years or less with severe terms for extensions or additional funding. A venture capital fund often seeks to liquidate its investment in the emerging company by encouraging either an early initial public offering or a sale. This often can jeopardize an emerging company’s chances for success especially if its business has not been fully developed or its intellectual property fully safeguarded prior to its debut into the market.

Corporate strategic investors are typically large corporations that invest in emerging companies to gain access to a promising product or technology without incurring the initial cost of development or the diversion of managerial time and attention necessary to develop new products or technologies. Often these investments involve both financing support to the emerging company and an arrangement under which the strategic investor obtains the right to use, and intellectual property ownership of, the products or technology of the emerging company. While strategic investors are generally able to provide business development support, the rationale behind the investment of a strategic investor may be incompatible with the development of the emerging company. Strategic investors often discourage the emerging company from becoming a public company, selling to competitors of the strategic investor or from retaining the intellectual property rights to products developed jointly with the strategic investor.

We may be limited in our ability to fund ventures because we may not be successful in raising additional funds to fund ventures or growth. Through the public market for our common stock, we hope to have access to additional equity capital that may be needed for growing our ventures. We hope to offer to fill this opportunity on selected ventures.

We believe that our advantage over a strategic investor is that our interests are more closely aligned with those of the emerging company. An initial public offering of the emerging company, our venture, often required to raise the additional capital investment necessary to fully develop a venture company’s product or technology, would also benefit us by creating repayment of our loan, and possibly in certain instances, an equity position.

OUR VENTURE POLICIES

We may invest in ventures which do not have any annual revenue, if we have determined that an investment may make of such company have growth capital.

Although we may seek to venture into companies with existing positive EBITDA (earnings before interest, income taxes, depreciation and amortization), we may also consider turnaround situations where we can clearly identify the source(s) of financial distress and see a possible solution. Through our investment, or through co-investment with other private equity funding sources we will seek to achieve performance improvements.

In the shorter term, we do not anticipate paying any dividends or making other distributions, but this may change in the future. We may not always achieve a return on our venture investment.

In selecting venture investments for our venture, we will endeavor to meet our guidelines, as established by our Board which include the following concepts. We may, however, make investments that do not conform to one or more of these guidelines when deemed appropriate by our Board of Directors. Such investments might be made if we believe that a failure to conform in one area is offset by exceptional strength in another or is compensated for by a higher yield, favorable warrant issuance or other attractive terms or features.

VENTURE CRITERIA

STAGE OF DEVELOPMENT CRITERIA. We are a special situations Company. We will primarily look for opportunities with a core business which we believe will provide us with a return of investment and on investment within a moderate period of time, typically targeting about thirty-six to sixty months. Our objective is to invest in emerging corporations which meet our requirements as well as qualitative potential that we look for in each opportunity. In addition, we will look to invest in ventures with corporations. In some instances, we may relax our quantitative requirements with the view to assist such venture companies in developing a strategic business plan which may include merger or acquisition of other private operating businesses which may be synergistic to the existing business of the public corporation. We may invest in ventures with companies in any of the following stages. We will always have majority control and Board control of our venture subsidiaries.

The stages of development are defined as follows:

• Seed capital companies represent the earliest stage of development. These companies have raised relatively modest equity capital to prove a concept and qualify for start-up capital. Their activities generally are limited to product development, scientific and market research, recruiting a management team and developing a business plan. These companies likely do not have financial support from either venture capitalists or larger companies making strategic investments.

• Start-up stage companies are completing or have recently completed product development and initial marketing but have not sold their products commercially. Generally, such firms have made market studies, assembled key management, developed a business plan and are ready to commence operations.

• Expansion stage companies have initiated or are about to initiate full-scale operations and sales but may not be showing a profit.

• Mezzanine stage companies are approaching or have attained break even or profitability and are continuing to expand. An acquisition or initial public offering may be imminent.

QUALITATIVE CRITERIA. All potential ventures will first be evaluated and assessed based on their relative stage of development and the quality of an investment in such venture company based on the above criteria. Once our management team has determined that a potential venture satisfies the above criteria and is suitable for investment, it will then be evaluated using the multi-step process described below. After completion of the process, receipt and review of all internal and outside reports and evaluations of the potential venture company, the Board will consider the potential venture terms. If the Board approves the investment, we will then create appropriate legal documents to reflect our venture and any management service contracts between the venture and our company.

We intend to follow the steps set forth below in our venture process:

(1) BUSINESS PLAN/ASSESSMENT. Business plan description and complete resumes of management from all entrepreneurs. Members of our management team will meet with the best of these entrepreneurs, attempting to identify key traits that have been associated with entrepreneurial success in the past, such as high energy, a must-win attitude, intellectual brilliance, high personal integrity, relevant experience, a strong work ethic, and the ability to prioritize and focus. A business plan submitted for evaluation to us should contain the following information:

(2) EVALUATE POTENTIAL MARKET. We have developed relationships with consultants, who represent a valuable source of information about a target investment’s market. We will call upon these contacts as well as create new ones in the markets of each company seeking funding. As we evaluate markets, we must become confident that the company can attain a competitive market position over time.

(3) EXAMINE STRUCTURE OF BUSINESS MODEL. We will examine the structure upon which the business plan is built. The Board has indicated a distinct bias toward business models calling for high gross margins and relatively low capital intensiveness. Such businesses have the potential for higher internally sustainable growth rates than average and superior return on equity invested. In addition, we will require, whenever possible, implementation of the following policies into the articles, bylaws or operating agreements of its venture companies:

(4) CHECK REFERENCES. We will require that each entrepreneur supply a list of references in order that we may get a better sense of the entrepreneur’s past experience, strengths, weaknesses, and work habits. We make it a point to get references outside of this list as well, in order to avoid only “cherry-picked references.” We believe that these checks are important to develop a more complete and accurate picture of the team.

