Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

FORM 10-K

(Mark One)

☒ 

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

For the fiscal year ended

[  ]

December 31, 2021

or

☐ 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-55108

BLACKBOXSTOCKS INC.

(Exact name of registrant as specified in its charter)

 

For the transition period from

to

 

Nevada

Commission File No.

45-3598066

001-41051

BLACKBOXSTOCKS INC.

(Exact name of registrant as specified in its charter)

Nevada

45-3598066

(State or other jurisdiction of
Incorporation

incorporation or organization)

(IRS Employer
Identification Number)
 

(I.R.S. Employer

Identification No.)

5430 LBJ Freeway, Suite 1485,

Dallas, TXTexas

75240

(Zip Code)

(Address of principal executive offices)

(Zip Code)

Registrant’s Telephone Number, including area code (972) 726-9203

Registrant’s telephone number, including area code

(972) 726-9203

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Classeach class

Trading Symbol(s)

Name of each exchange on which registered

None

Common Stock, par value $.001$0.001

BLBX

NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes [X] No [  ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X] No [  ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

 Large accelerated filer [  ]Accelerated filer [  ]
Non-accelerated filer [  ]Smaller reporting company [X]

Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the ExchangeEx‐change Act. [  ]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.           ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [  ] No [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates (8,005,000(3,633,493 shares of common stock) as of June 30, 2018 2021was $88,055,000$10,718,441 (computed by reference to the price at which the common equity was last sold ($11.00)2.9499) as of the last business day of the registrant's most recently completed second fiscal quarter). For purposes of the foregoing calculation only, directors, executive officers, and holders of 10% or more of the issuer’s common capital stock have been deemed affiliates.

The number

As of March 28, 2022, 13,185,659shares outstanding of the Registrant’s Common Stock as of April 17, 2019 was 23,115,500.common stock, par value $0.001 per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCEREFERENCE:

None

Portions of the information called for by Part III of this Annual Report on Form 10-K are incorporated by reference from the definitive proxy statement for the registrant's annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the registrant's fiscal year ended December 31, 2021. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the definitive proxy statement is not deemed to be filed as part hereof.


 

TABLE OF CONTENTS

 

Page

INTRODUCTORY COMMENT

1

FORWARD LOOKING STATEMENTS

1

  

PART I

2

Item 1.

Business

2

Item 1A.

Risk Factors

10

Item 1B.

Unresolved Staff Comments

21

Item 2.

Properties

21

Item 3.

Legal Proceedings

22

Item 4.

Mine Safety Disclosures

22

   
Page
INTRODUCTORY COMMENT1
FORWARD LOOKING STATEMENTS1
PART I2
Item 1.Business2
Item 1A.Risk Factors5
Item 1B.Unresolved Staff Comments6
Item 2.Properties6
Item 3.Legal Proceedings6
ITEM 4.MINE SAFETY DISCLOSURES6

PART II

7

23

Item 5.

Market for Registrant’s Common Equity, Related Stockholder MattersMatter and Issuer Purchases of Equity Securities

7

23

Item 6.

Selected Financial Data

8

24

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

8

24

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK14

28

Item 8.

Financial Statements and Supplementary Data

14

28

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

14

28

Item 9A.

Controls and Procedures

14

29

Item 9B.

Other Information

30

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

16

30

   

PART III

17

31

Item 10.

Directors, Executive Officers and Corporate Governance

17

31

Item 11.

Executive Compensation

18

31

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

19

31

Item 13.

Certain Relationships and Related Transactions, and Director Independence

20

31

Item 14.

Principal Accountant Fees and Services

21

31

   

PART IV

32

Item 15.

Exhibits and Financial Statement Schedules

32

Item 16.

Form 10-K Summary

33

   

PART IVSIGNATURES

22

34

Item 15.Exhibits AND Financial Statement Schedules22
Signatures24


INTRODUCTORY COMMENT

 

Throughout this Annual Report on Form 10-K (the "Report”), the terms “we,” “us,” “our,” “Blackboxstocks,” or the “Company” refers to Blackboxstocks Inc., a Nevada corporation.

 

“Blackboxstocks,” the Blackboxstocks design logo and the trademark or service marks of Blackboxstocks, Inc. appearing in this Report are the property of Blackboxstocks, Inc. Trade names, trademarks and service marks of other companies that may appear in this report are the property of their respective holders. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Report. 

FORWARD LOOKING STATEMENTS

 

When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect the Company’s future plans of operations, business strategy, operating results and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties described herein and actual results may differ materially from those included within the forward-looking statements.Additional factors are described in the Company’s other public reports and filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

 

This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends and activities will occur and the projected information based on those assumptions. We do not know that all of our assumptions are accurate. If our assumptions are wrong about any events, trends and activities, then our estimates for future growth for our business may also be wrong. There can be no assurance that any of our estimates as to our business growth will be achieved.

 

The following discussion and analysis should be read in conjunction with our financial statements and the notes associated with them contained elsewhere in this Report. This discussion should not be construed to imply that the results discussed in this Report will necessarily continue into the future or that any conclusion reached in this Report will necessarily be indicative of actual operating results in the future. The discussion represents only the best assessment of management.

PART I

 

ITEM 1.BUSINESS
1

 

Our Corporate History and BackgroundPART I

 

The Company was organized on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan of Reorganization confirmed by the United States Bankruptcy Court For the Northern District of Texas for reorganization under Chapter 11 of the United States Bankruptcy Code.Item 1. Business

 

Reverse AcquisitionOverview of Tiger TradeBusiness

 

On December 1, 2015, the Company entered intoWe have developed a Share Exchange Agreement (the “Exchange Agreement”), byfinancial technology and among the Company, Tiger Trade Technologies, Inc. (“Tiger Trade”),social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of all levels combined with a Texas corporationsocial media element and the stockholders of Tiger Trade.  Under the terms and conditions of the Exchange Agreement, the Company offered and sold 17,900,000 newly issued shares of Company Common Stock, par value $0.001 ("Common Stock") and 5,000,000 newly issued shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Company Preferred Stock”) in consideration for all the issued and outstanding shares of Tiger Trade capital stock. The effect of the issuance was that, upon closing of the Exchange Agreement transaction, former Tiger Trade stockholders held approximately 85.91% of the issued and outstanding shares of Company Common Stock and 100% of the issued and outstanding shares of Company Preferred Stock. 

As a condition precedent to consummation of the Exchange Agreement, Orsolya Peresztegi, the Company’s sole officer and director on the closing date of the transaction, effected the cancellation of 7,095,602 shares of Company Common Stock pursuant to a Cancellation Agreement effective as of the Exchange Agreement closing date. Under the terms of the Cancellation Agreement, Tiger Trade paid Ms. Peresztegi a cancellation fee of Two Hundred Forty-Five Thousand Dollars ($245,000).

As a result of the Exchange Agreement and Cancellation Agreement transactions described above, the Tiger Trade stockholders acquired as of the date the transaction closed, in the aggregate, approximately 88.64% of the issued and outstanding capital stock of the Company on a fully-diluted basis, and Tiger Trade became a wholly owned subsidiary of the Company.  Under the Exchange Agreement, (1) Orsolya Peresztegi, the Company’s sole officer on the closing date, resigned as an officer of the Company and Gust Kepler was appointed as the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and (2) Mr. Kepler was appointed to serve as a director of the Company. Ms. Peresztegi subsequently resigned as a director of the Company effective January 4, 2016.

Merger of Tiger Trade into the Company

On February 8, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tiger Trade providing for the merger of Tiger Trade with and into the Company. At the effective time of the merger, the shares of Tiger Trade capital stock outstanding immediately before the effective time were canceled, retired and ceased to exist. The merger became effective February 9, 2016.

Name Change

The Company filed a Certificate of Amendment to its Articles of Incorporation effective as of March 9, 2016 changing the name of the Company to Blackboxstocks Inc.

Overview of Business

The Company is in the business of developing and marketing web and mobile based analyticaleducational materials. Our web-based software tools as a subscription based software as a service (the “Blackbox System”) that serves as tool for stock and option traders to evaluate prospective investments on various securities exchanges and markets. Our proprietary Blackbox System technology is an algorithm driven system that works in real time, measuring market trends and data while utilizing a multitude of specific criteria, both live and historical. Our servers, located in close proximity to the NYSE, NASDAQ and OTC exchanges drive our proprietary algorithms at near light speed. Our Blackbox System platform employs predictive technology“predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that canmay result in the rapid change in a stock’s price. The Blackbox System was initially designed to monitor and analyze over 13,000 stocks on the OTC Markets Group, Inc. (“OTC”), New York Stock Exchange (“NYSE”), the NYSE American (formerly the American Stock Exchange) and NASDAQ markets simultaneously as our servers receive live data feeds from such markets. We have also customized a separate Blackbox System platform (“Asian Blackbox System”) to analyze data from the Hong Kong Stock Exchange (“HKEX”), Shanghai Stock Exchange (“SSE”) and Shenzhen Stock Exchange (“SZSE”) for license and use primarily in Asia. We consider the Blackbox System technology to be among the most user-friendly of its kind.

The Blackbox System employs predictive technology enhanced by artificial intelligence to identify volatility and unusual market activity that may result in rapid change in the price of a stock. The complexity ofstock or option. We continuously scan the New York Stock Exchange (“NYSE”), NASDAQ, Chicago Board Options Exchange (the “CBOE”) and other options markets, analyzing over 10,000 stocks and over 1,500,000 options contracts multiple times per second. We provide our backend analytics is neatly hidden from the end user by our simple and easy to navigate dashboard which includes real-time alerts, scans, news and institutional grade analytics. Additionally, our users are providedsubscribing members with a fully interactive chat and social media platform that is integrated ininto our dashboard. This allows usersdashboard, enabling our members to exchange information and ideas quickly and efficiently. Recently,efficiently through a live audio-video feature was introduced which allows our subscribers the ability to broadcast and share trade strategies and market insight, on their own channels withincommon network. We believe the Blackbox community.

The Blackbox SystemSystem’s combination of proprietary analytics and broadcast enabled social media connecting traders of all types worldwide on an intuitive, user-friendly system is a unique and disruptive financial technology platform.

We employ a subscription-based Software as a Service (“SaaS”) business model and maintain a growing base of members that spans 42 countries. We currently offer monthly subscriptions to our platform combiningfor $99 per month and annual subscriptions for $959 per year.

Our goal is to provide retail investors with the type of sophisticated trading tools that were previously available only to large institutional hedge funds and high-frequency traders together with an interactive community of traders and investors of all levels at an affordable price. We also strive to provide these trading tools in a user-friendly format that does not require complicated configurations by the user. All of our software is web-based and does not require downloads or frequent updates.

a1.jpg

2

Our Mission

Our mission is to provide useful proprietary analytics in a simple and broadcast enabled social media,concise format to connect traders of all types worldwidelevel the playing field for the average retail investor. We strive to educate our members both within our live trading community and in our ultimate user-friendly system.scheduled, calendared classes with live instructors. We want every member to feel they are part of a team with the goal of attaining financial literacy. We believe that we are the antithesis of the “trading guru” platforms that feature a trading or investing expert that charges for what are often expensive courses. We do not charge for our classes. We do not upsell our members. All education and community programs are free with the subscription to our platform.

 

Revenue Model

We generate revenue from a software as a service (or SaaS) model whereby members pay either an annual or monthly fee for a subscription to our platform. We do not currently offer more than one level of subscription with varying levels of features. All members have full access to all of the features on our platform.

Monthly subscriptions are currently priced at $99 and annual subscriptions are currently priced at $959 (a discount of $241). We occasionally offer gift cards and promotional discounts on our annual subscriptions.

Development of the Blackbox System

 

The Blackbox System was made available for use to US subscribing customers worldwide in September 20162016.We use a web-based platform focused on providing proprietary analytics and the Asianbroadcast enabled social media for our community of members. Our product offering is comprised of three key elements: trading analytics, social media interaction and educational programs and resources.

a2.jpg

Trading Analytics

Our preconfigured dashboard is designed to be simple and easy to navigate and includes real-time alerts, stock and options scanners, financial news, institutional grade charting, and our proprietary analytics that can be utilized by traders of all levels. Our Blackbox System was made availablepopulates the stock and option data in real time and provides a wide range analytics and tools for usetraders. We offer many of the standard market tool features used by under a license arrangementtraders but differentiate our product with an array of unique proprietary features and derived data. These proprietary features are designed to subscribersfilter out “market noise” and locate the relevant market movers in May 2017.the stock or option category in real-time.

3

Standard Features

(Including but not limited to)

Real Time Algorithm Driven Stock Alerts

Symbol Specific Alert Criteria

Options Alerts

Options Flow Scanner / Heatmap

Pre-Configured Pre/Post Market Scanners

Stock and Option Volume Ratio Scanner

Volatility Indicator

Dark Pool Alerts and Charting

Proprietary Features

(Including but not limited to)

Real Time NYSE/NASDAQ/OTC Market Data

Real Time OPRA Options Trade Data

Real Time Streaming Market News Feed

Symbol Specific News

Options News and Upgrades/Downgrades

Institutional Grade Charts

Earnings and Dividend Dates

Daily Advancers / Decliners Scanner

 

In December 2017, we launched our first Options Flow Scanner as a new feature on our platform. Our Options Flow Scanner is designed to monitor and alert our usersmembers to unusual activity on the options exchange.exchanges. We have created manya proprietary options alertsalert system and a proprietary options “heatmap” to allow our usersmembers to follow large options purchases in real-time. The heatmap provides our members with a color-coded chart indicating bullish or bearish activity of a security’s option contracts sorted by strike price and expiration date that quickly identifies which direction money is flowing. This has proven to be a very popular feature for our users.members. We are also currently developingadded a Dark Pool Scanner.Scanner in 2020. The Dark Pool Scanner feature monitors, tracks, charts and displays large blocks of stock that are often purchased in dark pools and as a result these orders are not displayed on the regular exchanges.

Brokerage Integrations

We have trading integrations with the online brokerages E*Trade and TradeStation. These integrations allow our members to execute trades through E*Trade orTradeStation directly from the Blackbox platform. Our members that use this integration feature have access to certain custom tools. One of these tools is a “quick-click” feature that loads our system’s stock and options alerts with two simple clicks, greatly reducing the time it takes for order entry. This feature is especially helpful for the order entry of option contracts, as they are detailed, lengthy, and cumbersome to enter. We intend to expand the number of brokerages with whom we have trading integrations in the future.

4

Education

We offer all members full access to our curriculum of classes, orientations, and live market sessions. These education programs are all free to our members with either monthly or annual subscriptions. Our curriculum includes classes for beginners, intermediate level, as well as advanced traders. We believe education is vital to increasing the probability of our members long term success in the markets. We have many regularly calendared live webinars, Q&A sessions, as well as recorded classes. In addition to our regularly calendared classes, we often feature ad hoc classes taught by seasoned members of our community. The educators of these classes often specialize in specific market sectors or trading strategies. Classes and webinar events offered to our members include but are not limited to:

Trading with Charlie and Maria (Mondays/Wednesdays/Fridays 9:15am – 10:30am EST)

Blackbox Orientation (Monday 5:00pm – 7:00pm EST)

Tuesday and Thursday Q&A (Tuesdays/Thursdays 4:00pm – 5:00pm EST)

Blackbox Bootcamp Part I ~Basics of Stocks and Options (Twice Weekly)

Blackbox Bootcamp Part II ~The BBS Trading System (Twice Weekly)

Understanding Options Flow (Thursdays 7:00pm – 9:00pm EST)

Technical Analysis 101 (Mondays 8:00pm – 9:00pm EST)

Dark Pool Basics (Thursdays 5:00pm – 6:00pm EST)

 

In addition to our internal curriculum, we have partnered with the above described proprietary scannersOptions Industry Council (OIC), a nonprofit organization funded by the OCC with the mission of providing the investing public a better understanding of the options markets. Classes taught by the OIC to our members include but are not limited to:

The Greeks Part I

The Greeks Part II

Implied Volatility

Short Term Options Explained

Options Pricing Explained

One of the most attractive aspects of our education program is that the classes are taught by members of our community. The student members who take these are often familiar with the instructor from following them in live trading channels on our platform. We believe this familiarity often brings an element of authenticity and features,heightened engagement increasing the success of these educational endeavors as well as adding to the community aspect of our platform.

