Forward-Looking Statements and Associated Risks.

This Form 10-K contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "estimate, or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our



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current views with respect to future events and financial performance. Certain statements that the Company may make from time to time, including all statements contained in this report that are not statements of historical fact, constitute "forward-looking statements". Forward-looking statements may be identified by words such as "plans," "expects," "believes," "anticipates," "estimates," "projects," "will," "should," and other words of similar meaning used in conjunction with, among other things, discussions of future operations, financial performance, product development and new product launches, market position and expenditures. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help you understand our historical results of operations during the periods presented and our financial condition for the years ended December 31, 2021 and 2020. This MD&A should be read in conjunction with our financial statements as of December 31, 2021 and 2020. See section entitled "Forward-Looking Statements" above.

Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying financial statements, as of December 31, 2021, we had an accumulated deficit totaling $(8,149,760). This raises substantial doubts about our ability to continue as a going concern.

Overview

BlackStar Enterprise Group, Inc. (the "Company" or "BlackStar") intends to act as a merchant bank as of the date of these financial statements. We currently trade on the OTC QB under the symbol "BEGI". The Company is a merchant banking firm seeking to facilitate venture capital to early-stage revenue companies. BlackStar intends to offer consulting and regulatory compliance services to crypto-equity companies and blockchain entrepreneurs for securities, tax, and commodity issues. BlackStar is conducting ongoing analysis for opportunities in involvement in crypto-related ventures though our newly formed wholly-owned subsidiary, Crypto Equity Management Corp., ("CEMC"), mainly in the areas of blockchain and distributed ledger technologies ("DLT"). BlackStar intends to serve businesses in their early corporate lifecycles and may provide funding in the forms of ventures in which we control the venture until divestiture or spin-off by developing the businesses with capital. We have only engaged in one transaction as a merchant bank form to date.

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

As a merchant bank, BlackStar intends to seek to provide access to capital for companies and is specifically seeking out ventures involved in DLT or blockchain. BlackStar intends to facilitate funding and management of DLT-involved companies through majority controlled joint ventures through its subsidiary CEMC. BlackStar, through CEMC, intends to initially control and manage each venture. Potential ventures for both BlackStar and CEMC will be analyzed using the combined business experience of its executives, with CEMC looking to fill those venture criteria with companies in crypto-related businesses such as blockchain or DLT technologies. The Company does not intend to develop Investment Objectives or "criteria" in any manner but will rely on the acumen and experience of its executives. BlackStar is currently building a digital equity trading platform in order to trade registered BlackStar common shares in digital form (DWAC), and intends to use the platform design to provide custom subscription services to other public companies.

Recent Updates - The Company is finalizing the marketing plan to promote and roll out the three features of its blockchain platform. The Company plans to offer its Private Funding and Corporate Governance Blockchain to individual private companies. The Company is currently evaluating its options for the next major step in its main feature, Blackstar's Digital Trading Platform ("BDTP TM"), which will need to be paired with an operating partner (a broker-dealer, clearing firm, and/or registered Alternative Trading System ("ATS")) to quote the shares prior to implementation. To that end, the Company is exploring partnerships with broker-dealers and existing ATS's and other



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strategies to go live with BDTP TM in accordance with existing laws and regulations. As of the date of this filing, the core platform of BDTP TM is complete and will remain in the testing phase until we obtain an operating partner. BlackStar intends to continue to seek further input from various regulatory agencies and others on the functionality of the BDTP TM over the next several months. The BDTP TM has been completely designed in terms of the following components: data model, reports, web-based user interface, blockchain interface, transaction logic, cloud interface, and functional demonstration app. The software is complete in demonstrating a proof-of-concept trading ability, while recording activity using an immutable blockchain ledger. Currently, the working model platform is hosted on Amazon's Quantum Ledger Database. During the year ended December 31, 2021, BlackStar and Artuova successfully completed a production ready and feature-complete user interface for the digital platform which is now in the final stages of quality assurance. Blackstar is actively pursuing relationships with various broker-dealers, clearing firms, and ATS's to complete the final stages of this multi-year engineering effort. In addition, during 2021, Blackstar has filed with the U.S. Patent and Trademark Office ("USPTO") for patent protection of its proprietary software.

The Company's success will be dependent upon its ability to analyze and manage the opportunities presented and is contingent upon successfully raising funds and ultimately operationality of its digital trading platform.,

Currently in the demonstration phase, we estimate an additional $30,000 to be expended over the next three months to finalize the integration of the digital platform into the broker-dealer eco system.

Based on our current cash reserves of approximately $518,539 as of December 31, 2021, we estimate that we have sufficient cash for an operational budget of approximately twelve months. We intend to offer a private placement of common shares to investors in order to achieve at least $5,000,000 in funding in the next year to scale our business plan. We intend to commence this offering in mid-summer of 2022. If we are unable to generate enough revenue to cover our operational costs, we will need to seek additional sources of funds. Currently, we have no committed source for any funds as of date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.

The independent registered public accounting firm's report on our financial statements as of December 31, 2021, includes a "going concern" explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.

We have estimated $100,000 for each of the first three quarters of 2022 and $150,000 in the fourth quarter of 2022 for operational costs which includes legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. In the year ended December 31, 2021, we received funding through convertible promissory notes totaling $1,171,500 being received in net cash proceeds.