(5) CALL CUSTOMERS AND SUPPLIERS. We intend to call a number of current and/or prospective customers and suppliers to get a sense of how they view the targeted investment including its products and the market.

(6) EVALUATE PRODUCTS/TECHNOLOGY. As part of our analysis, we will evaluate the target venture’s current products, development pipeline and underlying technology. To evaluate technology, we will not rely on in-house expertise alone, but will contact and hire appropriate specialists and consultants.

(7) EVALUATE RISKS/REWARDS. Evaluate the pro-forma financials, the likelihood of an exit after a 6 month to 24 month holding period.

(8) NEGOTIATE VENTURE TERMS. When deciding on making a venture investment, we will draw up a term sheet for negotiation, and terms will be agreed upon.

(9) FINANCIALS AND CORPORATE INFORMATION.

We will, after formation of the venture subsidiary, control all accounting and financials as a subsidiary of our Company.

RESERVES. We intend to retain reserves after the venture investment in order to have sufficient funds for equity-oriented follow-on investments in venture companies. We intend to sell additional common stock to meet the funding requirements for any follow-on venture investments. If such sales are successful, we expect to have cash reserves. In order to enhance the rate of return on these reserves and increase the amounts ultimately available for investments and our operating costs, we plan to engage in a reserve management strategy.

AVERAGE INVESTMENT. The amount of funds committed to a venture will vary depending on the funds available to us, the quality and completeness of the venture management team, the perceived business opportunity, the capital

required compared to existing capital, and the potential return. Although the venture or investment amounts will vary considerably, we expect that the venture (excluding follow-on investments) will be between $250,000 and $500,000. 

INDUSTRY ANALYSIS AND HISTORY

Barriers to Entry in the Merchant Banking Industry

There is one major barrier to entry into the Merchant Banking Industry which is capital. We have very limited capital with which to compete in this industry. Many other competitors have been in the business for many years and have very large capital resources and an established reputation. Our barriers to entry are, in addition to lack of capital, lack of reputation, lack of recognition, part-time management, lack of financial history to raise money, and lack of equity in our company upon which to base a capital raise.

Competitive Factors Impacting Our Ability to Gain Market Share

Our competition enjoys advantages which may prevent us from achieving a market share due to our competitors’ known reputations, large funding abilities, competent management, and capital resources all of which will impede our abilities to achieve market share.

Competitive Factors in the Industry

There are numerous entities, investments banks, merchant banks, hedge funds, private equity, commercial banks and private investors which will compete for the same business in which we intend to engage. We will be at a significant disadvantage to all of these other competitors for the foreseeable future. All of our competitors should be considered to be far better capitalized than we are.

Competitive Position in the Industry

We are an insignificant participant in the merchant banking industry and cannot be expected to obtain a market share even discernable percentage wise. Without a large infusion of capital, we will remain a very small participant in the industry.

Merchant Banking

The term merchant banking is generally understood to mean negotiated private equity investment or financing through alternative methods by financial institutions in loans, convertible debt or off-balance sheet vehicles, or through unregistered securities of either privately or publicly held companies. Both investment banks, commercial banks, and other companies engage in merchant banking, and the type of security in which they invest is diverse. They may invest in securities with an equity participation feature; these may be convertible preferred stock or subordinated debt with conversion privileges or warrants. Other investment bank services include raising capital from outside sources, advising on mergers and acquisitions, and providing bridge loans while bond financing is being raised in a leveraged buyout (LBO) and are also typically offered by financial institutions or broker dealers engaged in the merchant bank industry. One which is often omitted is the provision of experienced management by the merchant to commercialize ideas, or technology.

Merchant banking has been an occasionally lucrative but a highly risky endeavor for the small number of bank holding companies and banks that have engaged in it under existing law, and for private equity investors. Banking law legislation has expanded the merchant-banking activity that is permissible to commercial banks and has spurred interest in this specialty on the part of some institutions. However, limitations exist that have scared many banks away from the markets after the Lehman collapse and the resulting fallout with JP Morgan, Bank of America and the big bank Wall Street bailout. Although for much of the past half-century commercial banks have been permitted (subject to certain restrictions) to engage in merchant banking activities, their continued role is limited by the conservatism of the regulators and their Boards.

Evolution of Modern Era Merchant Banking

Many banks entered merchant banking in the 1960s to take advantage of the economies of scope produced when private equity investing is added to other bank services, particularly commercial lending. As lenders to small and medium-sized companies, banks become knowledgeable about individual firms’ products and prospects and consequently are natural providers of direct private equity investment to these firms.

In the middle to late 1980s, the decision to enter merchant banking was thrust on other banks and bank holding companies by unforeseen events. In those years, as a result of the LDC (less-developed-country) debt crisis, many banks received private equity from developing nations in return for their defaulted loans. At that time, many of these banks set up merchant-banking subsidiaries to try to extract some value from this private equity.

Also, at about that time, most commercial banks began refocusing their private equity investments to middle-market and public companies (often low-tech, already profitable companies) and, rather than providing seed capital, financed expansion or changes in capital structure and ownership. Most particularly, they took equity positions in LBOs, takeovers, or recapitalizations or provided subordinated debt in the form of bridge loans to facilitate the transaction. Often, they did both. Commercial banks financed much of the LBO activity of the 1980s.

Then, in the mid-1990s, major commercial banks began once again focusing on venture capital, where they had substantial expertise from their previous exposure to this kind of investment. Some of these recent venture-capital investments have been spectacularly successful. For example, the Internet search engine Lycos was a 1998 investment of Chase Manhattan’s venture-capital arm.

We do not compete in the area of these merchant banks, or even large or mid-market banks. We are an insignificant participant in the total market and our focus is on small investments, which larger banks may rule out.