The Blackbox Advantage

A principal component to our platform is the flexibility to provide members intuitive yet powerful technical analytics that scale with user knowledge. Our preconfigured dashboard defaults to a general setting that is designed to be easy for new members to navigate. Within this same dashboard we provide a multitude of toggles and filters for more sophisticated traders to allow them to implement custom features for their more advanced trading strategies. Most importantly, our userslive community consisting of thousands of traders creates a real-time community curated support system whereby seasoned traders often mentor newer members. We believe this is one of the primary strengths and differentiators of our platform. Although we offer a complete curriculum of scheduled classes weekly, the live interaction amongst our members proves to be invaluable. We believe this is due to the level of excitement created when new members can watch seasoned members of the community making trades in real time and providing an accompanying narrative. In addition to the educational component, the community element of our platform harnesses a powerful dynamic that can be described as “the best of man and machine”. Our powerful algorithm technology scans the NYSE, NASDAQ, CBOE and other options exchanges to find market volatility and anomalies and displays them on a common dashboard shared across the globe. With thousands of eyes on this data, our members can quickly interact and form a consensus on the trading opportunity at hand.

Our Market Opportunity

The global COVID-19 pandemic of 2020 created a unique environment for online companies. Further, the financial stimulus coupled with a full setlarge portion of internalthe population confined to their homes created a freshly financed captive audience for trading tools like ours. Although our initial 2020 growth trajectory began before the pandemic and resulting lockdowns, the COVID-19 pandemic allowed us to greatly increase our audience and grow our user base on a global level. In early 2021, as the lockdowns eased and people began going back to the workplace, the phenomenon commonly known as meme stock mania swept the U.S. markets. More than 10 million new brokerage accounts were opened by individuals in 2020 — more than ever in one year, according to Devin Ryan, an analyst at JMP Securities. This newfound interest in the market was very positive for us as our user base grew rapidly in the first quarter of 2021. This rapid acquisition of new members also gave us valuable insight into the areas of our platform that needed significant improvement. We have implemented new technology to allow us to onboard new members and scale with less friction. We also prepared to pivot knowing that many of these recently acquired members would ultimately have to return to the workplace. We made augmenting the current broadcast features on our social media functions within our dashboard. These features include chat rooms, direct messaging, follow/block capability, custom user profiles,platform, as well as creating a native mobile app to send real-time push alerts, priority development initiatives. Both development initiatives are intended to cater to the trader that works during market hours and most importantlycannot stare at a screen for prolonged periods of time. The push alerts mobile and the audio broadcast enabled audio channels. We believeon mobile allow members to stay tuned to important market developments and circumvent internet firewalls in the workplace.

5

It is difficult to quantify the number of people that combiningcan be classified as day traders, since the term is somewhat ambiguous, especially since there has been a large influx of self-directed investors in 2020 and 2021. The two types of traders often overlap and separating these social media features with our analytics, within a single dashboard provides a unique user experience allowingdemographics can be difficult. Recent data suggest the following size for the rapid exchange of information throughout our user community.this growing market:

20%: One in 5 people in the U.S. invested in stocks, or mutual funds, in the final three months of 2020, up from 15% in the second quarter, a Conference Board survey showed. Harry Robertson, Business Insider, Feb 10, 2021

31 YEARS: The median age of user of Robinhood, one of the original commission-free online brokerages. More young adults are joining. Apex Clearing, which helps facilitate trades for brokerages, told Reuters around 1 million of new accounts it opened last year belonged to Gen Z investors, with an average age of 19. John McCrank, Reuters Jan 29, 2021

~$15.5 TRILLION: Total client assets at two of the top retail-focused brokerages. Fidelity Investments had $8.8 trillion in customer assets at the end of the third quarter, up from $8.3 trillion at the end of 2019. Schwab had $6.69 trillion in client assets as of Dec. 31, and 29.6 million brokerage accounts, up 66% and 140%, respectively, from a year earlier. John McCrank, Reuters Jan 29, 2021

Recent Technology and Development Initiatives

 

We anticipate addingcontinually upgrade our platform to provide the best user experience and maximum value for our members. Many of the new features or improvements to our existing features are suggested by our members. Much of our platform is community curated and we take pride in collaborating with and implementing the suggestions from our members that use our system every day.

Improvement to Broadcast Enabled Social Media Component of our Platform

Our social media component of the Blackbox System includes chat and audio broadcast capabilities that we believe are critical to our platform. In the fourth quarter of 2021 we released a fully integrated social media component to our web platform. This update eliminates the need for dual authentication and the use of a third-party platform which was an inefficient aspect of our onboarding process. We still have access to the third-party software and allow some members to continue using it.

Development of Native Applications for iOS and Android

We currently have fully functional native applications for iOS and Android devices in development and expect to release them in April of 2022. Currently, a fully functional version of our platform is available only through our website. We introduced an initial iOS and Android application in February of 2021 offering only a push notification menu and a series of alert logs for our mobile members. Despite the limited capabilities, this new app has been a very popular feature, and extremely valuable to our userbase. This app was especially useful for the many new featuresmembers that joined when they worked from home during the COVID lockdowns and functionsrecently returned to the workplace. When released, we believe that virtually every feature of our current desktop platform will be available as a native application on iOS and Android devices. We believe the addition of this fully functional native app will enable us to reach a wider customer base and improve our member engagement.

6

We believe that these two technological developments to the Blackbox System and platform will be major milestones for our company. Although we have experienced significant growth and received positive feedback from our members, we believe adding these new technology sets in parallel will be significant drivers of future growth.

New Products

We intend to leverage our existing financial technology platform and data resources for the creation of new and unique products to serve our existing subscribers, as well as address a broader market. We currently have a vast array of derived data that we believe will be extremely useful to self-directed investors as well the day traders and swing traders that we currently cater to. We believe the self-directed investor demographic is significantly larger than that of day traders and swing traders and presents an enormous opportunity for our growth.

Blackbox Pro

We do not currently market to persons or entities deemed by the exchanges as “professional traders.” A professional trader is generally defined by the exchanges as a person that:

Is registered or qualified with the Securities and Exchange Commission, the Commodities Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association.

Is engaged as an "investment advisor" as that term is defined in Section 201(11) of the Investment Advisor's Act of 1940 (whether or not registered or qualified under that Act).

Is employed by a bank or another organization that is exempt from registration under Federal and/or state securities laws to perform functions that would require him or her to be so registered or qualified if he or she were to perform such functions for an organization not so exempt.

The exchanges charge a substantial premium for their data to users who meet the criteria described above. In addition to the higher rates, the onboarding and subsequent approval process by these exchanges is cumbersome and not easily accomplished solely through an online process. We are currently working with our data provider and the individual exchanges to develop a streamlined digital onboarding process. We believe this will allow us to expand our reach to the "financial professional" market that we do not currently service. We believe our existing platform’s features will be well received by investment professionals once we are able to mitigate regulatory and pricing hurdles.

Portfolio Management Product

We are currently developing a new product in the form of a mobile app for iOS and Android that will provide real-time portfolio alerts for a broad demographic of investors. Many of these alerts are a product of derived data currently generated on the Blackbox platform. This app will be designed to integrate with online brokerage platforms and allow the user to import their current stock positions and stocks on their watchlist into our app. We believe these alerts will be extremely useful for portfolio management, loss mitigation, and other investment strategies. We plan to provide extensive menu options to allow the user to customize this application to their specific needs. This will be a stand-alone product and we plan to target all self-directed retail investors, not just day traders or swing traders allowing the Company to address a much broader segment of the market. We expect to make availablerelease this product in the secondthird or fourth quarter of 2019,2022.

Cryptocurrency Analytics Platform

We are currently working on a quotation system and trading integration partnership that will allow our members to trade crypto currency through the “Blackbox Cryptos” platform. This new platform will include the same interactive social media component we provide to members of our current Blackbox platform. We expect to release this product in 2022. The overall market capitalization of crypto assets grew from less than $500 million to $782 billion between December 31, 2012 and December 31, 2020, representing a compound annual growth rate (or CAGR) of over 150% according to public information released by Coinbase Global, Inc. and incorporated in its SEC filings. We believe the explosive growth of this asset class combined with its technology focused investor base create a powerful opportunity for our financial technology and social media hybrid platform to provide a unique and disruptive tool to this market.

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Additional Exchanges in Major Markets

We plan to expand into other markets and create products similar to our Blackbox System that provide proprietary analytics for people trading on other major exchanges in the world. Exchanges we are exploring include the Indian Stock markets (BSE and NSE), Canadian Securities Exchange (CSE), Toronto Stock Exchange (TSX), Brasilian BOVESPA, Frankfurt Stock Exchange (FWB) and the London Stock Exchange (LSE). We are also exploring expansion into China with focus on the Hong Kong Stock Exchange (HKSE) and the mainland Shenzhen Stock Exchange (SZSE).  We expect such expansion to occur in late 2022 or 2023. We believe the number of traders in China and India represent significant growth opportunities for us.

While all of these exchanges utilize their national language, we believe they use substantially similar technology protocols making it relatively seamless for us to replicate our system in any of these markets. Members of the Company’s management team have prior experience developing trading platforms in multiple markets, including but not limited to native iOSthe LSE, Tokyo Stock Exchange and Android applications, a watchlist featureBrasilian BOVESPA. We have extensive experience working with global data providers that provide real-time market data for any of these exchanges. Our algorithms are designed to import these feeds and enhanced filters forprocess the raw data necessary to produce our Options Flow and Dark Pool Scanners. We also plan to upgrade our current “many to many” audio broadcast feature. Development of planned features and functions are expected to cost approximately

$220,000 and will be dependent upon resources available from anticipated financing.proprietary analytics.

 

Marketing of the Blackbox System

 

The CompanyWe launched itsour Blackbox System web applicationand platform for domestic use in the United States and made it available to subscribers in September 2016. Use of the Blackbox Systemplatform is sold on a monthly or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com. We believe our Blackbox System subscriptions are priced competitively with similar web-based trading tools. Since launch, we have marketedWe primarily use a combination of digital marketing campaigns and customer referral compensation plans in our systemadvertising program. Our digital advertising efforts are comprised of display and video ads, along with banner and text ads across multiple search and social platforms. We also utilize targeted email marketing and a strategic global marketing campaign for brand awareness. We believe that this form of advertising has been and will continue to potential subscribers primarily via onlinebe effective in attracting subscribers. We continuously monitor and referral based marketing. Thus far we have achieved a majorityevaluate the effectiveness of specific social media platforms and allocate marketing funds accordingly. We also promote our subscriber base via oursubscriptions through an established compensated customer referral program. We have been offeringoffer certain subscribers the right to promote the Blackbox System and receive referral fees for subscribers generated from such subscribers’ effort. Generally, we pay referring subscribers $25 for each subscription generated and $25 for each month a referredthe subscriber continues itstheir subscription. We incurred $90,278$515,580 and $45,866$272,908 in customer referral expenditures in each of the years ended December 31, 20182021 and 2017, respectively. These equal approximately 12% and 11% of our subscription sales revenues generated in the years ended December 31, 2018 and 2017,2020, respectively. We intendexpect to expandcontinue utilizing the customer referral sales program as it has proven to be an extremely efficient form of advertising. Our futureadvertising and marketing efforts are expectedexpense was $1,250,882 and $705,706 for the years ended December 31, 2021 and 2020, respectively. We intend to include, but will not be limited to, online affiliate marketing, banner advertising, social media, television and targeted email campaigns. We have run multiple small digital ad campaigns targeting social media platforms such Facebook and Instagram. We have also deployed marketing budgets on StockTwits. We recently began test marketing on Google as well. We intendcontinue to deploy a significant amount of marketing funds on both digital campaigns and customer referral programs in the future. In addition, we may also utilize television and radio advertising.

Industry Partners and Relationships

We have several arrangements and agreements with financial industry partners that encompass marketing partnerships, educational resources and licenses. We believe our relationship with large well-known brokerage firms enhance our credibility and provide added value to our members. Among these partnerships are marketing agreements with TD Ameritrade, E*TRADE and other digital platforms including YouTube, Twitter and LinkedIn. Our test marketing has proven very effective andTastyTrade whereby these firms provide us with a referral fee for new accounts that we bring to them as well as offering our members discounted commissions on options trades. The referral fees are not currently material to our revenue but we believe wethe that our initial relationship with these firms is significant and provides us with an opportunity to expand these relationships to bring greater value to our members.

We have signed agreements with E*Trade and TradeStation permitting the integration of our platform with their brokerage platforms. These integrations allow our users to trade directly from our platform using their E*Trade or TradeStation account. In addition, TradeStation advertises our platform to 140,000 users through its webinars and in their internal app store. We believe the ability to scaleenable our advertising efforts using these platforms.members to execute trades with third party brokers without having to leave our platform is particularly valuable to options traders who are able to execute more complicated orders without having to re-enter option contract information on another platform. We intend to integrate our platform with other brokers.

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Industry partnerships such as the one we have designatedwith Options Industry Council, a preliminary budget of up $275,000 for digital advertising. However, such budget may change depending upon resources available from anticipated financing.non-profit entity funded by the Options Clearing Corp. also help provide our members with added educational benefits.

 

In September of 2018 we also began offering our users a comprehensive 3 hour educational course entitled “Blackbox Bootcamp.” This course is offered to our users twice weekly and teaches the basic of stocks, options, and how to use the Blackbox System. These classes are offered in a live webinar format with Q&A sessions. We also offer other webinar courses that are scheduled and announced on our calendar and in email and direct messages via our platform to our users. We believe that the implementation of this educational program has and will continue to increase our user retention.Data Suppliers

 

We contract with data suppliers and aggregators to provide our subscribers real time access to most major newswires, historical charting data and the real time stock and options data that drive the backend algorithms. We currently maintain servers connected with our stock and options data provider and utilize an Amazon Web Services (AWS) network as a backup.  

Intellectual Property

 

We rely on a combination of trademark and copyright laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our brand names, product coding and marks. As of the date of this report, theThe Company has not yet registered any trademarks, copyrights or other intellectual property associated with our business.

 

Government Regulation and Approvals

 

The Company offers itsWe offer our subscribing customers a trading tool and not a trading platform, broker dealer or exchange, and therefore doeswe do not expect to bebelieve we are subject to regulatory oversight by the SEC, FINRA or other financial regulatory agencies. We are not aware of any governmental regulations or approvals required for the marketing or use of our Blackbox System or the services provided.

 

Competition

 

We operate in a highly competitive environment. The principal resources necessary for the development of investment software tools and services and knowledgeable personnel to conduct all phases of development and marketing operations are limited. We must compete for such resources with startups, major financial services companies and midsize competitors. Many of these competitors have financial and other resources substantially greater than ours. Our current operating and financial resources are not adequate to preclude any significant disruption of our operations.

We consider our platform unique and do not consider any trading tools or trading analytics software direct competitors of our Company. There are many trading tools on the current market often referred to as “scanners”, that provide features, functions and analytics similar to those of the Blackbox System. There are also many social media platforms that cater to stock traders that serve as real-time informational sources. However,Although, we believe that our Blackbox System is the only platform that has successfully merged a comprehensive analytics system or “scanner” and a social media platform within the same “dashboard” allowing usersmembers to view the same real-time data in parallel. Ourparallel, there are a number of companies that offer one or more features that are similar to or attempt to address the same market as we do. These competitors have financial and other resources that are significantly greater than ours. The greatest amount of competition exists within products that provide trading analytics often referred to as “scanners”. We compete with these entities based on a number of factors including price, ease of use, standard features and proprietary features (if applicable). Ultimately, we believe the primary factor used in evaluating the trading analytics by any platform is the user’s ability to derive actionable information from that platform. This is where we believe our proprietary features differentiate the Blackbox SystemSystem.

In addition to these technical tools, there are also a number of social media platforms that provide forums for traders and investors at little or no cost. The integration of our social media component within our platform creates a unique community for traders that can all sharewe believe is significantly superior to stand alone social media sites. Our members are able to interact and discuss ideas while viewing the same informationdashboard as opposed to having to switch back and analyze this informationforth between applications.

The final component to our platform is education. There are numerous standalone investment and trading applications, books, seminars and courses offered at many different price points. These products compete based on an identical analyticsprice, perceived value, level of sophistication and reputation among other factors. We offer our courses at no additional charge to our subscribers. In addition, we believe that our social media community provides our more experienced traders the opportunity to mentor newer traders which in real-time. We also consider our system unique because our predictive algorithms automatically populate alerts for active stocks with high probabilityturn contributes to the community environment we have developed.

