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 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



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condition for the years ended December 31, 2022 and 2021. This MD&A should be read in conjunction with our financial statements as of December 31, 2022 and 2021. 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, 2022, we had an accumulated deficit totaling $9,374,967. 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 Pink Sheets 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 wholly-owned subsidiary, Blockchain Equity Management Corp., ("BEMC"), 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 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 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 - BlackStar progress in 2022 was focused on pursuing the registration of shares underlying convertible notes, which entailed thoroughly describing many aspects of our new proposed line of business of trading common shares on a blockchain through the broker-dealer ecosystem. 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 in 2023. The Company's next major step in its main feature, BlackStar's Digital Trading Platform ("BDTP TM"), will be to engage an operating partner (a broker-dealer, clearing firm, and/or registered Alternative Trading System ("ATS")) to host the platform prior to implementation. To that end, the Company is exploring partnerships with broker-dealers and existing ATS's and other 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 6 to 9 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 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



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final stages of this multi-year engineering effort. During 2021-2022, BlackStar filed with the U.S. Patent and Trademark Office ("USPTO") for patent protection of its proprietary software. During 2022, BlackStar also filed with U.S. and foreign trademark offices for protection.

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 SEC approval of our digital trading platform.

Currently in the testing phase, we estimate $100,000 to finalize the integration of the digital platform into the broker-dealer eco system once the SEC and FINRA clear BlackStar to promote broker dealers and or exchanges. The ability to obtain a licensee may be dependent on our ability to confirm that FINRA and the SEC will allow trading on our platform as described. If this is the case, the Company may alternatively seek to acquire an existing broker-dealer in order to become a FINRA-registered broker-dealer. Once we have secured a licensee broker-dealer, clearing firm, or ATS for the operations of the BDTP TM and begun operating the BDTP TM, we will seek subscriber companies desiring customized platforms. At that point, we will have the ability to showcase BDTP TM's live operations. The technical platform operations and updates will be managed by Artuova, through our oversight and direction. The software building of additional platforms for subscriber companies may take as little as 48 hours. We have not yet developed our marketing campaign to seek out these customers, but plan to do so after securing our operating licensee, anticipated within the next six months. We anticipate our overall expansion of services into the blockchain industry within the next twelve months.

Based on our current cash reserves of approximately $62,085 as of December 31, 2022, we have the cash for an operational budget of approximately three (3) months. We intend to offer a private placement of preferred 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 spring of 2023. 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, 2022, 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 2023 and $150,000 in the fourth quarter of 2023 for operational costs which includes legal, accounting, travel, general and administrative, audit, rent, telephones and miscellaneous. In the year ended December 31, 2022, we received funding through convertible promissory notes totaling $194,750 being received in net cash proceeds. In 2023, we received loans of an aggregate $50,000 from two investors, due nine months from receipt with interest at 11% per annum.





Results of Operations

Net loss for the year ended December 31, 2022 was $1,225,207 as compared to $2,183,567 for the year ended December 31, 2021, a decrease of $958,360. 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 2022, non-cash expenses associated with convertible debt financings were $522,854 as compared to $1,067,537 in 2021, a decrease of $544,683. This decrease is substantially non-cash and predominately due to the decrease in amortization of discounts on debt issuances and conversion features of the convertible promissory notes that we have used to finance our continued operations, as convertible debt financings decreased in 2022 as compared to 2021. In 2021, the Company issued common stock, in lieu of cash payments, valued at $423,779 for interest and loan fees as compared to no issuances for these costs and expenses in 2022.

General and administrative expenses in 2022 were $62,235, a decrease of $398,546 from general and administrative expenses of $460,781 in 2021. 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 being incurred in 2022. General and administrative costs in 2021,



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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 2022 were $62,235.

In 2022 the Company paid related party management consulting fees to IHG of $294,401 as compared to $344,642 paid in 2021.

Legal and professional fees of $127,392 for the year ended December 31, 2022 increased by $25,352 from $102,040 for the year ended December 31, 2021. Fees for both 2022 and 2021 were predominately for SEC regulatory and statutory filings, fees for annual audit and quarterly reviews and filings for a Registration Statement on Form S-1 to register underlying common shares for issuance to investors.

Liquidity and Capital Resources

As of December 31, 2022, we had a working capital deficit of $971,295 and cash of $62,085, as compared to a working capital deficit of $283,054 and cash of $518,539 as of December 31, 2021. The decrease in cash and increase in working capital deficit was due primarily to the decrease in debt funding during 2022 as compared to 2021, 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 2022, we used $543,604 of cash for operating activities. In 2022, we paid $11,634 in investing activities for software development and patent costs and incurred an additional $70,251 in legal fees for patent costs which amount is included in accounts payable as of December 31, 2022. During 2021, we used $518,810 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.

Substantially all of our funding has been from convertible debt financings in 2022 and 2021. The debt instruments were with non-related investment firms, carried an interest rate of 10%, matured six months to one year from date of financing and were convertible into shares of the Company's common stock at a discount to the trading prices of the common shares of 35% to 40%. During 2022, we issued convertible debt with a face value of $210,250, receiving cash proceeds of $194,750. During 2021, we issued convertible debt with a face value of $1,137,750, receiving cash proceeds of $1,171,500. In 2022, note holders were issued 405,010,195 shares of common stock for conversion of $619,211 face value of debt and related accrued interest and fees. 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. We had a net increase in liquidity from financings of $98,784 in 2022 and $1,102,720 in 2021. In 2022, we issued 12,795,700 shares of common stock to warrant holders in a cashless exercise of warrants at $0.0023 per share.

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 $194,750 and $1,171,500 from convertible debt financing in 2022 and 2021, respectively, there can be no assurance that we will continue to be successful in raising capital and have adequate capital resources to fund our operations or that any additional funds will be available to us on favorable terms or in amounts required by us. We estimate that we will need to raise $5,000,000 over the next twelve months to



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scale up our current plan. The Company feels it has sufficient capital to pay expenses and implement our platform of blockchain features in the second quarter of 2023.

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





Going Concern Consideration

Our registered independent auditors have issued an opinion on our financial statements as of December 31, 2022, 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 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

As of December 31, 2022 and 2021, 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, 2022 and 2021 and are included elsewhere in this report.

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