Historical Track Records

Our Company has no historical track record and we should be deemed a pure start-up of earning or operating with all of the risks of an unproven company (see “Risk Factors”).

COMPETITION, MARKETS, REGULATION AND TAXATION

Competition

There are a large number of companies and individuals engaged in the Merchant Banking and Finance industry; accordingly, there is a high degree of competition. Almost all of the companies and individuals so engaged have substantially greater technical and financial resources than we do. We are attempting to create a novel solution in the BDTP ^TM that we may use as a model, potentially enabling us to generate ongoing revenue that we can then use for Merchant Banking.

We are an insignificant participant among the firms which engage in the funding of business opportunities. There are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we have. In view of our limited financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared to our competitors.

Investment Company Act 1940

Although we will be subject to regulation under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, we believe we will not be subject to regulation under the Investment Company Act of 1940 (the “1940 Act”) insofar as we will not be engaged in the business of investing or trading in securities within the definitions and parameters which would make us subject to the “1940 Act.” In the event we engage in business activities that result in us holding investment interests in a number of entities, we might become subject to regulation under the 1940 Act. In such event, we would be required to register as an Investment Company and incur significant registration and compliance costs. Under no circumstances does the company intend to become an investment company and its activities and its financial statement ratios of assets and cash will be carefully monitored and other activities reviewed

by the Board 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 fundamental concept, the 1940 Act requires registration of companies that invest and manage funds to invest for others and trade in securities of other companies. Those companies that cross a threshold of 40% of assets in cash and stock in other companies may be required to register. Investment companies may issue face amount certificates, be a Unit Investment Trust, or be a mutual fund. We intend to do several things to remain outside of the 1940 Act: a) we will not trade in securities of other companies or manage investments for others, b) we intend to remain primarily in the merchant bank lending business recognized as exempt under Sections 3(c)(4) and (5) of the 1940 Act, c) we intend to carefully monitor our ratios of cash and securities to total assets to avoid crossing the 1940 Act threshold, d) we intend to hold loans comprising 60% to 70% of our assets at any time, e) we intend to maintain secured loans to companies as our primary business, f) we do not intend to issue face amount certificates, g) we do not intend to distribute profits and dividends to our shareholders on an annual or shorter basis, if ever, h) we do not pass through profits and losses to our shareholders on a tax basis, i) smaller secured loans will be our primary business and our primary profit center, which we intend will account for more than 50% of our revenues; j) we will not issue Units in investment trusts, k) we will not act as a mutual fund, and l) we will not invest funds on behalf of others.

We have obtained no formal determination from the SEC as to our status under the 1940 Act and, consequently, any violation of the 1940 Act would subject us to material adverse consequences. We believe that, currently, we are exempt under Regulation 3(c)(4) and (5) of the 1940 Act.

Markets.

Our market is highly competitive and constantly changing. Commercial success is frequently dependent on capital availability, the effectiveness and sufficiency of which are very difficult to predict accurately. It is one of the principal economic risks of mezzanine and expansion stage funding companies like ours.

Governmental Regulation.

Federal Regulations.

We are subject to regulations by securities laws as a public company. We do not intend to become an investment company under the Investment Company Act of 1940, but if we exceed certain thresholds of certain assets or our business operations cease to fall within certain exemptions, we might inadvertently become subject to the Act.

Compliance with Environmental Laws and Regulations.

We are not involved in operations with environmental considerations for our business.

State Regulations.

Certain states may require that we obtain a Lender’s License prior to making a loan in that state. We intend to address this on an as needed basis.

Title to Properties.

Not applicable.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

NUMBER OF PERSONS EMPLOYED

As of March 31, 2023, we have no full-time employees and 2 independent consultants who act as our officers and directors on a part-time basis of up to 40 hours per week.

IMPACTS OF COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, as of March 2020, the Company transitioned its operations to 100% work from home and there has been minimal impact to our internal operations from the transition. The Company does not believe that there will be a material future impact to its operations and ultimately an impact to the Company’s overall revenues at this time.

PROPOSED NEW LINES OF BUSINESS

The matters discussed below contain certain forward-looking information and relate to analyses, business plans, business opportunities, management intentions and other information, available as of the date hereof, but is not yet fully determinable. These statements also relate to our contemplated future prospects, developments and business strategies. Although we believe that our plans, intentions and expectations reflected in or suggested by the matters discussed below are reasonable, we cannot assure you that such plans, intentions or expectations will be achieved. Important factors that could cause actual plans, intentions or expectations to differ materially from our plans, intentions or expectations include, but are not limited to the risks and uncertainties included under “Risk Factors” in this document. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual plans, intentions or expectations may vary materially from those discussed below. Given these uncertainties, users of the information included below are cautioned not to place undue reliance on such information.

BlackStar Digital Trading Platform ^TM

Background

Under the Securities Act of 1933, the offer and sale of securities must be registered unless an exemption from registration is available. Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 added Securities Act Section 4(a)(6) that provides an exemption from registration for certain crowdfunding transactions. In 2015, the SEC adopted Regulation Crowdfunding to implement the requirements of Title III. Under the rules, eligible companies were allowed to raise capital using Regulation Crowdfunding starting in May 2016. The landscape of new rules and regulations made Regulation Crowdfunding extremely difficult for companies to effectively raise money. Companies were limited to how much they could raise, solicitation rules across state lines for accredited and non-accredited investors is complicated, liquidity issues arise with no public trading market for private securities, high transaction costs, and the amount one could invest.