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In spite of these factors that differentiate us, we believe the following companies that couldmay be considered competitors due to some likesimilar product features and retail price point:points: Trade Ideas, Flow Algo and Trade AlertAlert. Companies with social media platforms dedicated to financial markets include Stock Twits and Wall Street Jesus.Bets.

 

Employees

 

As of the date hereof,March 30, 2022, the Company has threefifteen full-time employees. We also currently have twenty-two contract workers that primarily serve as team traders on our Blackbox System platform or developers.

None of our employees including Gust Kepler who serves asare represented by a labor organization, and we are not a party to any collective bargaining agreement. We have not experienced any work stoppages and consider our sole directorrelations with our employees to be good.

We believe that our future success will depend in part on our continued ability to hire, motivate and retain qualified management, sales, marketing, and technical personnel. To date, we have not experienced significant difficulties in attracting or retaining qualified employees. 

Corporate Information

Our principal executive offices are located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240, and our President, Chief Executive Officer, Chief Financial Officer and Secretary, Jeff Sharrock, who servestelephone number is (972) 726-9203. Our website is https://www.blackboxstocks.com. The information on, or that can be accessed through, our website is not part of this Report on Form 10-K. We have included our website address as Vice President of Operations and an administrative employee.inactive textual reference only.

 

Additional Information

 

We file annual reports on Form 10-K and quarterly reports on Form 10-Q with theSecurities and Exchange Commission (the “SEC”) on a regular basis, and disclose certain material events in current reports on Form 8-K. The public may readOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and copy any materials that we file with the SEC at the Public Reference Room at the SEC located at 100 F Street NE, Washington, DC 20549, on official business days during the hours of 10 a.m.amendments to 3 p.m. The public may also obtain information on the operationreports filed or furnished pursuant to Sections 13(a) and 15(d) of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

We makeExchange Act are available free of charge on our website (http://www.blackboxstocks.com),investor relations section of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and any amendments to such reports)website as soon as reasonably practicalpracticable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC"). The SEC also maintains an Internet website that contains reports and other information regarding issuers, such as Phunware, that can be filed electronically with the SEC. The SEC's Internet website is located at http://www.sec.gov.

Item 1A.

Risk Factors

An investment in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Report, including our financial statements and related notes, before deciding to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risks and uncertainties described below are filed. Information containednot the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business or results of operations.

Risks Related to Ownership of Our Common Stock

Substantial blocks of our total outstanding shares may be sold into the market when “lock-up” or “market standoff” periods end, or upon future debt or equity financings. If there are substantial issuances and sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees, and significant stockholders, or when there is a large number of shares of our common stock available for sale. Approximately 4,260,090 of our issued and outstanding shares of common stock are subject to lock up agreements preventing their sale into the market until May 9, 2022. Once those shares are no longer subject to those restrictions, those shares of common stock may be sold freely in the public market upon issuance. The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

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Additionally, in order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock that could result in dilution to existing investors or result in downward pressure on the price of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. We may sell shares of our common stock or other securities in other offerings at prices that are higher or lower than the prices paid by existing investors, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.

We may not be able to satisfy listing requirements of Nasdaq or maintain a listing of our common stockon Nasdaq.

We are be required to meet certain financial and liquidity criteria to maintain our Nasdaq listing. If we violate Nasdaq listing requirements, our common stock may be delisted. If we fail to meet any of Nasdaq’s listing standards, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock would significantly impair our ability to raise capital and the value of your investment.

If our shares of securities become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

Fluctuations in our quarterly revenues may cause the price of our common stock to decline.

Our operating results have varied significantly from quarter to quarter in the past, and we expect our operating results to vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Therefore, if revenues are below our expectations, this shortfall is likely to adversely and disproportionately affect our operating results. Accordingly, we may not attain positive operating margins in future quarters. Any of these factors could cause our operating results to be below the expectations of securities analysts and investors, which likely would negatively affect the price of our common stock.

We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, qualify for, and may elect to rely on, exemptions from certain corporate governance requirements that provide protection to the stockholders of companies that are subject to such corporate governance requirements.

Gust C. Kepler, who serves as a director, President and Chief Executive Officer of the Company, beneficially owns more than 50% of the voting power for the election of members of our board of directors. As a result, we are and will continue to be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq rules. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain of Nasdaq’s corporate governance requirements.

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As a controlled company, we may rely on certain exemptions from the Nasdaq standards that may enable us not to comply with certain Nasdaq corporate governance requirements. As a consequence, in the event that we elect to rely on certain exemptions from the Nasdaq standards provided to “controlled companies,” you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Capital Market.

We do not anticipate paying any cash dividends in the foreseeable future.

We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as a source for any future dividend income. Our board of directors has complete discretion as to whether to declare dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.

Risks Related to Our Business

If we fail to effectively manage our growth, we may be unable to execute our business plan, adequately address competitive challenges or maintain our corporate culture, and our business, financial condition, and results of operations could be harmed.

Since commencement of our increase advertisement spend in February 2020, we have experienced rapid growth and we continue to rapidly and significantly expand our operations. While we have experienced significant revenue growth in prior periods, it is not necessarily indicative of our future revenue growth. Nevertheless, this expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results.

In the event of continued growth of our operations, our information technology systems and our internal controls and procedures may not be adequate to support our operations. To effectively manage our growth, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base. As our organization continues to grow and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative platform and system enhancements. This could negatively affect our business performance.

We expect to invest heavily in growing our business, which may cause our sales and marketing, research and development, and other margins to decline.

Our historical rate of growth may not be sustainable or indicative of our future rate of growth. We believe that our continued growth in revenue, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks, and difficulties described elsewhere in this “Risk Factors” section and the extent to which our various service offerings grow and contribute to our results of operations. We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. In addition, our customer base may not continue to grow or may decline due to a variety of possible risks, including increased competition, changes in the regulatory landscape, and the maturation of our business. Any of these factors could cause our revenue growth to decline and may adversely affect our margins and profitability. Failure to continue our revenue growth or margin improvement could have a material adverse effect on our business, financial condition, and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.

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If we do not continue to attract new subscriber customers, or if existing customers do not renew their subscriptions, or renew on less favorable terms, it could have a material adverse effect on our business, financial condition, and results of operations.

In order to grow our business, we must continually attract new subscribing customers and reduce the level of non-renewals in our business. Our ability to do so depends in large part on the success of our sales and marketing efforts. We may not accurately predict future trends with respect to rates of customer renewals. Our subscribing customer base may decline or fluctuate due to a number of factors, including the prices of our subscriptions, the prices of services offered by our competitors and the efficacy and cost-effectiveness of our solutions. If we are unable to retain and increase sales of our Blackbox System platform to existing subscribing customers or attract new ones for any of the reasons above or for other reasons, our business, financial condition, and results of operations could be adversely affected.

In order to achieve consistent levels of profitability, we must increase revenue levels.

We need to increase current revenue levels by increasing paid subscriptions to our Blackbox System platform if we are to maintain consistent profitability. If we are unable to achieve increased revenue levels, losses could continue for the near term and possibly longer, and we may not regain profitability or generate positive cash flow from operations in the future.

We intend to introduce new products and services. There can be no assurance that we will be able to introduce such products and services effectively or profitably.

We intend to expand our product and service offering including the introduction of products and services which employ and expand upon our current proprietary system and technology. These products and services will include applications targeted for investors who are not day traders or swing traders and products designed for professional traders. We expect to introduce these products and services in 2022 and spend significant capital on advertising and marketing of the products and services. If we are unable to generate significant revenue from this or other new products and services, we may incur significant operating losses.

We expect to face increasing competition in the market for our platform and services.

We face significant competition and we expect such competition to increase. Our industry and the markets we serve are evolving rapidly and becoming increasingly competitive. Larger and more established companies may focus on our markets and could directly compete with us. Smaller companies could also launch new platforms and services that compete with us and that could gain market acceptance quickly. We also expect our existing competitors in the markets to continue to focus on these areas. A number of these companies may have greater financial, technological, and other resources than we do and greater name recognition than us, which may enable them to compete more effectively. Specifically, we believe the following companies to be direct competitors: Trade Ideas, Flow Algo, and Trade Alert. Companies with social media platforms dedicated to financial markets include Stock Twits and Wall Street Bets. Our competitors may announce new products, services, or enhancements that better address changing industry standards or the needs of our customers, such as mobile access. Any such increased competition could cause pricing pressure, loss of market share, or decreased customer engagement, any of which could adversely affect our business and operating results.

While our industry and our business has seen accelerated growth as a result of the COVID-19 pandemic, it has also adversely affected some aspects of our business and could have an adverse effect on our business in the future.

As a result of the COVID-19 pandemic, our business, and the digital financial services industry in general, has seen accelerated growth, but we have also experienced disruptions, such as the impact on the ability of our customer support and operations teams, both internal and third-party, to service customer needs quickly due to longer wait times and the impact on our ability to hire personnel quickly, that could severely impact our business, our services, global currency exchange rates, local and global labor markets, and the global economy.

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The COVID-19 pandemic has created and is likely to continue to create significant uncertainty in global financial markets. To date, with travel restrictions and shelter-in-place policies, the demand for digital trading services has increased, and this has driven a significant acceleration in our new customer growth. As the pandemic continues, we may experience volatility in customer demand and delayed customer money transfer decisions, which could materially harm our business, operating results, and overall financial performance.

While we have experienced accelerated growth partially driven by the COVID-19 pandemic, the long-term impact of a volatile or worsening COVID-19 pandemic is impossible to predict and may adversely impact the trading habits of our customers and the operations of our business partners in the future, and may adversely impact our operating results as a result. In addition, while we have rapidly expanded our business and improved our operating results during the COVID-19 pandemic, many of our customers have also suffered negative financial consequences, including wage and job loss, and have thus had less need for or ability to afford our services. There is no guarantee that those customers who have had less need of our service during the COVID-19 pandemic will return to our platform in the future. To the extent that mitigation measures remain in place or are reinstated for significant periods of time, they may adversely affect our business, financial condition, and operating results. In addition, actions that we have taken or may take in the future intended to assist customers impacted by the COVID-19 pandemic may negatively impact our operating results. In particular, we have experienced and may continue to experience adverse financial impacts from a number of operational factors, including, but not limited to:

Increased cybersecurity and payment fraud risk related to the COVID-19 pandemic, as cybercriminals attempt to profit from stolen or misappropriated data and the disruption in light of increased online banking, e-commerce, and other online activity; and

Increased volume of customer requests for support and regulatory requests for information and support or additional regulatory requirements, which could require additional resources and costs to address.

These and other factors arising from the COVID-19 pandemic could worsen in countries that have been or are in the future afflicted with COVID-19, each of which could further adversely impact the use of our services by our customers, the ability of our employees to perform work, and our business generally, and could have a material adverse impact on our operating and financial results.

The significant increase in the number of our employees who are working remotely as a result of the pandemic could introduce operational risk, increase cybersecurity risk, strain our business continuity plans, negatively impact productivity, give rise to claims by employees, or otherwise adversely affect our business. Additionally, we may require new or modified processes, procedures, and controls to respond to changes in our business environment. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19 or will otherwise be satisfactory to government authorities.

The COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic continues to affect our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence. Such developments include the ultimate geographic spread of COVID-19, the distribution and long-term efficacy of vaccines, the effects of more contagious and virulent variants of COVID-19, the duration of the pandemic, travel restrictions and actions taken to contain the pandemic or treat its impact, such as social distancing and quarantines or lock-downs, business closures or business disruptions, and the effectiveness of actions taken to contain and treat the disease.

To the extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

If we are not able to maintain and enhance our reputation and brand recognition, our business, financial conditions and results of operations will be harmed.

We believe that maintaining and enhancing our reputation and brand recognition is critical to our relationships with existing subscribing customers and our ability to attract new subscribing customers. The promotion of our brand may require us to make substantial investments and we anticipate that, as our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur, and our results of operations could be harmed. In addition, any factor that diminishes our reputation or that of our management, including failing to meet the expectations of our customers, could make it substantially more difficult for us to attract new customers. Similarly, because our subscribing customers often act as references for us with prospective new customers, any existing customer that questions the quality of our work or that of our employees could impair our ability to secure additional new customers. If we do not successfully maintain and enhance our reputation and brand recognition with our customers, our business may not grow and we could lose these relationships, which would harm our business, financial condition, and results of operations.

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The estimates of market opportunity and forecasts of market growth included in this report may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, or at all.

Market opportunity estimates and growth forecasts included in this report are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. The estimates and forecasts included in this report relating to size and expected growth of our target market may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth forecasts included in this report, our business may not grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.

We rely on software-as-a-service, or SaaS, technologies from third parties.

We rely on SaaS technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services, marketing services and data storage services. Some of our vendor agreements may be unilaterally terminated by the counterparty for convenience. If these services become unavailable due to contract cancellations, extended outages or interruptions, because they are no longer available on commercially reasonable terms or prices, or for any other reason, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing our offerings and supporting our consumers and partners could be impaired, and our ability to access or save data stored to the cloud may be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could harm our business, financial condition, and results of operations.

Any restrictions on our use of, or ability to license data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on our business, financial condition, and results of operations.

We depend upon licenses from third parties for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate. We expect that we may need to obtain additional licenses from third parties in the future in connection with the development of our solutions and services. In addition, we obtain a portion of the data that we use from various securities exchanges. We believe that we have all rights necessary to use the data that is incorporated into our solutions and services. However, we cannot assure you that our licenses for information will allow us to use that information for all potential or contemplated applications and solutions.

In the future, data providers could withdraw their data from us or restrict our usage for any reason, including if there is a competitive reason to do so, if legislation is passed restricting the use of the data, or if judicial interpretations are issued restricting use of the data that we currently use in our solutions and services. If a substantial number of data providers were to withdraw or restrict their data and if we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, our ability to provide solutions and services to our subscribing customers would be materially adversely impacted, which could have a material adverse effect on our business, financial condition, and results of operations.

We also integrate into our proprietary applications and use third-party software to maintain and enhance, among other things, content generation and delivery, and to support our technology infrastructure. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology, and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. These technologies may not be available to us in the future on commercially reasonable terms or at all and could be difficult to replace once integrated into our own proprietary applications. Most of these licenses can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. Our inability to obtain, maintain, or comply with any of these licenses could delay development until equivalent technology can be identified, licensed, and integrated, which would harm our business, financial condition, and results of operations.

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Most of our third-party licenses are non-exclusive and our competitors may obtain the right to use any of the technology covered by these licenses to compete directly with us. If our data suppliers choose to discontinue support of the licensed technology in the future, we might not be able to modify or adapt our own solutions.

We are dependent on a limited number of key executives and employees, the loss of which could negatively impact our business.

Our business is led by our CEO Gust Kepler and a small group of key employees. The loss of one or more of these executives could negatively impact our business.

Risks Related to Intellectual Property

We may not be able to halt the operations of entities that copy our intellectual property or that aggregate our data as well as data from other companies, including social networks, or copycat online services that may misappropriate our data. These activities could harm our brand and our business.

From time to time, third parties may try to access content or data from our networks through scraping, robots, or other means and use this content and data or combine this content and data with other content and data as part of their services. These activities could degrade our brand, negatively impact our platform and system performance and harm our business. We have employed contractual, technological or legal measures in an attempt to halt unauthorized activities, but these measures may not be successful. In addition, if our customers do not comply with our terms of service, they also may be able to abuse our tools, solutions, and services and provide access to our solutions and content to unauthorized users. We may not be able to detect any or all of these types of activities in a timely manner and, even if we could, technological and legal measures may be insufficient to stop these actions. In some cases, particularly in the case of online services operating from outside of the United States, our available legal remedies may not be adequate to protect our business against such activities. Regardless of whether we can successfully enforce our rights against these parties, any measures that we may take could require us to expend significant financial or other resources.

Third parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition, and results of operations.

Our commercial success depends on our ability to develop and commercialize our platform, products and services and use our proprietary technology without infringing the intellectual property or proprietary rights of third parties. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual property. We are not currently subject to any material claims from third parties asserting infringement of their intellectual property rights.