Results of Operations

Net loss for the year ended December 31, 2021 was $2,183,567 as compared to $1,565,591 for the year ended December 31, 2020, an increase of $617,976. As explained below, most of the losses in those years was attributable to non-cash transactions from the issuance of convertible debt and other financings during the years.

In 2021, non-cash expenses associated with convertible debt financings were $1,127,534 as compared to $262,929 in 2020, an increase of $864,605. This increase was due to the increase issuance of convertible debt financing in 2021 and for the costs related amortization of debt issuance costs, debt discounts and interest on convertible notes. In 2020, the Company also recognized a non-cash loss on conversion of notes payable of $1,006,558. In addition, in 2021, the Company issued common stock, in lieu of cash payments, valued at $423,779 for interest and loan fees as compared to common stock issued in 2020 for interest and loan fees valued at $116,208.

General and administrative expenses in 2021 were $460,781 an increase of $401,161 from general and administrative expenses of $59,620 in 2020. In 2021, the Company incurred $411,779 in cash and stock payments for fund raising fees as compared to no costs incurred of this nature in 2020. General and administrative costs in 2021, exclusive of fees for fund raising, were $49,002 for investor relations, filing fees, transfer agent fees and overhead operational costs. Similar operational and overhead costs incurred in 2020 were $59,620.





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In 2021 the Company paid management consulting fees to IHG of $344,642 as compared to $100,530 paid in 2020.

Legal and professional fees of $102,040 for the year ended December 31, 2021 increased by $31,008 from $71,032 for the year ended December 31, 2020. Fees for both 2021 and 2020 were predominately for SEC regulatory and statutory filings, fees for annual audit and quarterly reviews.

Liquidity and Capital Resources

At December 31, 2021, we had a working capital deficit of $283,054 and cash of $518,539, as compared to a working capital deficit of $44,851 and cash of $32,987 at December 31, 2020. The increase in both cash and working capital deficit was due primarily to the increase in debt funding during 2021 as compared to 2020, with all new debt issuances maturing within one year of date of issuance. The Company used new and existing fundings to maintain operating activities and complete software development and patent filings with the USPTO for its digital trading platform. During 2021, we used $559,168 of cash for operating activities; and paid $98,438 in investing activities for software development costs of $58,000 and incurred legal fees for patent costs of $71,800, of which $31,442 is included in accounts payable at December 31, 2021. In 2020, operating activities utilized cash of $257,194 and investing activities for software development was $10,000.

Substantially all of our funding has been from convertible debt financings in 2021 and 2020. The debt instruments were with non-related investment firms, carried an interest rate of 10%, matured six months to one year from date of financing and were convertible into shares of the Company's common stock at a discount to the trading prices of the common shares of 35% to 40%. During 2021, we issued convertible debt with a face value of $1,137,750, receiving cash proceeds of $1,171,500. During 2020, we issued convertible debt with a face value of $287,275, receiving cash proceeds of $260,000. Note holders were issued 18,079,985 shares of common stock for conversion of $298,000 face value of debt and related accrued interest and fees in 2021. In 2020, note holders were issued 50,411,141 shares of common stock for conversion of $349,856 face value of debt and related accrued interest and fees. We had a net increase in liquidity from financings of $1,102,720 in 2021, and $256,930 in 2020.

While management of the Company believes that the Company will be successful in its current and planned activities, there can be no assurance that the Company will be successful in obtaining sufficient revenues from our planned operations and raise sufficient equity, debt capital or strategic relationships to sustain the operations and future business of the Company.

Our ability to create sufficient working capital to sustain us over the next twelve-month period, and beyond, is dependent on our raising additional equity or debt capital, and ultimately to commence revenues form or digital trading platform.

There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.

Availability of Additional Capital

Notwithstanding our success in raising net cash proceeds of $1,171,500 and $260,000 from convertible debt financing in 2021 and 2020, respectively, there can be no assurance that we will continue to be successful in raising capital and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. We estimate that we will need to raise $5,000,000 over the next twelve months to scale up our current plan. The Company feels it has sufficient capital to pay 2022 expenses and implement our platform of blockchain features in third quarter of 2022.

Any additional financings may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of Common Stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs.





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Going Concern Consideration

Our registered independent auditors have issued an opinion on our financial statements as of December 31, 2021 which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we our digital trading platform is operational. Accordingly, we must raise capital from sources other than the actual revenue from issuance of memberships in our digital trading platform.

Off-Balance Sheet Arrangements

At December 31, 2021 and 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

Contractual Obligations and Commitments

We have no material commitments for capital expenditures within the next year, however, as operations are expanded substantial capital will be needed to pay for expansion and working capital.

We have made equity and debt offerings in order to support our growth plans, to date, and may do so in the future.

There are no commitments to provide additional funds by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow coverage of our expenses as they may be incurred. The principals of the Company have extensive investment banking backgrounds and have used their resources since the 2016 inception of their management of Blackstar.





Critical Accounting Policies

Our significant accounting policies are described in the notes to our financial statements as of December 31, 2021 and 2020 and are included elsewhere in this report.

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