The Bitcoin started trading on its blockchain in 2011 and by 2017, coinciding with the failure of crowdfunding, “coins” and “tokens” were underwritten on a blockchain to fund global projects and start-up companies. The blockchain offered issuers a platform to fund and investors the freedom to trade with few limitations or regulations. Investors opened “wallets” rather than a trading account with a registered broker-dealer. Investors made their own decisions, there were no minimum amounts, there were no trading hours, and there were no commissions. Investors could trade new ideas with a “coin” or “currency” connected to the company through a “wallet.” The cryptocurrency innovation was based on a new distributed ledger design using a blockchain. The many “tokens” and “coins” created and promoted on the blockchain were founded in a totally unregulated environment. As a result, there have been many fraudulent “offerings” that ran afoul of existing SEC registration requirements, there have been thefts of “coins” and “tokens”, collapses of the “tokens/coins”, bankruptcies and closures of brokers and traders in the cryptocurrency environment, all with enormous losses to investors. The SEC has used enforcement actions of existing laws to regulate this new industry. This has created the need to create blockchain innovations under existing SEC rules.

In June 2017, the management of BlackStar began analyzing the crypto industry due, in large part, to its rapid ascent in popularity. BlackStar realized that the public blockchain trading of these faux currencies plagiarized the U.S. securities market and reduced the ability to fund and trade small companies and new issues. BlackStar noted the lack of specific regulation and is attempting to design a new system based within the existing rules of the SEC and FINRA.

Our Company has examined numerous “exchanges” or “platforms” for trading and believed that, among other things, they lacked essential regulatory compliance practices. This research and management’s securities and compliance background lead the Company to create a platform that contains the essentials for full regulatory compliance including:

• Know-Your-Customer (KYC);

• Anti-Money Laundering (AML);

• IRS tax reporting; and

• SEC compliance.

In July 2020, the Company determined that similar products and services (although not identical to the BDTP™ platform) have needed to register or have been required to register as an ATS in accordance with Regulation ATS, which is the regulatory framework for “alternative trading systems” (ATS). An ATS is an SEC-regulated trading venue which serves as an alternative to trading at a public exchange. The basic function of a broker-operated ATS is an electronic manifestation of a previously manual trading process, when trading desks would first try to execute trades internally before sending the order to a public exchange, although this is a small portion of all US stock market transactions. The vast majority of trades still occur at exchanges and electronic communication networks (ECNs).

Under the existing regulatory framework, an ATS is a trading system that meets the definition of “exchange” under federal securities laws but is not required to register as a national securities exchange if the ATS operates under the exemption provided under Exchange Act Rule 3a1-1(a). To operate under this exemption, an ATS must comply with the requirements set forth in Rules 300-303 of Regulation ATS. To comply with Regulation ATS, an ATS must, among other things, register as a broker-dealer and file an initial operation report with the SEC on Form ATS before commencing operations. Thereafter, an ATS must file amendments to Form ATS to provide notice of any changes to its operations, and must file a cessation of operation report on Form ATS if it ceases operations. Form ATS is not an application and the SEC does not approve an ATS before it begins operation. Form ATS is, instead, a notice to the SEC. As of September 30, 2022, the SEC lists 33 ATS’s that trade National Market System (NMS) stocks.

As a result, in lieu of expending the money and resources to become an ATS at this time, the Company is seeking to license the BDTP™ platform to an existing ATS, broker-dealer, and/or clearing firm to host the BDTP™ platform so that it may comply with existing rules and regulations. If we are unable to license it to an entity in this way, we may reevaluate whether to seek compliance with Regulation ATS as a standalone ATS. See the section below entitled “Licensing the BDTP™ Platform With An Existing Trading System” for additional information.

Overview of the BDTP™ Platform

BlackStar intends the BDTP™ to be a tool for trading securities within the existing FINRA and SEC regulated brokerage ecosystem, addressing many of the regulatory issues by operating within the existing confines of the system. For example, customers will continue to use brokerage accounts and broker-dealers and the transfer agent will continue to maintain the shareholder records. In addition, the BDTP™ platform is intended to seamlessly integrate with the order entry processes, priority rules, and execution procedures of the existing brokerage ecosystem. All custodial duties are intended to remain the same because the BDTP™ will pass encrypted customer and account information and buy/sell orders to the relevant parties. As currently contemplated and as a brief summary, the BDTP™ platform is expected to operate in the following manner:

Blockchain First ^TM: Financial services software for managing the trading of stocks or equities on a Distributed Ledger that prevents the disruption of order flow of customer trades.

*** THE BROKER DEALER SUBMITS THE CERTIFICATES TO THE TRANSFER AGENT AND THE TRANSFER AGENT VERIFIES OWNERSHIP. THEN THE BROKER DEALER’S POSITION IS EITHER DEBITED OR CREDITED DEPENDING UPON WHETHER IT WAS A DEPOSIT OR WITHDRAWAL.

BlackStar has built the technology based upon the Quantum Ledger Database, a blockchain framework from Amazon Web Services (“AWS”), and to use the AWS Cloud for transaction data storage. The BDTP™ would offer a web-based interface for trading transactions as well as an Application Programming Interface (API) that directly accesses all transactions stored on the BDTP™. In June 2020, BlackStar and Artuova, a custom software development company, successfully completed a production ready user interface for the BDTP™ platform, which is feature-complete. As of September 21, 2022, the core platform and its software is complete and is in the testing phase. The BDTP™ platform 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. 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. It will remain in the testing phase until we license the BDTP™ platform to a broker-dealer, clearing firm, and/or ATS. The BDTP™ platform is not designed to support transactions in any tokens, faux currencies, coins, crypto or any crypto related assets.

We believe that the BDTP™ platform is compatible with the Depository Trust Company’s (DTC) Deposit and Withdrawal at Custodian (DWAC) service, which provides participants with the ability to make electronic book-entry deposits and withdrawals of eligible securities into and out of their DTC book-entry accounts using a Fast Automated Securities Transfer service (FAST) transfer agent as the distribution point. We have designed our technology to be fully compatible with the DWAC system – i.e. shares of stock in uncertificated (book-entry) form can be moved into or out of the DWAC system just as with certificated shares of stock through a company’s existing transfer agent and existing broker-dealers.