Intellectual property disputes can be costly to defend and may cause our business, operating results, and financial condition to suffer. Whether merited or not, we have in the past and may in the future face allegations that we, our partners, our licensees, or parties indemnified by us have infringed or otherwise violated the patents, trademarks, copyrights, or other intellectual property rights of third parties. Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties. Some third parties may be able to sustain the costs of complex litigation more effectively than we can because they have substantially greater resources. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Moreover, any uncertainties resulting from the initiation and continuation of any legal proceedings could have a material adverse effect on our ability to raise the funds necessary to continue our operations. Assertions by third parties that we violate their intellectual property rights could therefore have a material adverse effect on our business, financial condition, and results of operations.

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Failure to maintain, protect, or enforce our intellectual property rights could harm our business and results of operations.

We pursue the registration of our domain names, trademarks, and service marks in the United States. We also strive to protect our intellectual property rights by relying on federal, state, and common law rights, as well as contractual restrictions. We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our technology or intellectual property rights. Those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. These contractual arrangements and the other steps we have taken to protect our intellectual property rights may not prevent the misappropriation or disclosure of our proprietary information nor deter independent development of similar technology or intellectual property by others.

Effective trade secret, patent, copyright, trademark and domain name protection is expensive to obtain, develop and maintain, both in terms of initial and ongoing registration or prosecution requirements and expenses and the costs of defending our rights. We have invested in and may, over time, increase our investment in protecting our intellectual property through patent filings that could be expensive and time-consuming. Our trademarks and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We have not yet applied for or obtained any issued patents that provide protection for our technology or products. Moreover, any issued patents we may obtain may not provide us with a competitive advantage and, as with any technology, competitors may be able to develop similar or superior technologies to our own, now or in the future. In addition, due to a recent U.S. Supreme Court case, it has become increasingly difficult to obtain and assert patents relating to software or business methods, as many such patents have been invalidated for being too abstract to constitute patent-eligible subject matter. We do not know whether this will affect our ability to obtain patents on our innovations, or successfully assert any patents we may pursue in litigation or pre-litigation campaigns.

Monitoring unauthorized use of the content on our platform, and our other intellectual property and technology, is difficult and costly. Our efforts to protect our proprietary rights and intellectual property may not have been and may not be adequate to prevent their misappropriation or misuse. Third parties, including our competitors, could be infringing, misappropriating, or otherwise violating our intellectual property rights. We may not be successful in stopping unauthorized use of our content or other intellectual property or technology. Further, we may not have been and may not be able to detect unauthorized use of our technology or intellectual property, or to take appropriate steps to enforce our intellectual property rights. Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our solutions and services. Our competitors may also independently develop similar technology. Effective patent, trademark, copyright and trade secret protection may not be available to us in every jurisdiction in which our solutions or technology are hosted or available. Further, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property rights could result in competitors offering solutions that incorporate our most technologically advanced features, which could reduce demand for our solutions.

We may find it necessary or appropriate to initiate claims or litigation to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of intellectual property rights claimed by others. In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to stop the other party from using the technology at issue on grounds that our intellectual property rights do not cover the use or technology in question. Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights. Litigation is inherently uncertain and any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and results of operations. If we fail to maintain, protect, and enforce our intellectual property, our business and results of operations may be harmed.

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The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of intellectual property protection. This could make it difficult for us to stop the infringement or misappropriation of our intellectual property rights. Proceedings to enforce our intellectual property in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

We believe that our brand is critical to the success of our business, and we plan to utilize trademark registration and other means to protect it. Our business would be harmed if we were unable to protect our brand against infringement and its value was to decrease as a result.

Although we intend to claim trademark rights and file for trademark protection of our “Blackboxstocks” brand name, we may face opposition from other financial technology or media platform companies; our application for a trademark may be denied by the United States Patent and Trademark Office (“USPTO”).  The name “Blackbox” is currently being used to market and sell various products and services including SaaS technologies. When a trademark application comes through for the same class as another name that has already applied for registration, in this case Blackbox, the trademark examiner may issue an Office Action, refusing our registration and requiring us to respond to the USPTO regarding how our use of “Blackboxstocks” will not be confused with existing registrants’ use of “Blackbox.”  This process would require us to incur additional legal fees every time we are required to respond to the USPTO to defend our registration.  In the end, we may not be able to register our mark.

The registered or unregistered trademarks or trade names that we own or license may be challenged, infringed, circumvented, declared generic, lapsed, or determined to be infringing on or connecteddilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with customers and potential partners. In addition, third parties may in the future file for registration of trademarks similar or identical to our website istrademarks. If they succeed in registering or developing common law rights in such trademarks, and if we are not incorporated by reference into this report and shouldsuccessful in challenging such third-party rights, we may not be consideredable to use these trademarks to commercialize our technologies or solutions in certain relevant countries. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.

We rely heavily on trade secrets and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information, including our technology platform, and to maintain our competitive position. With respect to our technology platform, we consider trade secrets and know-how to be one of our primary sources of intellectual property. However, trade secrets and know-how can be difficult to protect. We seek to protect these trade secrets and other proprietary technology in part by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, outside contractors, consultants, advisors, and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses containing invention assignment, to grant us ownership of technologies that are developed through a relationship with employees or third parties. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information, including our technology and processes. Despite these efforts, no assurance can be given that the confidentiality agreements we enter into will be effective in controlling access to such proprietary information and trade secrets. The confidentiality agreements on which we rely to protect certain technologies may be breached, may not be adequate to protect our confidential information, trade secrets, and proprietary technologies and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, trade secrets, or proprietary technology. Further, these agreements do not prevent our competitors or others from independently developing the same or similar technologies and processes, which may allow them to provide a service similar or superior to ours, which could harm our competitive position.

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Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, it could harm our competitive position, business, financial condition, results of operations, and prospects.

If we fail to comply with our obligations under license or technology agreements with third parties, we may be required to pay damages and we could lose license rights that are critical to our business.

We license certain intellectual property, including technologies and software from third parties, that is important to our business, and we may enter into future additional agreements that provide us with licenses to valuable intellectual property or technology. If we fail to comply with any of the obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from selling our solutions and services, or adversely impact our ability to commercialize future solutions and services. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed intellectual property are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. In addition, our rights to certain technologies are licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, the agreements under which we license intellectual property or technology from third parties are generally complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Any of the foregoing could harm our competitive position, business, financial condition, results of operations, and prospects.

If we cannot license rights to use intellectual property on reasonable terms, we may not be able to commercialize new solutions or services in the future.

In the future, we may identify additional third-party intellectual property we may need to license in order to engage in our business, including to develop or commercialize new solutions or services. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources, and greater development or commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial royalties based on sales of our solutions and services. Such royalties are a component of the cost of our solutions or services and may affect the margins on our solutions and services. In addition, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property licensed to us. If we are unable to enter into the necessary licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if our licensors fail to abide by the terms of the licenses, if our licensors fail to prevent infringement by third parties, or if the licensed intellectual property rights are found to be invalid or unenforceable, our business, financial condition, results of operations, and prospects could be affected. If licenses to third-party intellectual property rights are, or become required for us, to engage in our business, the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. Moreover, we could encounter delays and other obstacles in our attempt to develop alternatives. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing solutions and services, which could harm our competitive position, business, financial condition, results of operations, and prospects.

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General Risk Factors

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

The trading market for our securities will be influenced by the research and reports that securities or industry analysts publish about us or our business (or the absence of such research or reports). If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price could decline and such decline could be material.

We are an “emerging growth company” and our compliance with the reduced reporting and disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosures; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.

In addition, while we are an “emerging growth company,” we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies. As a result, our financial statements may not be comparable to companies that are not “emerging growth companies” or elect not to avail themselves of this reportprovision.

We may remain an “emerging growth company” until as late as December 31, 2027, the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (i) we have more than $1.07 billion in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year, or any(iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.

The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other filingregulatory agencies, and we cannot assure you that we make withwill be able to take advantage of all of the SEC.benefits of the JOBS Act. In addition, investors may find our common stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.

 

ITEM 1A.RISK FACTORS

If we are unable to implement and maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports.

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the date we are no longer an “emerging growth company” as defined in the JOBS Act. Accordingly, you will not be able to depend on any attestation concerning our internal control over financial reporting from our independent registered public accounting firm for the foreseeable future.

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The process of designing and implementing internal controls over financial reporting is time consuming, costly, and complicated. If during the evaluation and testing process, we identify one or more material weaknesses in our internal control over financial reporting or determine that existing material weaknesses have not been remediated, our management will be unable to assert that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented, or reviewed. If we are unable to assert that our internal control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the valuation of our common stock could be adversely affected.

Compliance with public reporting requirements have and will continue to affect the Companys financial resources.

 

The Company is subject to certain public reporting obligations as required by federal securities laws, regulations and agencies. The compliance with such reporting requirements will require the company to incur significant legal, accounting and other administrative expenses. The expenses the Company may incur will have a “smaller reporting company” as defined by Rule 12b-2significant impact on the Company’s financial resources and may lead to a decrease in the value and price of the Exchange Act, and as such, is not required to provide the information required under this Item.our common stock.

 

We rely on network infrastructure and our ability to maintain and scale our business and maintain competitiveness. Any significant interruptions or delays in service on our apps or websites or any undetected errors or design faults could adversely affect our business, financial condition and results of operations.

We depend on the use of information technologies and systems and our reputation and ability to acquire, retain, and serve our customers are dependent upon the reliable performance of our apps and websites and the underlying network infrastructure. As our operations grow, we must continuously improve and upgrade our systems and infrastructure while maintaining or improving the reliability and integrity of our infrastructure. Our future success also depends on our ability to adapt our systems and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our solutions in response to competitive services and offerings. We expect the use of alternative platforms such as tablets and smartphones will continue to grow and the emergence of niche competitors who may be able to optimize offerings, services, or strategies for such platforms will require new investment in technology. New developments in other areas, such as cloud computing, have made it easier for competition to enter our markets due to lower up-front technology costs. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. There is also no guarantee that we will possess the financial resources or personnel, for the research, design, and development of new applications or services, or that we will be able to utilize these resources successfully and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of our competitors or future competitors will not result in our present or future applications and services becoming uncompetitive or obsolete. If we were unable to enhance our offerings and network capabilities to keep pace with rapid technological and regulatory change, or if new technologies emerge that are able to deliver competitive offerings at lower prices, more efficiently, more conveniently, or more securely than our platform offerings, our business, financial condition and results of operations could be adversely affected.

Item 1B.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Unresolved Staff Comments.

 

None.

 

Item 2.

ITEM 2.PROPERTIES

Properties.

 

We do not own any real estate or other physical properties. Our principal office is located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240 in office space previously leased by G2 International, Inc. (“G2”), a company controlled by Gust Kepler who serves as our sole director and our President, Chief Executive Officer, Chief Financial Officer and Secretary. Tiger Trade (our former subsidiary that was merged with and into the Company) entered a Sublease Agreement (the “Sublease”) with G2 International, Inc. effective July 1, 2015, subject to the terms and conditions of the Office Lease dated March 26, 2015 (the “Office Lease”) between G2 International, Inc. andfrom Teachers Insurance and Annuity Association of America, for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. On August 28, 2017, the Company acquired and was assigned all right, title and interest in the lease from G2. On September 19, 2017 we amended the lease to expand its space by approximately 336 square feet for a total of 1,838 square feet and extended the expiration date to September 30, 2022.America. During the years ended December 31, 20182020 and 20172021 we incurred $60,584$54,631 and $48,848,$92,033, respectively, in office rental expense. Future minimum rental payments under the extended lease are $55,646 in 2019, $59,006 in 2020, $61,803 in 2021 and $46,869 in 2022.$618,571.

 

We believe that the existing facilities at March 30, 2022, will be adequate to meet our operational requirements through 2022. We believe that all such facilities are adequately covered by appropriate property insurance.

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Item 3.

ITEM 3.LEGAL PROCEEDINGS

Legal Proceedings.

 

There are currently no material pending legal or governmental proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

 

Item 4.

ITEM 4.MINE SAFETY DISCLOSURES.

Mine Safety Disclosures.

 

Not applicable.

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PART II

 

Item 5.

ITEM 5.Market for Registrant

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESs Common Equity, Related Stockholder Matter and Issuer Purchases of Equity Securities

 

Market Information

 

Our Common Stock, is quoted$0.001 par value began trading on the OTC Pink tier of the OTC Markets Group, Inc. (the “OTC Pink”)Nasdaq Capital Market on November 9, 2021 under the symbol “BLBX.” The following table shows the reported high and low closing bid prices per share for our Common Stock based on information provided by the OTC Pink. The over-the-counter market quotations set forth for our Common Stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

  

Common Stock

Bid  Price

 
Financial Quarter Ended High ($)  Low ($) 
       
December 31, 2018  2.75   2.75 
September 30, 2018  11.00   2.60 
June 30, 2018  11.00   11.00 
March 31, 2018  11.00   2.65 
December 31, 2017  5.25   4.27 
September 30, 2017  4.30   3.00 
June 30, 2017  3.78   3.66 
March 31, 2017  3.66   3.5 

On April 9, 2019, the last closing bid price per share for our Common Stock reported by the OTC Pink was $3.00.“BLBX”. 

 

Holders

 

Records of Securities Transfer Corporation, our transfer agent, indicate that as of April 17, 2019,March 28, 2022, we had 658676 record holders of our Common Stock. The number of registered stockholders excludes any estimate by us of the number of beneficial owners of shares of Common Stock held in “street name.” As of April 17, 2019,March 28, 2022, we had 23,115,50013,185,659 shares of our Common Stock issued and outstanding.

 

Dividends

 

We have not declared any dividends on our Common Stock and do not anticipate that we will declare or pay any dividends on our Common Stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions, restrictions in our organizational documents, and any other factors that our Board of Directors deems relevant.

Securities Authorized for Issuance under Equity Compensation Plans

 

2021 Equity Incentive Plan

On August 4, 2021, our Board of Directors and our stockholders approved the adoption of the 2021 Stock Incentive Plan (the “2021 Plan”) and it became effective August 31, 2021. We have reserved 750,000 of our outstanding shares of our common stock for issuance under the 2021 Plan. Participation in the 2021 Plan will continue until all of the benefits to which the participants are entitled have been paid in full. The Company has nofollowing table sets forth our equity compensation plans.2021 plan information as of December 31, 2021.

 

Plan

 

Number of

securities to be

issued upon

exercise of

outstanding

options and

rights

  

Weighted-

average exercise

price of

outstanding

options and

rights

  

Number of

securities

remaining

available for

issuance under

equity

compensation

plans

 

2021 Stock Incentive Plan(1)

  675,883   $3.07   74,117 

Total

  675,883   $3.07   74,117 

(1) Excludes a restricted stock grant for 6,048 shares under the 2021 Plan. Because there is no exercise price associated with the restricted stock grants, such shares are not included in the weighted-average price calculation.

Recent Sales of Unregistered Securities

 

On November 27, 2018, the Company issued 11,000 shares of Common Stock to an individual investor at a cash price of $1.00 per share for aggregate proceeds of $11,000. The Common Stock was privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act. The Company reasonably believed that the purchaser of such securities had access to information concerning its operations and financial condition, was acquiring the securities for its own account and not with a view to the distribution thereof, and was an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Furthermore, no "general solicitation" was made by the Company with respect to sale of any of the securities. At the time of their issuance, the securities described above were deemed to be restricted securities for purposes of the Securities Act and the documentation representing the securities bear legends and/or non-transfer provisions to that effect.

All of the Company’s other sales of unregistered securities during the period covered by the Report have been previously reported as required in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and/or current reports on Form 8-K.

 

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Use of Proceeds of Registered Securities

On November 15, 2021, we closed our initial public offering of 2,400,000 shares of common stock at an offering price of $5.00 per share. Alexander Capital, L.P. served as the managing underwriter. We received net proceeds of $10,519,914, after deducting underwriting discounts and commissions and offering expenses. All of the shares issued and sold in our initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No. 333-260065), which was declared effective by the SEC on November 9, 2021.

On January 7, 2022 the Company’s Board of Directors authorized a stock repurchase plan for up to $2,500,000 of the Company’s Common Stock. The program will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized. As of March 28, 2022, the Company has repurchased 430,171 shares of common stock for an aggregate purchase price of $837,520. This use of proceeds was not anticipated or disclosed in the Company’s prospectus.

Other than as described above, the proceeds of the public offering have been used as described in the prospectus to promote and market our Blackbox System platform and increase our subscriber base, and for general and administration expenses.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Item 6.

ITEM 6.SELECTED FINANCIAL DATA

[Reserved]

 

The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.Not required.

 

Item 7.

ITEM 7.Management

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSs Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the results of financial condition and results of operations for the fiscal years ended December 31, 20182021 and 20172020 should be read in conjunction with our consolidated financial statements, and the notes to those consolidated financial statements that are included elsewhere in this Form 10-K.

 

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Overview

 

The Company is in the businessWe are a financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of developing and marketing a real time analytical web basedall levels. Our web-based software as a service platform (the “Blackbox System”) that serves as a tool for day traders and swing traders on various securities exchanges and markets. Our proprietary Blackbox System technology is an algorithm driven system that works in real time, measuring market trends and data while utilizing a multitude of specific criteria, both live and historical. Our Blackbox System platform employs predictive technology“predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that canmay result in the rapid change in the trading price of a stock’s price. Thestock or option. Our Blackbox System was initially designedcontinuously scans the NASDAQ, NYSE, CBOE, and other options markets, analyzing over 10,000 stocks and up to monitor1,500,000 options contracts multiple times per second. We also provide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and analyze over 13,000 stocksideas quickly and efficiently through a common network. We recently introduced a live audio/video feature that allows our members to broadcast on their own channels to share trade strategies and market insight within the OTC Markets Group, Inc. (“OTC”), New York Stock Exchange (“NYSE”), the NYSE American (formerly the American Stock Exchange),

and NASDAQ markets simultaneously as our servers receive live data feeds from such markets. We have also customized our Blackbox System to analyze data from the Hong Kong Stock Exchange (“HKEX”), Shanghai Stock Exchange (“SSE”) and Shenzhen Stock Exchange (“SZSE”) for license and use primarily in Asia.community.

 

We consider the Blackbox System technology to be among the most user-friendly of its kind.

The Company launched its Blackbox System web applicationour platform for domestic use and made it available to subscribers in September 2016. Subscriptions for the use of the Blackbox System web applicationplatform are sold on a monthly and/or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com.

From August 9, 2017 to November 13, 2017 we customized, maintained and licensed a version of the Asian Blackbox System (the BBTR System) to EIGH8T TECHNOLOGIES INC. (BBTR) for use and sublicense solely for use in connection with data from the HKEX, SSE and SZSE. The BBTR System was made available to BBTR on a trial basis beginning May 15, 2017 and launched for use by BBTR customers beginning on June 1, 2017. We terminated the license in November 2017 because BBTR defaulted on its payment obligations.website.

 

Our principal office is located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240 and our telephone number is (972) 726-9203. Our Common Stock is quoted on the OTC Pink under the symbol “BLBX.” Our corporate website is located at http://www.blackboxstocks.com.www.blackboxstocks.com.

 

Basis

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The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern, which is dependent upon the Company's ability to obtain sufficient financing or establish itself as a profitable business. At December 31, 2018, the Company had an accumulated deficit of $3,846,469 and for the years ended December 31, 2018 and 2017, the Company incurred net losses of $1,151,882 and $1,261,743, respectively. Management’s plans with respect to operations include the sustained and aggressive marketing of subscriptions for the Blackbox System both domestically and abroad and raising additional capital through sales of equity or debt securities as may be necessary to pursue its business plans and sustain operations until such time as the Company can achieve profitability. Management believes that aggressive marketing combined with additional financing as necessary will result in improved operations and cash flow in 2019 and beyond. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.

The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

Recently Issued Accounting Pronouncements

 

During the year ended December 31, 20182021 and through April 17, 2019,March 31, 2022, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

 

All other new accounting pronouncements issued but not yet effective or adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.

 

Summary of Significant Accounting Policies

 

Use of Estimates

 

The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP.  Actual results could differ from those estimates.

 

Cash

Cash includes all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.

Fair Value of Financial Instruments

 

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurement, defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

 

Recently Issued Accounting Pronouncements.Derivative Financial Instruments

 

During the years ended December 31, 2018FASB ASC Topic 820, Fair Value Measurement requires bifurcation of certain embedded derivative instruments, and 2017, there were several newmeasurement at their fair value for accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact onpurposes. A holder redemption feature embedded in the Company’s financial statements.notes payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative.

 

In May 2014, the FASB issued Accounting Standards Update(ASU) No.2014-09,Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It was effective for annual and interim reporting periods beginning after December 15, 2017. This standard permitted early adoption, but not before December 15, 2016, and the use of either a retrospective or cumulative effect transition method. On January 1, 2018 the Company adopted the full retrospective method which requires the application of the standard as of the earliest period present in their financial statements. The Company believes the new standard did not have a material impact on our financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02,Leases. This is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the term of the lease. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard is effective for interim and annual periods beginning January 1, 2019 and will be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements and early adoption is permitted. The Company has evaluated the timing of adoption and we do not expect it to have a material impact on our results of operations and financial condition.

10 

Property and Equipment

The Company is engaged in the development of its proprietary Blackbox System technology, an algorithm driven system, through a combination of in house system analysts and outside firms. The Company’s Blackbox System software for use in China was in development and costs expensed until the software reached technological feasibility in April 2017 and capitalized until May 15, 2017 when the Blackbox System for use in China was marketable.

The Company’s property and equipment is being depreciated on the straight-line basis over an estimated useful life of three years.

Income Taxes

The Company will recognize deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

Management evaluates the probability of the realization of its deferred income tax assets.  Management determined that because the Company has not yet generated taxable income, it is unlikely that a tax benefit will be realized from these operating loss carry forwards.    Accordingly, the deferred income tax asset is offset by a full valuation allowance.

In accordance with ASC Topic 740,Income Taxes, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Earnings or (Loss) Per Share

Basic earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number of common stock shares outstanding for the period.  Diluted earnings per share reflects the potential dilution of securities by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period.  Therefore, because including shares issuable upon conversion of convertible securities and/or exercise of outstanding options and warrants would have an anti-dilutive effect on the loss per share, only the basic earnings (loss) per share is reported in the accompanying financial statements. At December 31, 2018 and 2017, the potential dilution would be 5,000,000 shares of common stock in the event the issued and outstanding shares of Series A Convertible Preferred Stock are converted.

Share-Based Payment

Under ASC Topic 718,Compensation - Stock Compensation, all share based payments to employees, including share option grants, are to be recognized in the statement of operations based on their fair values. No share based payments were issued for the years ended December 31, 2018 and 2017.

Revenue Recognition

11 

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606) and adoption of the new standard had no impact on the Company’s statements of operations or balance sheets. Revenue is recognized from the sale of subscriptions for the use of the Blackbox System web application, on a monthly or annual basis. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The Company launched its Blackbox System web application and began generating subscription sales revenues during the quarter ended September 30, 2016. Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.

Other Liabilities

The Company is planning the development of a future product, a complimentary platform that will share similar IP protocol with the current Blackbox System on a subscription basis. The future product has not yet launched. The Company has received advance payments from a new subscriber group in anticipation of the development of this future product. These amounts are deferred until such time as the platform is launched and the services earned. As of December 31, 2018, the Company has received $180,000 from this future subscriber group.

Software Development Costs

 

BlackboxstocksThe Company accounts for software development costs pursuant to ASC Topic 985-Software, which requires that the costs incurred for planning, designing, coding and testing of software prior to technological feasibility be recorded as research and development expenses as incurred. Such costs include both internal development and engineering costs as well as development expenses contracted through third parties.

Income Taxes

The Company will recognize deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

Management evaluates the probability of the realization of its deferred income tax assets.  Management determined that because the Company has not yet generated taxable income, it is engagedunlikely that a tax benefit will be realized from these operating loss carry forwards.    Accordingly, the deferred income tax asset is offset by a full valuation allowance.

25

In accordance with ASC Topic 740, Income Taxes, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Share-Based Payment

All share based payments to employees, directors and contractors, including grants of stock options, restricted shares or warrants, are recognized in the developmentstatement of its proprietary Blackbox System technology, a proprietary algorithm driven system, through a combinationoperations based on their fair values at the time of in house system analysts and outside contractors. Under the guidelines of ASC Topic 985, “Software”, the cost of the Company’s Blackbox System was expensed during development and the Blackbox System software for use in the United States, reached technical feasibility in August 2016, became marketable and was made available to subscribers beginning September 1, 2016. The Blackbox System for use in China achieved technological feasibility and became marketable and available to subscribers during the quarter ended June 30, 2017. Subsequent to that time,grant in accordance with ASC Topic 985 these costs were expensed. Costs incurred during this718, Compensation - Stock Compensation. During the period were capitalizedended December 31, 2021, the Company calculated the fair value of the options granted based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance; a risk-free interest rate of 1.30%, and amortized.expected volatility of 50% based on the volatility of comparable publicly traded entities, various exercise prices, and terms of 10 years. The fair value of options granted is expensed as vesting occurs over the applicable service periods.

 

Domain Name

The Company acquired a domain name for its exclusive use in anticipation of its rollout within the next three years. The cost was capitalized and due to the uncertainty of our ability to successfully market this name, we elected to amortize the cost over a period of three years.

Prepaid Expenses

Prepaid expenses are current assets created when the Company makes payments or incurs an obligation for expenses identified for a future period. These amounts are charged to expense as the services are provided.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial

12 

statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Liquidity and Capital Resources

The Company launched its Blackbox System web application and made it available to subscribers in September 2016 and we have not yet attained a level of subscription sales revenue that would allow us to meet our current overhead. We do not contemplate attaining profitable operations prior to the end of 2019, nor is there any assurance that such an operating level can ever be achieved.

 

At December 31, 2018,2021, the Company had a cash balance of $28,001$2,426,497 and marketable securities valued at $8,015,882, which equal a working capital deficitcombined cash and securities total value of $1,180,289$10,442,379. The Company incurred negative cash flow from operations of $(672,845) for the year ended December 31, 2021 as compared to a cash balanceflow from operations of $8,155 and a working capital deficit of $198,988 at$143,580 in the prior year. Cash flows used in investing activities excluding marketable securities were $63,912 for the year ended December 31, 2017. Such cash amount is2021 and were related primarily to the purchase of server equipment and office furniture. We expect capital expenditures to remain at approximately the same level for 2022 in order to maintain our current operations. Cash flows from financing for the year ended December 31, 2021 was $10,194,239 and was driven primarily by the initial public offering that closed on November 15, 2021. We do not sufficientexpect to raise significant debt or equity capital in order to fund our plansexisting operations in the near future. The primary use of operation. capital for financing activities will be to repay the Company’s senior secured loan of $990,000 during 2022. Principal payments of $10,000 are due monthly with the balance due on November 12, 2022.

As such, we will needa result of it substantial cash and marketable securities holdings and modest expected uses of cash for operations, debt service and capital expenditures, the Company believes that it has sufficient capital resources to raise additional fundsfund its current operations and debt service requirements.

Loan Agreement

On November 12, 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note (the “FPV Note”) in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Principal payments of $10,000 per month started on December 12, 2021 with the balance due November 12, 2022.

Initial Public Offering

On November 15, 2021, the Company completed an initial public offering of 2,400,000 shares of common stock at a price of $5.00 per share in connection with our uplist to carry out our plans of operation and fund our ongoing operational expenses including the marketing of the product. We expect that costsNasdaq exchange. After underwriting discounts and expenses, necessary to implement our planned marketing operations over the next 12 months will be between $1 Million to $2 Million. Additional funding iscompany realized net proceeds from the offering of $10,519,914. Proceeds from the offering are expected to be generated through equity financing fromused to promote and market our Blackbox System platform and increase our subscriber base and for general and administration expenses. In addition, we intend to develop and market additional products and services that employ or are complementary to our Blackbox System. We expect to release a new product utilizing the saleproprietary Blackbox System that target traditional investors that do not necessarily engage in day trading or swing trading. We believe that the market for this type of product is significant and we intend to devote significant resources to advertise and market this product. In addition, we anticipate hiring additional personnel to aid in the development and improvement of our Common existing and future products and services.

26

Stock and/Repurchase Plan

On January 7, 2022, the Company’s Board of Directors authorized a stock repurchase plan for up to $2,500,000 of the Company’s common stock. The program will terminate on December 31, 2022 or debt. If we are successful in completing equity financing, existing stockholders will experience dilutionwhen the $2,500,000 authorized has been fully utilized. As of their interest in our Company.March 28, 2022, the Company has repurchased 430,171 shares for an aggregate purchase price of $837,520. We do not have any financing arranged and we cannot provide investorsexpect the capital used in conjunction with any assurance that we will be ablethe plan to raise sufficient funding fromimpede our operations for the sale of our Common Stock or debt to fund our plans of operation and ongoing operational expenses. In the absence of such financing, our business will likely fail. These factors raise substantial doubt about our ability to continue as a going concern and the accompanying financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.foreseeable future.

 

Results of Operations

 

Comparison of Years Ended December 31, 20182021 and 20172020

 

For the years endingended December 31, 20182021 and 2017,2020, the Company’s revenue totaled $692,803was $6,112,324 and $910,705, respectively, for which its respective costs of revenues totaled $645,318 and $542,142. Revenues decreased as a result of the termination of our BBTR License agreement for use of the Asian Blackbox System netted with an expanded subscription base for monthly revenues.$3,367,563, respectively. The license fees under the BBTR license totaled $500,000 before it was cancelled in November 2017. The Company’s revenue from subscriptions grew from $410,705 in the year ended December 31, 2017 to $687,653 in the year ended December 31, 2018, an increase of 67%. Costs$2,744,761 or 81.5% was driven primarily by subscriber growth as the prices for the monthly and annual subscriptions of operations increased as a result of$99 and $959 have not changed except for occasional promotions which involve the Company’s additional subscriber expenses. The costs of operations includes costs to provide the web application to subscribers, the majority of which is data feed expense for exchange informationoffer discounts of approximately $340,000 and customer retention and referral expense of $221,468.

For the year ending December 31, 2018, the Company had operating expenses totaling $1,154,226 compared to $1,628,572 for the same period in 2017, a decrease of $474,346. This change is primarily a result of a decrease in general and administrative expenses of approximately $178,065 which resulted from a decrease in: consulting and investor relations expense of $60,958, advertising expense of $38,150, telecom and internet expense of $53,546, travel and related expense of $50,325 and legal and professional expenses of $20,006. Expenses for salary and related personnel expenses increased $8,309 and office rent and related general office expense increased $36,613. In addition, software development costs decreased approximately $306,710 due to completion of the primary development of the Blackbox System in 2017. The Company also recorded depreciation expense of $22,51420%. Gross margin for the year ended December 31, 20182021 was $4,260,969 or 69.7% of revenues as compared to $12,0852020 gross margin of $2,166,243 or 64.3% of revenues. The increase in the gross margin percentage from 2020 to 2021 was due to higher leverage of fixed costs related to the cost of operating our platform. The primary costs of operating our platform include data feeds of real time prices from exchanges, news feeds, personnel costs of our moderators as well as general system expenses. We anticipate future gross margin percentages to be consistent with the current level.

For the year ended December 31, 2021 our operating expenses increased to $6,538,808 as compared to $2,578,941 in 2020. This increase of $3,959,867 or 153.5% was due to substantial increases in our operating expenses in all categories. Software development expenses incurred the highest percentage increase of 582.3% for the year ended December 31, 2017.2021 as compared to the previous year. The $548,651 increase in expense for 2021 resulted from increased costs from both higher levels of internal developer and engineering staff as well as outside contractors. Major projects that required substantial capital in 2021 including improvements to our social media component of the Blackbox platform as well as development of a new mobile application that encompasses substantially all of the features of our website. The improvements to the social media component of our platform were released in December of 2021, but we expect to continue to make upgrades to this feature through 2022. The new mobile application for IOS and Android devices which is expected to be released in April 2022 and future costs related to this application will be more modest for the short term. Other development projects that the Company intends to allocate resources to in 2022 include the release of a new mobile application aimed at the wider retail investment population and a crypto currency platform. We expect that our development expense will continue to increase in 2022 although the specific timing of those increases is uncertain. Our selling, general and administrative costs increased by $2,859,203 or 161.9% to $4,625,333 for the year ended December 31, 2021. The largest component of that increase was stock based compensation that totaled $1,353,020 in 2021 as compared to $100,100 in 2020. This increase was primarily due to compensation incurred with the issuance of equity-based incentives under the Blackboxstocks 2021 Equity Incentive Plan and a one-time expense of $400,000 incurred in connection with the issuance of 80,000 shares of common stock to a related party upon our listing on Nasdaq. Other significant increases in selling, general and administrative costs included personnel compensation which increased $770,861 for the year ended December 31, 2021 as well as higher investor and public relations costs. We expect these expenses to continue to grow in 2022 but at a lower rate than the increase from 2020 to 2021.