We further believe that blockchain technology is compatible with the DWAC system because it does not contradict or counter the system, but rather provides an alternative for the customer to execute trades without markups/markdowns and at very low costs. DTC is market-neutral, which means it accepts transactions from multiple exchanges and trading platforms on a nondiscriminatory basis. It currently supports more than 50 exchanges and trading platforms, including the New York Stock Exchange (NYSE), Nasdaq, and the OTC Markets. This is the design of the BDTP™ platform. The BDTP™ platform is simply another trading platform, which uses blockchain technology and is designed to execute its trades through an existing ATS with the broker-dealer responsible for clearing and processing the transactions as it does for any transactions that occur on an existing ATS. The execution of a trade on the blockchain through an ATS will be reported back to the broker-dealer for clearing and settlement. Upon execution of a trade on the blockchain through an ATS, the ATS will publicly report the last price, volume, change and current bid-offer ladder to the broker-dealer that sent the order. The clearing of the trade will be the responsibility of the broker-dealer that introduces their customer to trade on the BDTP™ platform.

In addition, trading on private blockchain technology is compatible with the existing trading system because it can be programmed to follow the same protocols and rules as every other approved trading system. A broker-dealer will double-encrypt the customer data and send it to the BDTP™ platform, while freezing the data in the customer's account. There is no difference in how orders are currently sent to market makers or exchanges, but the benefit of BDTP™ platform is that there are additional security features, including a prohibition on short selling, and customer execution of their own order. The ATS or broker dealer hosting the quotes (the “Host”) will connect to the blockchain trading engine data and the blockchain execution engine data through a secure line, where the Host will have access to all the data sent to and from the blockchain in order to report the quotes. The Host will be responsible for all activity on the blockchain as a broker dealer. The final connectivity of the Host to the blockchain, along with their roles and responsibilities, will need regulatory review and approval once a Host partner is selected.

The core platform has been designed for initial use with BlackStar common stock and is thus the BlackStar Digital Trading Platform™ (BDTP). Our BlackStar Electronic Fungible Shares (BEFS) are proposed to be the initially traded securities on the blockchain on the BDTP™ platform and the rights and privileges to each shareholder of the BEFS is the same as certificated shares of common stock of BlackStar. BEFS are the same class of common stock as, and are identical to, paper certificated and book-entry shares of common stock; BEFS merely describes the format of the share of common stock. If the BDTP™ platform is approved for trading by the SEC and FINRA, the BEFS (those shares of common stock trading through the platform) would not differ as to its rights and privileges under state law from the authorized common stock of BlackStar. DTCC has for decades held electronic shares “under its agency” with broker-dealers for “street name” shares, without any problems under state law, including the Delaware General Corporation Law. The BEFS would be no different from DTCC held shares in book-entry form, except that the BEFS will be traded in blockchain transactions using an existing ATS rather than being traded on an exchange. Under current SEC and FINRA regulations, any shares that are uncertificated form would still be required to be deposited through a FINRA registered broker-dealer. Any FINRA broker dealer that accepts deposits can be used.

The BEFS are not “tokens” or “crypto tokens”. A “token” is generally understood to be a unit of value that blockchain-based organizations or projects develop on top of existing blockchain networks. While they often share compatibility with the cryptocurrencies of that network, they are a wholly different digital asset class. “Tokens” allow developers to create a cryptocurrency without needing to build a blockchain for that cryptocurrency. As cryptocurrencies, “crypto tokens” are often assets with value as are a myriad of other intangible assets with value. “Tokens” can typically be transferred, traded, bought, and sold, and they are stored in blockchain wallets. A blockchain wallet is a program or hardware device that is used to store cryptocurrency. Transactions with a crypto token are processed on the blockchain that it uses. For example, if it is an ERC-20 token built on Ethereum, then the Ethereum blockchain will handle all transactions for that token.

In addition to their role as a currency, “tokens” can serve many other purposes such as (1) governance tokens—which gives the holder voting rights in a cryptocurrency project. Token holders are able to make and vote on proposals that help determine the future of that specific cryptocurrency; (2) decentralized finance (DeFi)—refers to alternative financial systems built on blockchain technology. For example, instead of getting a loan from a lender, a holder can put up tokens as collateral and get a loan from a DeFi platform. Each DeFi platform has its own token that it uses as its official currency; (3) crypto rewards—holders receive crypto rewards as an incentive, which are usually paid out as crypto tokens; and (4) non-fungible tokens (NFT)—denotes ownership of a digital asset. The ownership information

is stored in the token. NFTs can be used to show who owns a unique digital image, a GIF, or a character in an online game.

In contrast, the BEFS are simply uncertificated shares of stock of BlackStar, which are commonly referred to as a “book-entry shares” in DTC and transfer agent parlance or, as we refer to them, “electronic fungible shares.” Shares held in uncertificated book-entry form have the same rights and privileges as shares held in certificate form. The BEFS simply flow in and out of the existing trading system, exchanges, or OTC Markets through DTC and broker-dealers in uncertificated book-entry form. Only for the period of time that the broker-dealer holds the shares for the customer are the shares residing in a blockchain recognized format and traded via our BDTP™ platform in a blockchain recorded transaction or series of transactions. A blockchain is simply a digital ledger that stores information in blocks that are linked. This information can be transaction records or full-fledged programs that operate on the blockchain, which are called smart contracts. For example, as transactions are confirmed, they would be grouped into a block, and that block would then be added to the blockchain. The BDTP™ platform only uses the blockchain as a medium for the low cost, efficient, and transparent way to trade securities with a minimum of mark ups, mark downs and shorting, and with lowered costs of execution. Using BlackStar’s concept “Blockchain First™”, cash and shares of stock owned by customers are recorded directly to the blockchain. The BEFS are simply held in uncertificated book-entry form and represent an equity ownership interest in a corporation (BlackStar) rather than serving as a distinct currency or another purpose such as a governance right, consumer reward or character in an online game. In addition, the price of a “token” is often aligned to the blockchain it is traded on (Bitcoin or Ethereum) while the price of a share of stock such as the BEFS is aligned with the value of the underlying company. We are not seeking to create “tokens”, but rather to have a system which allows the trading of well recognized corporate shares established under state law.