For the year ended December 31, 2021, other income (expense) was a net expense of $337,897 as compared to other net income of 57,787 for the year ended December 31, 2020. The primary components of the 2021 expense were interest expense of $135,492 and amortization of debt discount of $247,522. For the year ended December 31, 2020 other income (expense) included significant expenses relating to the Company’s convertible note financing that were offset by a gain on derivative liability of $1,155,718. We expect to incur interest expense in 2022 that is slightly lower than the 2021 amount.

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27

 

EBITDA (Non-GAAP Financial Measure)

We report our financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, management believes the presentation of certain non-GAAP financial measures provides useful information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with the non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company’s ongoing operating performance. In addition, these non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating performance. For all non-GAAP financial measures in this release, we have provided corresponding GAAP financial measures for comparative purposes in the report.

EBITDA is defined by us as net income (loss) before interest expense, income tax, depreciation and amortization expense and certain non-cash. EBITDA is not a measure of operating performance under GAAP and therefore should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Also, EBITDA should not be considered as a measure of liquidity. Moreover, since EBITDA is not a measurement determined in accordance with GAAP, and thus is susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to similarly titled measures presented by other companies.

Reconciliation of net loss to EBITDA

  

Year ended December 31,

 
  

2021

  

2020

 

Net loss

 $(2,615,736) $(354,911)

Adjustments:

        

Interest expense

  135,492   174,083 

Depreciation and amortization expense

  19,721   12,884 

Convertible note financing

  -   500,469 

Gain on derivative liability

  -   (1,155,718)

Default expense

  -   24,750 

Amortization of debt discount

  247,522   398,629 

Gain on forgiveness of note payable

  (33,405)  - 

Stock based compensation

  1,353,020   100,100 

Total Adjustments

  1,722,350   55,197 

EBITDA

 $(893,386) $(299,714)

Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

Item 7A.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

 

Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

Item 8.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements and Supplementary Data.

 

All financial statements required by this Item are presented beginning on Page F-1, and are incorporated herein by this reference.

 

Item 9.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

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Item 9A.

ITEM 9A.CONTROLS AND PROCEDURES

Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Gust Kepler, our principal executive officer and Robert Winspear, our principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2018,2021, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of December 31, 20182021 were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

Management's Annual Report on Internal Control Over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that:

 

·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

14 
 

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In connection with the preparation of our annual financial statements, Gust Kepler, our principal executive officer and principal financial officer hashave assessed the effectiveness of internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework, and SEC guidance on conducting such assessments. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation and qualified by the “Limitations on Effectiveness of Controls” set forth in this Item 9A below, management has determined that as of December 31, 2018,2021, our internal controls over financial reporting were not effective and there are no material weaknesses in our internal control over financial reporting.

 

The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications.

Attestation Report of the Registered Public Accounting Firm

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein non-accelerated filers are exempt from Sarbanes-Oxley internal control audit requirements.

 

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Changes in Internal Control Over Financial Reporting

 

On September 11, 2021 the Company appointed Robert Winspear as its Chief Financial Officer and Secretary. In addition to having a full-time financial executive as part of the management team, this appointment provided for additional segregation of duties as both of these offices were previously held by our Chief Executive Officer. The Company also appointed three new independent directors and created an audit committee, a compensation committee and a nominating and governance committee. There were no other changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 20182020 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

Limitations on the Effectiveness of Controls

 

Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

 

15 

Management is aware that there is a lack of segregation of duties at the Company due to the fact that the Company only has one director and executive officer dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of the Company’s current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

Item 9B.

ITEM 9B.OTHER INFORMATION

Other Information.

 

None.

 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not Applicable.

 

16 
30

PART III

 

Item 10.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors, Executive Officers and Corporate Governance.

 

Directors and Executive Officers

The following individuals currently serve as the sole director and executive officersInformation required by this item will be set forth in our proxy statement for our 2022 Annual Meeting of our Company. All directors of our Company hold office until the next annual meeting of shareholdersStockholders ("2022 Proxy Statement") or until their successors have been elected and qualified. The executive officers of our Company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.

Sole Director and Executive

Officers

Age

Date of

Appointment

Position(s) Held
Gust Kepler54December 1, 2015Director, President, Chief Executive Officer, Chief Financial Officer and Secretary
Jeff Sharrock54January 1, 2016Vice President of Operations

Gust Keplerwas appointedan amendment to serve as a director and our President, Chief Executive Officer, Chief Financial Officer and Secretarythis Annual Report on December 1, 2015. Mr. Kepler also serves as the President of G2 International, Inc. (“G2”). G2 is a consulting firm with expertise in investment banking founded by Mr. Kepler in 2002. G2’s primary focus is taking private companies public and providing advice regarding capitalization, strategic planning and investor relations. PriorForm 10-K, to founding G2, Mr. Kepler founded Parallax Entertainment, Inc. (“Parallax”) in 1996. Parallax was an independent record label, online promotional vehicle and e-commerce solution for musicians on the Internet. Mr. Kepler managed all aspects of the label including A&R, production, marketing and distribution. In 2000, Mr. Kepler successfully completed a direct public offering for the company and Parallax subsequently became a publicly traded company on the OTC Bulletin Board. Mr. Kepler was also the cofounder of Glance Toys, Ltd. (“Glance Toys”) which was formed in 1990. Glance Toys designed, manufactured and marketed products classified in junior sporting goods category. Products included foam balls, flying discs and beach products, some of which received patents. Glance Toy’s products were sold nationally in prominent chains such as Wal-Mart, Target, Toys R Us, 7-Eleven, and numerous other well-known retailers.

Jeff Sharrock was appointed to serve as our Vice President of Operations on January 1, 2016. Mr. Sharrock oversees accounting, communications and IT solutions for the Company. He is also in charge of financial analysis, budgeting, compliance and corporate governance for Blackboxstocks.com. Prior to joining Blackboxstocks, Mr. Sharrock served as the Director of Operations for G2 International, Inc. G2 is an investment banking consulting firm specializing in taking private companies public and providing those companies with advice regarding capitalization, strategic planning and investor relations. Mr. Sharrock oversaw all aspects of daily operations and was heavily involved in the accounting and regulatory aspects of the company. He also served as the main point of contact for large G2 clients.

Involvement in Certain Legal Proceedings

Neither our sole director nor any executive officer has not been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has he been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.

17 

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to filebe filed with the SEC an initial report of ownership and subsequent reports of changes in such ownership. Such persons are further required by SEC regulations to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2018, or written representations from certain reporting persons, other than as described below, we believe allwithin 120 days of our officers and directors and persons who own more than 10% of our Common Stock have met all applicable filing requirements.

Gust Kepler, our sole director and our President, Chief Executive Officer, Chief Financial Officer and Secretary and direct beneficial owner of more than 10% of our Company Common Stock, failed to file a Form 4 disclosing a disposition of 500,000 shares of Common Stock on February 5, 2018.

Code of Ethics for Financial Executives

The Company has not yet adopted a Financial Code of Ethics applicable to our directors, officers and employees due to the fact that the Company only has one person (Gust Kepler) currently serving as a director and two persons (Gust Kepler and Jeff Sharrock) serving as executive officers. The Board of Directors plans to adopt a Code of Ethics as it deems appropriate, when and if it adds additional directors, officers and employees.

Board Committees and Financial Expert

The Company does not currently maintain separate audit, nominating or compensation committees. When necessary, the entire Board of Directors performs the tasks that would be required of those committees. Furthermore, we do not have a qualified financial expert serving on the Board of Directors at this time, because we have not been able to hire a qualified candidate and we have inadequate financial resources at this time to hire such an expert.

ITEM 11.EXECUTIVE COMPENSATION

The following table sets forth all compensation for the last two fiscal years awarded to, earned by or paid our chief executive officer and our only other compensated executive officer serving during the last completed fiscal year (collectively, the "Named Executives"):

Summary Compensation Table

Name and Principal Position

Year

Salary

All other Compensation (1)($)

Total ($)

Gust Kepler, Director, President, Chief Executive Officer, Chief Financial Officer and Secretary

2018

2017

$ 12,000

$ 12,000

$

$

--
--

$

$

12,000

12,000

Jeff Sharrock, Vice President of Operations

2018

2017

$ 69,364

$ 67,000

$

$

3,000(2)
2,800(2)

$

$

72,364

69,800

(1)Other than the remuneration discussed above, we have no retirement, pension, profit sharing, stock option or similar program for the benefit of the officers, directors or employees of the Company.
(2)Reflects cash bonus payment.

18 

Narrative Disclosure to Summary Compensation Table

We paid salaries to both of Named Executives in 2018 and 2017. Mr. Kepler is paid an annual salary of $12,000 and Mr. Sharrock is paid an annual salary of $73,000. Mr. Sharrock was also paid discretionary bonuses of $3,000 in 2018 and $2,800 in 2017. All compensation was paid in cash pursuant to standard Company payroll practices. We do not have arrangements with any of our employees, including the Named Executives, to pay or provide any non-cash compensation.

The Company has not entered into any other employment agreement or consulting agreement with any officer or director of the Company providing for compensation and all serve at the discretion of our Board of Directors.

Outstanding Equity Awards

The Company has no equity compensation plans.

Compensation of Directors

The Company does not pay compensation to its directors for their service at this time. Furthermore, the Company has no present formal plan for compensating our directors for their service in their capacity as such.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of the date hereof with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our Common Stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Applicable percentages are based upon 23,115,500 shares of Common Stock and 5,000,000 shares of Preferred Stock outstanding as of April 17, 2019. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240.

Title of Class 

 

Name and Address of

Beneficial Owner

 Amount and Nature of Beneficial Owner Percent of
Class
Common Stock      
         As a Group Officers and Directors (1 person)
  6,995,000   30%
         As Individuals Gust Kepler  6,995,000   30%
  David Kyle
  2,500,000   11%
  Eric Pharis
2 Lake Forest Court
Trophy Club, Texas 76262
  2,500,000   11%
  Stephen Chiang
8 Kitchener Link
City Square Residences #21-14
Singapore 207226
  3,000,000   13%
19 

Series A Preferred Stock      
         As a Group Officers and Directors (1 person)
  5,000,000   100%
         As Individuals Gust Kepler  5,000,000   100%

There are no arrangements, known to the Company, the operation of which would result in a change in control of the Company.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

On August 9, 2017, we entered into the BBTR License with BBTR, a British Virgin Island registered company, for the development, customization and license to use and sublicense the BBTR System solely for use in connection with data from the HKEX, SSE and SZSE. Stephen Chiang, an individual citizen of Singapore who holds 3,000,000 of Company Common Stock (approximately 13% of the issued and outstanding Common Stock), is a principal of BBTR. The BBTR System was made available to BBTR on a trial basis beginning May 15, 2017 and launched for use by BBTR customers beginning on June 1, 2017. The terms of the BBTR License provided that BBTR pay the Company $1.4 million in royalties for the first 12-month period beginning on June 1, 2017 through May 31, 2018, and an additional $3.6 million for the second 12-month period beginning June 1, 2018 through May 31, 2019. On November 13, 2017, we terminated the BBTR License due to BBTR’s failure to make timely payment of license fees.

On September 28, 2017 we entered into a Stock Repurchase and Cancellation Agreement with Gust Kepler, a Director and the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, pursuant to which the Company repurchased 110,000 shares of Common Stock of the Company in exchange for cancellation and forgiveness of debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $55,000.

On September 28, 2017, the Company agreed to cancel and forgive debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $12,500 in exchange for Mr. Kepler’s transfer of 25,000 shares of Common Stock for the benefit of the Company under the terms of a Services Agreement between the Company and PCG Advisory Group dated August 11, 2017.

On December 29, 2017, the Company agreed to cancel and forgive additional debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $12,500 in exchange for Mr. Kepler’s transfer of and additional 25,000 shares of Common Stock for the benefit of the Company under the terms of the Services Agreement between the Company and PCG Advisory Group.

On November 9, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety day period, maturing February 7, 2019.

On December 6, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, advanced $108,000 to a third party note holder in exchange for an unsecured promissory note.

During the years ended December 31, 20182021 and 2017,is incorporated herein by reference.

Item 11.

Executive Compensation.

Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the Company engaged the servicesSEC within 120 days of Karma Black Box LLC (“Karma”), which is owned by Company stockholders Eric Pharis and David Kyle, for application development services of the Company’s Blackbox System technology. Karma began operating as EDM Operations (“EDM”) in the last quarter of 2018. During the yearsour fiscal year ended December 31, 20182021 and 2017, Karma/EDM was paid $45,000 and $99,500 for services, respectively.

20 

Director Independence

Our Board of Directors is currently composed of one member who does not qualify as an independent director in accordance with the published listing requirements of the NASDAQ Global Market.incorporated herein by reference.

 

Item 12.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The Company does not currently maintain a separate audit committee. When necessary,Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the entire Board of Directors performs the tasks that would be required of an audit committee.  Our Board of Director’s policy is to pre-approve all audit, audit related and permissible non-audit fees and services provided by our independent registered public accounting firm.  Our Board of Directors pre-approved all of the fees described below.  Our Board of Directors also reviews any factors that could impact the independenceSEC within 120 days of our independent registered public accounting firm in conducting the audit and receives certain representations from our independent registered public accounting firm towards that end.

On December 18, 2015, the Company executed a letter agreement engaging Turner, Stone & Company, L.L.P. (“Turner Stone”) as our independent registered accounting firm and Turner Stone rendered professional services for the audit of our annual financial statements for the yearsfiscal year ended December 31, 20182021 and 2017contained in this Report.is incorporated herein by reference. 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

Audit Fees

Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2021 and is incorporated herein by reference.

 

Item 14.

Principal Accounting Fees and Services.

The aggregate fees billed

Information required by Turner Stone for professional services rendered forthis item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the auditSEC within 120 days of our annual financial statements for 2017fiscal year ended December 31, 2021 and 2018 and the reviews of the financial statements included in our Forms 10-Q and 8-K, or services normally providedis incorporated herein by the accountant in connection with statutory and regulatory filings for those fiscal years were $33,920 and $36,160, respectively.

Audit-Related Fees

No fees or expenses were billed by Turner Stone in fiscal years 2017 or 2018 for professional services rendered, other than the fees disclosed above under the caption “Audit Fees” for assurance and related services relating to performance of the audit or review of our financial statements.

Tax Fees

The aggregate fees billed by Turner Stone in fiscal years 2017 or 2018 for professional services rendered for tax compliance, tax advice or tax planning were $0 and $10,000, respectively.

All Other Fees

We incurred no other fees or expenses for the 2017 or 2018 fiscal years for any other products or professional services rendered by Turner Stone other than as described above.reference. 

 

PART IV

 

Item 15.

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits, Financial Statement Schedules.

 

(a)Financial Statements

(a)Financial Statements

 

The following documents are filed as part of this Annuall Report on Form 10-K beginning on the pages referenced below:

 

 

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID #76)

F-1

Balance Sheets as of December 31, 20182021 and 20172020

F-2

Statements of Operations for the years ended December 31, 20182021 and 20172020

F-3

Statements of Stockholders’ Equity (Deficit)Deficit for the years ended December 31, 20182021 and 20172020

F-4

Statements of Cash Flows for the years ended December 31, 20182021 and 20172020

F-5

Notes to Financial Statements

F-6 – F-13F-15

 

(b)Exhibits

(b)Exhibits

 

The following exhibits are filed with this Annual Report on Form 10-K or are incorporated by reference as described below.