The BDTP™ platform is not currently operational for any securities and any such securities must first be registered with the SEC under the Securities Act or have an available exemption from registration.

Frequently Asked Questions regarding Proposed BDTP™ platform

Additional Features of the BDTP™ Platform

The BDTP™ platform will contain three features: (1) the main trading feature as discussed above, (2) an indication of interest feature for future offerings, and (3) a corporate governance feature.

The indication of interest feature, known as the “Internet Digital Offering™” or IDO™, is expected to record indications of interest for potential, initial or secondary future offerings proposed by the public or private company that subscribes to our customized platform. The distributive ledger technology on a blockchain would enable them to gauge interest on a first come, first serve basis. The IDO™ feature is only for use in self-underwriting situations and includes a method of facilitating a public or private offering for a company on an immutable blockchain. This may consist of the subscriber company uploading a preliminary prospectus to the platform if they are interested in raising capital, collecting a list of company shareholders, and collecting a list of non-company shareholders who have met at least a minimum threshold for potential interest in investing in the company, then prioritizing potential investors meeting the set requirements by the recorded timestamp and distributing the offering materials to them at the appropriate time in compliance with existing securities rules and regulations.

The final feature would record corporate governance information about a public company on an immutable blockchain. This may include a method of preparing for and complying with a financial statement audit, recording general corporate matters, recording financial and accounting matters, recording tax filing matters, on the immutable blockchain at least every 30 days, wherein each recording comprises a time stamp of receipt and cannot be subsequently manipulated or changed. We currently expect that the corporate governance and indication of interest features can be made available to regulators in real-time.

Licensing the BDTP™ Platform With An Existing Trading System

The BDTP™ platform is designed to be licensed to any company, together with an existing ATS arrangement to execute and process trades, for implementation by the licensee. These electronic fungible shares will trade on the BDTP™ platform exactly as shares of stock currently trade on OTC Markets, without markup or markdown in true “spot transactions.” Any company will be able to license and use our system or platform to trade electronic fungible shares.

We currently intend to seek a contractual arrangement such as a license with an existing ATS for a quoting service, similar to the current listing of our common stock with OTC Markets Group. At this time, no ATS has committed to an arrangement. We intend to continue having discussions with various ATS’s until we have secured an arrangement that will allow the BDTP™ platform to operate.

We have spoken to broker-dealers and clearing firms throughout the development process but have yet to secure a contractual relationship. We will continue to seek out this licensee and have increased our efforts to reach out to various broker-dealers since completing the demonstration platform and hope to secure a licensee within the next three to six months. The ability to obtain a licensee may be dependent on our ability to confirm that FINRA and the SEC will allow trading on the BDTP™ platform as described. If this is the case, the Company may alternatively seek to acquire an existing broker-dealer in order to become a registered broker-dealer. Once we have secured a licensee broker-dealer, clearing firm, or ATS for the operations of the BDTP™ platform, we will seek subscriber companies desiring customized platforms.

Once the BDTP™ platform is live and formal arrangements have been finalized with an existing ATS to execute and reports trades, the Company intends to license the platform to other publicly traded companies as a subscription service with a company specific customizable interface operation through a substantially similar license with the existing ATS. This subscription service, BlackStar’s “Blockchain Equity Trading™” or BET™, would enable each subscribing company to have access to their own trading platform, based upon our core platform, where shares of their common stock could be traded. The technical platform operations and updates will be managed by Artuova, through our oversight and direction. The software building of additional platforms for subscriber companies may take as little as a few business days. We have not yet developed our marketing campaign to seek out these customers, but plan to do

so after securing a license with an existing ATS. We anticipate our overall expansion of services into the blockchain industry within the next twelve months.

The initiation of operations of the BDTP™ platform will be dependent on the exact arrangement that we enter into and the regulatory approvals that may be required (see “Regulatory Challenges” below).

Existing Financing

We currently have no committed source for funding our operations but have entered into convertible promissory notes to continue operations in the interim, as disclosed in our most recent quarterly report for the period ended September 30, 2022. On September 1, 2021, we entered into a convertible promissory note with Power Up Lending Group, Ltd. for $53,750 (see the Current Report on Form 8-K filed September 30, 2021 and incorporated by reference herein); on October 1, 2021, we entered into a convertible promissory note with Power Up Lending Group, Ltd. for $78,750 (see the Current Report on Form 8-K filed October 26, 2021 and incorporated by reference herein); and on October 11, 2021, we entered into a convertible promissory note with GS Capital Partners, LLC for $60,000 (see the Current Report on Form 8-K filed October 26, 2021 and incorporated by reference herein). On November 29, 2021, we entered into a convertible promissory note with Sixth Street Lending LLC for $45,750 (see the Current Report on Form 8-K filed on December 8, 2021 and incorporated by reference herein). On February 14, 2022, we entered into a convertible promissory note with Sixth Street Lending LLC for $55,750 (see the Current Report on Form 8-K filed on March 2, 2022 and incorporated by reference herein). On May 5, 2022, the Company entered into a financing agreement with 1800 Diagonal Lending LLC to borrow $55,750 (see the Quarterly Report on Form 10-Q filed on November 21, 2022 and incorporated by reference herein). On August 30, 2022, the Company entered into a financing agreement with 1800 Diagonal Lending LLC to borrow $43,750 (see the Quarterly Report on Form 10-Q filed on November 21, 2022 and incorporated by reference herein). On October 31, 2022, the Company entered into a financing agreement with 1800 Diagonal Lending LLC to borrow $55,000 (see the Quarterly Report on Form 10-Q filed on November 21, 2022 and incorporated by reference herein). We anticipate that we will need $500,000 over the next six months for the establishment of the license with a licensee and to initiate platform operations; the Company had a cash balance of $62,085 as of December 31, 2022.

Blockchain Equity Management Corp.

BlackStar is conducting a continuing analysis for the Company’s involvement in Distributed Ledger Technology (“DLT”) related ventures. To pursue that end, the Company formed a subsidiary, Blockchain Equity Management Corp. (“BEMC”), formerly known as Crypto Equity Management Corp., on September 30, 2017. The name change occurred on February 3, 2023 in order to align the subsidiary more closely with our proposed business plan. As a merchant bank, BlackStar intends to seek to provide access to capital for companies and is specifically seeking out ventures involved in DLT. BlackStar recognizes the similarities in the rapidly evolving DLT ecosystem today compared to the Dot Com era in the 90’s, which present both challenges and opportunities. BlackStar intends to facilitate funding and management of DLT involved companies through majority controlled joint ventures BEMC. BlackStar, through BEMC, intends to initially control and manage each venture. Potential ventures for both BlackStar and BEMC will be analyzed using the combined business experience of its executives, with BEMC looking to fill those venture criteria with companies in digital share related businesses such as blockchain or DLT technologies. The Company does not intend to develop Investment Objectives or “criteria” in any manner but will rely on the acumen and experience of its executives. BEMC is currently non-operational, inactive and has no business or clients at this time. It is intended to offer advisory services as to how to implement use of a custom platform for the client’s equity based off of the BDTP ^TM. BEMC has not established any anticipated time frames or key milestones for BEMC business.

In addition, BlackStar intends to offer consulting and regulatory compliance services to blockchain and DLT companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in electronic fungible share-related ventures though BEMC, mainly in the areas of blockchain and distributed ledger technologies. Our long-term plan for provision of services is to finance the operations of BEMC through the successful production of the BDTP ^TM platform and subsequent subscription of the platform’s design as a service. As a subsidiary of BlackStar, BEMC additionally intends to offer consulting and regulatory compliance services to digital share related entities and blockchain entrepreneurs for securities, tax, and commodity issues. Our Company has always operated under the assumption that cryptocurrencies and tokens are

“securities” and regulated under the existing law, SEC rules and other financial regulations. Due to significant experience of our management in the U.S. securities and commodities industry, we felt that we had regulatory compliance backgrounds that could be useful in assisting with regulatory compliance for former cryptocurrency offerors and token offerors. Management believes that there may be other companies offering unregistered securities in digital form with possible violations of securities and other laws including FinCen regulation, CFTC rules, exchange rules, AML, and tax laws. The concept of BEMC as a subsidiary of BlackStar is to provide compliance services for the multitude of laws that are applicable to digital securities. Currently in the testing and completion phase, BlackStar intends to build trading platforms for subscriber companies based on the BDTP ^TM model and offer the platforms through a subscription service called BlackStar ‘Blockchain Equity Trading ^TM’(“BET”), generating ongoing revenue for the Company.

Neither BEMC nor BlackStar intend to underwrite these entities or entrepreneurial companies, nor do we intend to act as broker-dealers or investment companies, though we acknowledge the potential requirements to register as such or to claim exemption from registration.

Blockchain Equity Management Corp. is not currently operational, nor has it been since inception. The specific type and nature of services to be provided by BEMC may change based on whether the BDTP ^TM platform is able to ever begin services.

Blockchain Equity SRO, Inc.

In addition to the services described above, on December 31, 2017, BlackStar formed a subsidiary nonprofit company, Crypto Industry SRO Inc., now known as Blockchain Equity SRO, Inc., a self-regulatory membership organization for the digital share industry. The name change was completed on February 3, 2023. It is not yet functioning in any capacity at this time.

Regulatory Challenges of our Business Concept (BDTP ^TM)

BlackStar has always recognized that digital equities must be registered or otherwise have an exemption from registration within the existing SEC regulations and guidelines. BlackStar’s aim is to develop BDTP ^TM, a digital share trading platform, to trade free-trading BlackStar common stock only. The regulatory challenges presented come from integration of the platform into the existing broker-dealer ecosystem, approvals/advice of and compliance with the rules and regulations of OTC Markets Group, SEC, FinCen, IRS, anti-money laundering rules, or FINRA. These rules encompass the functionality of the system, cybersecurity laws, and state and federal financial laws. No assurance can be given that such regulatory approvals will be obtained in a timely manner or at all.

SEC Approval

Our first regulatory challenge is seeking the approval of the Securities and Exchange Commission (“SEC”) of our concept for a security that could be traded on the BDTP ^TM because the SEC has not yet adopted rules or regulations specific to the digital securities industry nor any regulations involving blockchain or distributed ledger transactions. The SEC has chosen to enforce its existing anti-fraud laws and the registration rules and regulations. Accordingly, we must work through an undefined SEC approval process for our proposed system. We anticipate many comments and questions from the SEC during any approval process for the BDTP platform. We anticipate that could take one to three years to complete the approval process for the BDTP platform.

The SEC may adopt new rules and regulations relating to our digital based concept for trading and securities, which rules and regulations are impossible to predict at this time. Any new rules and regulations could make our concept for digital trading and securities difficult to bring into compliance with new rules and regulations resulting in our inability to achieve commercialization and revenues. Such events could result in costly delays in achieving regulatory approval, resulting in increased legal, administrative, and accounting costs and delays, or denial of revenues from our concept.