 

Exhibit

Description

2.1

Form of Share Exchange Agreement dated December 1, 2015, by and among SMSA Ballinger Acquisition Corp., Tiger Trade Technologies, Inc. and the stockholders of Tiger Trade (incorporated by reference to Exhibit 2.1 of the Company’sCompanys Information Statement on Form 8-K filed with the Commission on December 7, 2015).

3.1

Articles of Incorporation of SMSA Ballinger Acquisition Corp. (incorporated by reference to Exhibit 3.4 of the Company's Registration Statement on Form 10-12G filed with the Commission on August 5, 2014).

3.2

Certificate of Designation of Series A Preferred Stock dated December 1, 2015 (incorporated by reference to Exhibit 3.1 of the Company’sCompanys Information Statement on Form 8-K filed with the Commission on December 7, 2015).

3.3

Certificate of Amendment to Articles of Incorporation dated effective March 9, 2016. (incorporated by reference to Exhibit 3.9 of the Company’sCompanys Annual Report on Form 10-K filed with the Commission on April 14, 2016).

3.4

Certificate of Amendment to Articles of Incorporation dated effective as of July 15, 2019 (incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K filed with the Commission on July 15, 2019)

3.5

Bylaws of SMSA Ballinger Acquisition Corp. (incorporated by reference to Exhibit 3.5 of the Company's Registration Statement on Form 10-12G filed with the Commission on November 27, 2013).

10.1

4.1

Sublease Agreement between G2 International, Inc. and Tiger Trade Technologies, Inc. dated July 1, 2015.

Description of Securities (incorporated by reference to Exhibit 10.144.1 of the Company’sCompanys Annual Report on Form 10-K filed with the Commission on April 14, 2016).16, 2020)

10.2

4.2

License Agreement dated August 9, 2017 between

Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. and EIGH8T TECHNOLOGIES INC.dated May 21, 2019 (incorporated by reference to Exhibit 10.14.1 of the Company’s QuarterlyCompanys Current Report on Form 10-Q filed with the Commission on August 14, 2017).

10.3Stock Repurchase and Cancellation Agreement dated September 28, 2017 by and between Blackboxstocks, Inc. and Gust Kepler (incorporated by reference to Exhibit 10.1 of the Company’s Information Statement on Form 8-K filed with the Commission on September 29, 2017) **May 28, 2019)

10.4

4.3

Services Agreement dated August 11, 2017 between

Form of Warrant for the Blackboxstocks, Inc. and PCG Advisory GroupPurchase of Common Stock (incorporated by reference to Exhibit 10.14.2 of the Company’s QuarterlyCompanys Current Report on Form 10-Q8-K filed with the Commission on November 14, 2017).May 28, 2019)

10.54.5AssignmentForm of Lease dated August 28, 2017 between G2 International, Inc. andFirst Amendment to 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. (incorporated by reference to Exhibit 10.134.2 of the Company’s AnnualCompanys Current Report on Form 10-K8-K filed with the Commission on March 29, 2018).July 30, 2019)

10.6

10.1

Second Amendment to Office Lease dated September 19, 2017 between Teachers Insurance and Annuity Association of America and Blackboxstocks, Inc. (incorporated by reference to Exhibit 10.14 of the Company’sCompanys Annual Report on Form 10-K filed with the Commission on March 29,April 17, 2018).

31.1

10.2

Loan Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc. (incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q filed with the Commission on November 16, 2020)

10.3

Securities Purchase Agreement dated April 10, 2019 (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed with the Commission on May 28, 2019)

10.4

Securities Purchase Agreement dated May 3, 2019 (incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K filed with the Commission on May 28, 2019)

10.5

Securities Purchase Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed with the Commission on May 28, 2019)

10.6

Note dated November 12, 2020 payable to Feenix Venture Partners Opportunity Fund II LP (incorporated by reference to Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q filed with the Commission on November 16, 2020)

10.7

Security Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc. (incorporated by reference to Exhibit 10.3 of the Companys Quarterly Report on Form 10-Q filed with the Commission on November 16, 2020)

10.8

Blackboxstocks, Inc. 2021 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Information Statement on Schedule 14C filed on August 11, 2021)

10.9Amendment No. 1 to Loan Agreement dated March 9, 2022 between FPV Servicing LLC and Blackboxstocks, Inc.*

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*1350*

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*1350*

101.1

Inline Interactive data files pursuant to Rule 405 of Regulation S-T*

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

* Filed herewith.

**Signifies a management agreement.

Item 16.

Form 10K Summary.

None.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 31, 2022

Date: April 17, 2019

BLACKBOXSTOCKS INC.

   
 

By:

 /s/

/s/ Gust Kepler

 

Gust Kepler

 

President, Chief Executive Officer and Secretary (Principal Executive Officer and Principal Financial and Accounting Officer)Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Gust Kepler and Robert Winspear, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to act on, sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy, and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this reportAnnual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities set forth opposite their names and on the dates indicated.March 31, 2022. 

 

SIGNATURE

Name

 TITLEDATE

Title

   

/s/ Gust Kepler

President and Chief Executive Officer and Director

Gust Kepler

 

President, Chief(Principal Executive Officer, Secretary and Director (Principal Executive Officer and Principal Financial and Accounting Officer)

April 17, 2019

   

24 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gust Kepler, certify that:

(1)I have reviewed this annual report on Form 10-K of Blackboxstocks Inc.;

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

/s/ Robert Winspear

(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 April 17, 2019 /s/ Gust Kepler

Chief Financial Officer, Secretary and Director

Robert Winspear

(Principal Accounting and Financial Officer)

  Gust Kepler

/s/ Andrew Malloy

Director

Andrew Malloy

  Principal Executive Officer

25 

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gust Kepler, certify that:

(1)I have reviewed this annual report on Form 10-K of Blackboxstocks Inc.;

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

/s/ Ray Balestri

(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 17, 2019 /s/ Gust Kepler

Director

Ray Balestri

  Gust Kepler

/s/ Dalya Sulaiman

Director

Dalya Sulaiman

  Principal Financial Officer
26 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Blackboxstocks Inc. (the “Company”) on Form 10-K for the period ending December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gust Kepler, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Gust Kepler

Gust Kepler

Principal Executive Officer

April 17, 2019

This certification accompanies the Report pursuant to §906

 

27 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Blackboxstocks Inc. (the “Company”) on Form 10-K for the period ending December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gust Kepler, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Gust Kepler

Gust Kepler

Principal Financial Officer

April 17, 2019

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company or purposes of §18 of the Securities Exchange Act of 1934, as amended.

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

28 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders’ and Sole DirectorBoard of Directors of Blackboxstocks Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Blackboxstocks Inc. (the “Company”) as of December 31, 20182021 and 20172020 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s cash balance is not sufficient to fund its plans of operations and it will need additional funds to carry out its plans of operation and fund its ongoing operations expenses. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Turner, Stone & Company, L.L.P.

/s/ Turner, Stone & Company, L.L.P.
Turner, Stone & Company, L.L.P.

 

Dallas, Texas

April 17, 2019March 31, 2022

 

We have served as the Company’s auditor since 2015.

F-1 

Blackboxstocks Inc.

Balance Sheets

December 31, 2021 and 2020

  

December 31,

 
  

2021

  

2020

 
         

Assets

        

Current assets:

        

Cash

 $2,426,497  $972,825 

Accounts receivable, net of allowance for doubtful accounts of $68,589 at December 31, 2021 and 2020, respectively

  18,585   17,990 

Inventory

  13,567   17,661 

Marketable securities

  8,015,882   0 

Prepaid expenses and other current assets

  227,440   44,643 

Prepaid expenses, related party (Note 7)

  0   36,700 

Total current assets

  10,701,971   1,089,819 
         

Property and equipment:

        

Office, computer and related equipment, net of depreciation of $81,682 and $61,961 at December 31, 2021 and 2020, respectively

  49,873   5,682 

Right of use lease, net of amortization of $150,829 and $97,725 at December 31, 2021 and 2020, respectively

  398,270   62,348 

Total property and equipment

  448,143   68,030 
         

Total assets

 $11,150,114  $1,157,849 
         

Liabilities and Stockholders' Equity (Deficit)

        
         

Current liabilities:

        

Accounts payable

 $585,615  $352,545 

Accrued interest

  6,544   10,425 

Unearned subscriptions

  1,302,036   1,016,157 

Lease liability right of use, current

  62,630   40,473 

Other liabilities

  0   180,000 

Senior secured note payable, net of debt issuance costs of $46,597 and $-0- at December 31, 2021 and 2020, respectively (Note 8)

  943,403   10,000 

Convertible notes payable, net of discount of $-0- and $194,267 at December 31, 2021 and 2020, respectively (Note 8)

  0   257,150 

Note payable, current portion (Note 8)

  28,448   131,605 

Notes payable, related party (Note 8)

  0   859 

Total current liabilities

  2,928,676   1,999,214 
         

Long term liabilities:

        

Senior secured note payable, long term, net of debt issuance costs of $-0- and $99,852 at December 31, 2021 and 2020, respectively (Note 8)

  0   890,148 

Note payable (Note 8)

  68,347   0 

Lease liability right of use, long term

  335,641   26,241 

Total long term liabilities

  403,988   916,389 
         

Commitments and contingencies (Note 9)

          
         

Stockholders' equity (deficit)

        

Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2021 and 2020, respectively

  0   0 

Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 3,269,998 and 5,000,000 issued and outstanding at December 31, 2021 and 2020, respectively

  3,270   5,000 

Common stock, $0.001 par value, 100,000,000 shares authorized: 13,099,272 and 8,410,386 issued and outstanding at December 31, 2021 and 2020, respectively

  13,099   8,410 

Common stock subscribed

  0   12,500 

Common stock payable

  15,000   0 

Additional paid in capital

  17,586,635   5,401,154 

Accumulated deficit

  (9,800,554)  (7,184,818)

Total stockholders' equity (deficit)

  7,817,450   (1,757,754)
         

Total liabilities and stockholders' equity (deficit)

 $11,150,114  $1,157,849 

 

Blackboxstocks Inc. 

Balance Sheets

December 31, 2018 and 2017 

  December 31,
  2018 2017
Assets    
Current assets:        
Cash $28,001  $8,155 
Accounts receivable, net of allowance for doubtful accounts        
 of $68,589 and $0 at December 31, 2018 and 2017, respectively  3,719   5,111 
Prepaid expenses  107,646   202,978 
Prepaid expenses, related party (Note 5)  36,700   36,700 
Total current assets  176,066   252,944 
       
Property and equipment:        
 Office, computer and related equipment, net of depreciation of $28,802        
  and $14,608 at December 31, 2018 and 2017, respectively  18,763   21,156 
Domain name, net of amortization of $3,821 and $0 at December 31,        
 2018 and 2017, respectively  13,371   —   
Software development, net of amortization of $7,312 and $2,813        
  at December 31, 2018 and 2017, respectively  1,688   6,187 
Total property and equipment  33,822   27,343 
Total Assets $209,888  $280,287 
         
Liabilities and Stockholders' Deficit        
Current liabilities:        
Accounts payable $525,136  $368,108 
Accrued expenses  128,000   —   
Accrued interest  834   —   
Accrued interest, related party  2,080   —   
Unearned subscriptions  90,034   27,361 
Other liabilities  180,000   —   
Advances, related party (Note 5)  36,382   56,463 
Notes payable, net of note discount of $25,435 at        
 December 31, 2018 (Note 6)  165,889   —   
Notes payable, related party (Note 7)  228,000   —   
Total current liabilities  1,356,355   451,932 
         
Commitments and contingencies (Note 8)        
         
Stockholders' Deficit:        
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares        
  issued and outstanding at December 31, 2018 and 2017,        
  respectively  —     —   
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000        
  shares authorized; 5,000,000 issued and outstanding at        
  December 31, 2018 and 2017, respectively  5,000   5,000 
Common stock, $0.001 par value, 100,000,000 shares        
authorized:23,033,000 and 23,000,000 issued and outstanding at         
December 31, 2018 and 2017, respectively  23,033   23,000 
Common stock, subscribed  144,060   —   
Additional paid in capital  2,527,909   2,494,942 
Accumulated deficit  (3,846,469)  (2,694,587)
Total Stockholders' Deficit  (1,146,467)  (171,645)
         
Total Liabilities and Stockholders' Deficit $209,888  $280,287 

The accompanying footnotes are an integral part of these financial statements.

F-2

Blackboxstocks Inc.

Statements of Operations

For the Years Ended December 31, 2021 and 2020

  

December 31,

 
  

2021

  

2020

 

Revenue:

        

Subscriptions

 $6,087,081  $3,340,983 

Other revenues

  25,243   26,580 

Total revenues

  6,112,324   3,367,563 
         

Cost of revenues

  1,851,355   1,201,320 
         

Gross margin

  4,260,969   2,166,243 
         

Operating expenses:

        

Software development costs

  642,872   94,221 

Selling, general and administrative

  4,625,333   1,766,130 

Advertising and marketing

  1,250,882   705,706 

Depreciation and amortization

  19,721   12,884 

Total operating expenses

  6,538,808   2,578,941 
         

Operating income (loss)

  (2,277,839)  (412,698)
         

Other (income) expense:

        

Interest expense

  135,492   174,083 

Convertible note financing

  0   500,469 

Gain on derivative liability

  0   (1,155,718)

Default expense

  0   24,750 

Amortization of debt discount and issuance costs

  247,522   398,629 

Gain on forgiveness of note payable

  (33,405)  0 

Investment income

  (11,712)  0 

Total other (income) expense

  337,897   (57,787)
         

Loss before income taxes

  (2,615,736)  (354,911)
         

Income Taxes

  0   0 
         

Net loss

  (2,615,736)  (354,911)
         

Weighted average number of common shares outstanding - basic and diluted

  9,644,973   8,074,164 
         

Net loss per share - basic and diluted

 $(0.27) $(0.04)

 

Blackboxstocks Inc. 

Statement of Operations

For the years ended December 31, 2018 and 2017 

  December 31,
  2018 2017
Revenue:    
Subscriptions $687,653  $410,705 
Licensing  —     500,000 
Other revenues  5,150   —   
Total revenues  692,803   910,705 
Cost of operations  645,318   542,142 
Gross margin  47,485   368,563 
Expenses:        
Software development costs  198,434   505,144 
General and administrative  933,278   1,111,343 
Depreciation and amortization  22,514   12,085 
Total operating expenses  1,154,226   1,628,572 
Operating loss  (1,106,741)  (1,260,009)
Interest expense  45,141   1,734 
Other expense  —     —   
Loss before income taxes  (1,151,882)  (1,261,743)
Income taxes  —     —   
Net loss $(1,151,882) $(1,261,743)
Weighted average number of common        
shares outstanding - basic  23,007,534   23,081,671 
Net loss per share - basic $(0.05) $(0.05)

The accompanying footnotes are an integral part of these financial statements.

F-3

Blackboxstocks Inc.