We anticipate initiating formal discussions with the SEC and its relevant divisions and offices, including the Division of Trading and Markets, within the next six months with respect to seeking the approval or clearance of our BEFS being eligible to be traded on our BDTP™ platform. We believe it may take between six to nine months to address

SEC comments and questions, and there is no assurance that we will be successful in our BEFS being approved or cleared for trading on our BDTM platform.

We have no way of knowing at this date what new rules and regulations the SEC or any other regulatory body may adopt which could impact the structure and the timing of approval or clearance of any uncertificated shares on our BDTP platform in the future and there is a significant potential impact of any future adoption of new rules and regulations, which could delay our attempt to trade uncertificated shares on our BDTP platform.

FINRA

Our next regulatory challenge is that our concept requires implementation by a broker dealer registered with FINRA. We do not anticipate registering our company as a broker dealer, but instead would contract with a broker dealer to act as our agent/intermediary for our concept, thereby alleviating our Company of all regulatory compliance issues of a broker dealer.

As with the SEC, the broker dealer may be challenged due to the fact FINRA has no developed rules and regulations involving digital trading of shares specifically. FINRA has, however, chosen to raise disclosure requirements and to conduct heightened examinations for broker dealers as to any involvement in the digital industry, with intent to bring enforcement actions for violations of SEC regulations or FINRA rules, and disciplinary actions against broker dealers for any such violations. As a direct result, it may be difficult to find a broker dealer willing to be in vanguard of the digital trading and securities industry involving our concept – even if we are able to achieve SEC approval for our digital trading platform. Although we will continue to pursue both formal and informal discussions with both the SEC and a FINRA regulated broker dealer concurrently, we do not believe it would be constructive to commence substantive negotiations with a FINRA regulated broker dealer until we have substantially completed the SEC approval process. Once we believe we have substantially completed the SEC approval process, we believe it may take an additional six to twelve months to reach agreement with a FINRA regulated broker dealer.

We do not believe that FINRA is a major regulatory hurdle because upon registration as a “Registered Security” FINRA broker dealers can choose to trade it or not. FINRA cannot directly regulate the security. It can regulate any ATS as to FINRA Rules if it is also FINRA registered (due to the requirement of a Broker Dealer license), but that depends primarily on SEC regulation of the ATS.

Alternative Trading System

The final significant regulatory challenge involves the Alternative Trading System (“ATS”) as defined under 17 CFR §242.300. We understand the SEC position on digital securities to be that digital assets are required to be traded through an ATS, with which we agree. An ATS must comply with many control, regulatory, reporting, securities, inspection, procedural, and disclosure requirements. The SEC however has not yet proposed regulations for ATS trading of digital securities and is treating ATS applications under existing regulations.

We do not intend to attempt to register as an ATS but rather will seek to contract with an existing ATS to license our platform (if approved by regulatory agencies) for the ATS use and management. Our platform will operate just as any other software platform used for trading by an ATS or broker/dealer. We believe this is ultimately the best solution from a regulatory standpoint to have the existing ATS manage those requirements for compliance with SEC and FINRA rules and regulations.

It could take one year to eighteen months, to prove the concept to an existing ATS and then to properly integrate operations into the ATS monitoring and regulatory systems. The ATS would need to obtain SEC approval to add the BDTP ^TM platform to its existing trading platform which could take one year to eighteen months.

We cannot at this time anticipate every regulatory action of the digital security industry in the future. No proposals for regulation have even reached published proposal stage. New regulations of the digital securities industry could render our business either impossible due to the nature of regulations, or uneconomical, which would doom our concept.

We do not have any time frame for achieving any of the regulatory challenges although we believe that it may take between one to three years before the BDTP ^TM platform is operational with all required regulatory approvals.

The SEC may place additional oversight focus on broker-dealers in the following areas due to the digital nature of the securities: safekeeping of funds and operations that are unique to the safety and custody of Digital Asset Securities; broker-dealers’ and any affiliated entities’ compliance with registration requirements; adequate AML procedures, controls, and documentation regarding Digital Asset Securities; disclosure and due diligence obligations related to the offering of Digital Asset Securities; review of the existence and disclosures of conflicts of interest and the compliance policies and procedures to address them (e.g. broker-dealers may operate in multiple capacities, including as trading platforms or proprietary traders of Digital Asset Securities on their own and other platforms); and review of FINRA-member broker-dealer compliance processes in connection with the evaluation, approval, and monitoring of outside business activities related to digital assets. Many of these compliance issues will remain if we license with a broker-dealer instead of acquiring one.

Volatility of Cryptocurrencies and Tax Implications – Neither BlackStar nor BEMC will be trading in, accepting loan repayments in, or making loans in cryptocurrencies; the intent was to build a platform on which to trade digital securities of BlackStar on a private blockchain.

Cybersecurity Implications of DLT – Transactions on the distributed ledger fabric are protected by public-key X.509 certificates. The protection of PII data is the responsibility of each brokerage dealer. Any blockchain code used will be placed in a public repository after having been certified by an independent cybersecurity audit. Further, BEMC bases the operational requirements and cyber-security framework in part on the following publications the “Distributed Ledger Technology: Implications of Blockchain for the Securities Industry” published by FINRA, and the European Union Agency for Network and Information Security (ENISA) report entitled “Distributed Ledger Technology & Cybersecurity.”

DESCRIPTION OF PROPERTIES/ASSETS

Real Estate - None

Oil and Gas Properties - None

Patents - None

Trademarks – BlackStar Digital Trading Platform ^TM, BDTP ^TM, Internet Digital Offering ^TM, IDO ^TM, Blockchain Equity Trading ^TM