Statement of Stockholders' Deficit

For the Years Ended December 31, 2021 and 2020

  

Preferred Stock

  

Series A

  

Common Stock

  

Common Stock

  

Common Stock

  

Additional

Paid in
  

Accumulated

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Subscribed

  

Payable

  

Capital

  

Deficit

  

Total

 
                                             

Balances, December 31, 2019

  -  $-   5,000,000  $5,000   7,908,231  $7,908  $35,060  $-  $3,443,640  $(6,829,907) $(3,338,299)
                                             

Issuance of shares for cash, net of fees

  -   -   -   -   346,533   347   -   -   430,195   -   430,542 
                                             

Subscription shares cancelled

  -   -   -   -   -   -   (22,560)  -   -   -   (22,560)
                                             

Issuance of shares pursuant to convertible note payables

  -   -   -   -   51,283   51   -   -   145,472   -   145,523 
                                             

Issuance of shares in settlement of expenses

  -   -   -   -   56,339   56   -   -   112,294   -   112,350 
                                             

Issuance of shares in exchange for services

  -   -   -   -   48,000   48   -   -   93,552   -   93,600 
                                             

Convertible note forbearance extinguishment of derivative liability

  -   -   -   -   -   -   -   -   522,065   -   522,065 
                                             

Warrants issued for amendment of convertible notes payable

  -   -   -   -   -   -   -   -   653,936   -   653,936 
                                             

Net loss

  -   -   -   -   -   -   -   -   -   (354,911)  (354,911)
                                             

Balances, December 31, 2020

  -  $-   5,000,000  $5,000   8,410,386  $8,410  $12,500  $-  $5,401,154  $(7,184,818) $(1,757,754)
                                             

Issuance of shares and warrants for cash, net of fees

  -   -   -   -   2,470,772   2,471   -   -   10,655,449   -   10,657,920 
                                             

Issuance of subscribed shares

  -   -   -   -   6,411   6   (12,500)  -   12,494   -   - 
                                             

Issuance of shares in settlement of liabilities

  -   -   -   -   92,308   93   -   -   179,907   -   180,000 
                                             

Issuance of shares for services

  -   -   -   -   175,000   175   -   -   668,325   -   668,500 
                                             

Issuance of shares from conversion of Series A preferred shares

  -   -   (1,730,002)  (1,730)  1,730,002   1,730   -   -   -   -   - 
                                             

Common stock payable for compensation

  -   -   -   -   -   -   -   15,000   -   -   15,000 
                                             

Issuance of shares for cashless exercise of warrants

  -   -   -   -   214,393   214   -   -   (214)  -   - 
                                             

Issuance of warrants for compensation

  -   -   -   -   -   -   -   -   165,431   -   165,431 
                                             

Issuance of options for compensation

  -   -   -   -   -   -   -   -   504,089   -   504,089 
                                             

Other comprehensive income

  -   -   -   -   -   -   -   -   -   -   - 
                                             

Net loss

  -   -   -   -   -   -   -   -   -   (2,615,736)  (2,615,736)
                                             

Balances, December 31, 2021

  -  $-   3,269,998  $3,270   13,099,272  $13,099  $-  $15,000  $17,586,635  $(9,800,554) $7,817,450 

 

Blackboxstocks Inc. 

Statement of Stockholders’ Deficit

For the years ended December 31, 2018 and 2017 

                       
            Common Additional      
  Series A Preferred Stock Preferred Stock Common Stock Stock Paid-in Accumulated Treasury  
  Shares Amount Shares Amount Shares Amount Subscribed Capital Deficit Stock Total
                       
Balance at December  31, 2016  5,000,000  $5,000   —    $—     23,110,000  $23,110  $—    $2,352,332  $(1,432,844) $—    $947,598 
                                             
Repurchase of shares in exchange for advances  —     —     —     —     (160,000)  (160)  —     (79,840)  —         (80,000)
                                             
Issuance of shares for services  —     —     —     —     50,000   50   —     222,450   —         222,500 
                                             
Net loss  —     —     —     —     —     —     —     —     (1,261,743)  —     (1,261,743)
                                             
Balance at  December 31, 2017  5,000,000  $5,000   —    $—     23,000,000  $23,000  $—    $2,494,942  $(2,694,587) $—    $(171,645)
                                             
Issuance of shares for cash  —     —     —     —     33,000   33   —     32,967   —         33,000 
                                             
Common stock shares, subscribed  —     —     —     —     —     —     144,060   —     —         144,060 
                                             
Net loss  —     —     —     —     —     —     —     —     (1,151,882)  —     (1,151,882)
                                             
Balance at December 31, 2018  5,000,000  $5,000   —     —     23,033,000  $23,033  $144,060  $2,527,909  $(3,846,469)  —    $(1,146,467)

The accompanying footnotes are an integral part of these financial statements.

F-4

Blackboxstocks Inc.

Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020

  

December 31,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net loss

 $(2,615,736) $(354,911)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

     

Depreciation and amortization expense

  19,721   12,884 

Amortization of note discount and issuance costs

  247,522   398,629 

Shares issued in settlement of financing costs

  0   105,850 

Shares issued in settlement of services

  668,500   100,100 

Stock based compensation

  684,520   0 

Expenses paid by lender

  0   6,030 

Convertible note financing

  0   500,469 

Change in fair value of derivative liability

  0   (1,155,718)

Convertible note default expense

  0   24,750 

Gain on forgiveness of note payable

  (33,405)  0 

Right of use lease

  (4,365)  591 

Investment income

  (11,712)  0 

Changes in operating assets and liabilities:

        

Accounts receivable

  (595)  (12,245)

Inventory

  4,094   (17,661)

Prepaid expenses and other current assets

  (182,797)  36,225 

Prepaid expenses, related party

  36,700   0 

Accounts payable

  233,070   (279,742)

Accrued interest

  (3,881)  (32,141)

Accrued interest, related party

  0   (16,680)

Unearned subscriptions

  285,879   827,150 

Net cash provided by (used in) operating activities

  (672,485)  143,580 
         

Cash flows from investing activities:

        

Purchase of property and equipment

  (63,912)  (1,299)

Purchase of marketable securities

  (8,004,170)  0 

Cash repayments from related parties

  0   9,823 

Net cash provided by (used in) investing activities

  (8,068,082)  8,524 
         

Cash flows from financing activities:

        

Common stock and warrants issued for cash

  10,657,920   430,542 

Common stock subscribed

  0   (22,560)

Proceeds from issuance of notes payable

  0   1,127,100 

Debt issuance costs

  0   (99,852)

Proceeds from issuance of convertible notes payable

  0   100,000 

Proceeds from Payroll Protection Program Loan

  0   130,200 

Principal payments on senior secured note payable

  (10,000)  0 

Principal payments on notes payable

  (1,405)  (457,657)

Principal payments on convertible notes payable

  (451,417)  (181,083)

Principal payments on notes payable, related parties

  (859)  (227,141)

Net cash provided by financing activities

  10,194,239   799,549 
         

Net increase in cash

 $1,453,672  $951,653 

Cash - beginning of year

  972,825   21,172 

Cash - end of year

 $2,426,497  $972,825 
         

Supplemental disclosures:

        

Interest paid

 $139,373  $186,516 

Income taxes paid

 $0  $0 
         

Non-cash investing and financing activities:

        

Repayment of note in exchange for note payable

 $0  $39,370 

Common stock issued in settlement of accrued liabilities

 $180,000  $0 

Common stock issued in settlement of convertible notes payable

 $0  $100,000 

Discount on notes payable

 $0  $69,500 

Repayment of note payable, related party in exchange for advances

 $0  $2,933 

Issuance of warrants for forbearance agreements

 $0  $371,243 

 

Blackboxstocks Inc. 

Statement of Cash Flows

For the years ended December 31, 2018 and 2017 

  2018 2017
Cash flows from operating activities        
Net loss $(1,151,882) $(1,261,743)
Adjustments to reconcile net loss to net cash        
  used in operating activities:        
Depreciation and amortization expense  22,514   12,085 
Amortization of note discount  29,756   —   
Shares issued in exchange for services  —     222,500 
Allowance for doubtful accounts  68,589   —   
Changes in operating assets and liabilities:        
Accounts receivable  (67,197)  (3,544)
Prepaid expenses  95,332   33,322 
Accounts payable  157,028   295,829 
Accrued expenses  128,000   —   
Accrued interest  834   —   
Accrued interest, related party  2,080   —   
Unearned subscriptions  62,673   9,679 
Other liabilities  180,000   —   
Net cash used in operating activities  (472,273)  (691,872)
         
Cash flows from investing activities        
Purchases of property and equipment  (28,993)  (22,764)
Net cash used in investing activities  (28,993)  (22,764)
         
Cash flows from financing activities        
Common stock issued for cash  33,000   —   
Common stock subscribed  144,060   —   
Proceeds from notes payable  330,130   —   
Repayment of notes payable  (193,997)  —   
Proceeds from notes payable, related party  228,000   —   
Cash advances from related party  126,000   135,226 
Cash repayments to related party  (146,081)  (116,073)
Net cash provided by financing activities  521,112   19,153 
         
Net increase(decrease) in cash  19,846   (695,483)
         
Cash - beginning of period  8,155   703,638 
Cash - end of period $28,001  $8,155 
         
Supplemental disclosure-        
Non-cash investing and financing activities:        
         
  Cancellation of common shares $—    $80,000 

The accompanying footnotes are an integral part of these financial statements.

F-5

BLACKBOXSTOCKS INC.Blackboxstocks Inc.

NOTES TO FINANCIAL STATEMENTSNotes to Financial Statements

For the Years Ended December 31, 20182021 and 20172020

 

1. ORGANIZATION

1. Organization

 

Blackboxstocks Inc. (the “Company”) was incorporated on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan of Reorganization confirmed by the United States Bankruptcy Court for the Northern District of Texas for reorganization under Chapter 11 of the United States Bankruptcy Code.

 

On December 1, 2015, the Company entered into a Share Exchange Agreement (“Exchange Agreement”), by and among the Company, Tiger Trade Technologies, Inc. (“Tiger Trade”), a Texas corporation and the stockholders of Tiger Trade. As a result of the Exchange Agreement transaction, the Tiger Trade stockholders acquired approximately 88.64% of the issued and outstanding capital stock of the Company, and Tiger Trade became a wholly owned subsidiary of the Company.

On February 8, 2016, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Tiger Trade, providing for the merger of Tiger Trade with and into the Company. At the effective time of the merger (February 9, 2016), the shares of Tiger Trade capital stock outstanding immediately before the effective time were canceled, retired and the Tiger Trade corporate entity ceased to exist.

The Company filed a Certificate of Amendment tochanged its Articles of Incorporation effective as of March 9, 2016, changing the name of the Company to Blackboxstocks, Inc.

and began operating as a financial technology and social media platform in March 2016. The platform offers real-time proprietary analytics and news for stock and options traders of all levels. The Company isbelieves its web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the businessrapid change in the price of developing and marketing web and mobile based analyticala stock or option. The software tools as a subscription based software as a service (the “Blackbox System”) to serve as a tool for day traders and swing traders on various securities exchanges and markets, includingcontinuously scans the OTC Markets Group, Inc. (“OTC”), theNASDAQ, New York Stock Exchange, the NYSE American (formerly the American Stock Exchange), the NASDAQ markets, the Hong Kong StockChicago Board Options Exchange (“HKEX”(the “CBOE”), and other options markets, analyzing over 10,000 stocks and up to 1,500,000 options contracts multiple times per second. The Company also provides users with a fully interactive social media platform that is integrated into our dashboard, enabling users to exchange information and ideas quickly and efficiently through a common network. Recently, the ShanghaiCompany also introduced a live audio/video feature that allows members to broadcast on their own channels to share trade strategies and market insight within the community. The platform was initially made available to subscribers in September 2016. Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through the Company website at http://www.blackboxstocks.com.

On November 10, 2021, the Company issued 2,400,000 shares of Common Stock Exchangein its initial public offering and concurrently was listed on the Nasdaq Capital Market (“SSE”Nasdaq”) andunder the Shenzhen Stock Exchange (“SZSE”)symbol “BLBX”.

 

2. Summary of Significant Accounting Policies

Basis of Presentation. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern, which is dependent upon the Company's ability to obtain sufficient financing or establish itself as a profitable business. At December 31, 2018, the Company had an accumulated deficit of $3,846,469 and for the years ended December 31, 2018 and 2017, the Company incurred net losses of $1,151,882 and $1,261,743, respectively. Management’s plans with respect to operations include the sustained and aggressive marketing of subscriptions for the Blackbox System both domestically and abroad and raising additional capital through sales of equity or debt securities as may be necessary to pursue its business plans and sustain operations until such time as the Company can achieve profitability. Management believes that aggressive marketing combined with additional financing as necessary will result in improved operations and cash flow in 2019 and beyond. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations..

 

The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

F-6 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basisof Presentation. The accompanying financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

Use of Estimates. Blackboxstocks’The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP. Actual results could differ from those estimates.

 

Cash and cash equivalents. Cash includesand cash equivalents include all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.

 

Investments in Marketable Securities. During the year ended December 31, 2021, the Company invested in marketable securities which primarily consist of investments in mutual funds that hold commercial and government debt securities. These investments are recorded at fair value based on quoted prices at the end of the Company’s reporting period. Any realized or unrealized gains or losses are recognized in the accompanying statements of operations.

Fair Value of Financial Instruments. The Financial Accounting Standards Board’s (FASB)(“FASB”) Accounting Standards Codification (ASC)(“ASC”) Topic 820,Fair Value Measurement,Measurements, defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

 

F- 6

Recently Issued Accounting Pronouncements. During the yearsyear ended December 31, 2018 and 2017, 2021, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”).FASB. Each of thesethe other pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

 

In May 2014, the FASB issued Accounting Standards Update(ASU) No.2014-09,Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It was effective for annual and interim reporting periods beginning after December 15, 2017. This standard permitted early adoption, but not before December 15, 2016, and the use of either a retrospective or cumulative effect transition method. On January 1, 2018 the Company adopted the full retrospective method which requires the application of the standard as of the earliest period present in their financial statements. The Company believes the new standard did not have a material impact on our financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02,Leases. This is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the term of the lease. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard is effective for interim and annual periods beginning January 1, 2019 and will be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements and early adoption is permitted. The Company has evaluated the timing of adoption and we do not expect it to have a material impact on our results of operations and financial condition.

Property and Equipment. Blackboxstocks is engaged in the development of its proprietary Blackbox System

F-7 

technology, an algorithm driven system, through a combination of in house system analysts and outside firms. The Company’s Blackbox System software for use in China was in development and costs were expensed until the software reached technological feasibility in April 2017 and capitalized until May 15, 2017 when the Blackbox System for use in China was marketable.

The Company’s property and equipment is being depreciated on the straight-line basis over an estimated useful life of three years.

 

Income Taxes. The Company will recognizerecognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

 

Management evaluates the probability of the realization of its deferred income tax assets. Management determined that because the Company has not yet generated taxable income, it is unlikely that a tax benefit will be realized from these operating loss carry forwards. Accordingly, the deferred income tax asset is offset by a full valuation allowance.

 

In accordance with ASC Topic 740,Income Taxes,, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

 

Earnings or (Loss) Per Share.Share. Basic earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number of common stock shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period. Therefore, because including shares issuable upon conversion of convertible securities and/or exercise of outstanding options and warrants would have an anti-dilutive effect on the loss per share, only the basic earnings (loss) per share is reported in the accompanying financial statements. At December 31, 2018 and 2017, the potential dilution would be 5,000,000 sharesstatements for period of common stock in the event the issued and outstanding shares of Series A Convertible Preferred Stock are converted.loss.

 

The Company had total potential additional dilutive securities outstanding at December 31, 2021 and 2020, as follows.

  

2021

  

2020

 
         

Series A Convertible Preferred Shares

  3,269,998   5,000,000 

Conversion rate

  0.2   1.0 

Common shares after conversion

  654,000   5,000,000 

Option shares

  675,833   0 

Warrant shares

  558,336   479,554 

Share-Based Payment. Under ASC Topic 718,Compensation - Stock Compensation, allAll share based payments to employees, directors, and contractors including share option grants of stock options, restricted shares or warrants, are to be recognized in the statement of operations based on their fair values. No share based payments were issued forvalues at the years ended December 31, 2018 and 2017.time of grant in accordance with ASC Topic 718, Compensation - Stock Compensation.

 

Revenue Recognition. On January 1, 2018,We operate under a software as a service (SaaS) model whereby we sell monthly and annual subscriptions allowing subscribers access to our platform. We recognize revenue over the subscription period (either monthly or annual) and record cash received but not yet earned as deferred revenue on our balance sheet. Additionally, the Company adopted ASU 2014-09, “Revenuereceives revenues from Contracts with Customers (ASC 606)commissions and adoptionthe sale of the new standard had no impactpromotional products which are presented as other revenues on the Company’saccompanying statements of operations or balance sheets. Revenue isoperations. Commission revenues are recognized as they are earned and revenues from the sale of subscriptions for the use of the Blackbox System web application, on a monthly or annual basis. Revenue generally ispromotional products are recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The Company launched its Blackbox System web application and began generating subscription sales revenues during the quarter ended September 30, 2016. Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.upon shipment.

 

F- 7

Other Liabilities. The Company is planningplanned the development of a future product, a complimentary platform that willto share similarits IP protocol with the current Blackbox System on a subscription basis. The future product has was not yet developed and launched. The Company has received advance payments totaling $180,000 from a new subscriber group in anticipation of

F-8 

the development of this future product. These amounts are deferred until such time as the platform is launchedproduct and the services earned. As of December 31, 2018,amounts were deferred. During the Company has received $180,000 from this future subscriber group.first quarter 2021 the subscribers agreed to terminate those agreements in exchange for common stock (Note 4).

 

Software Development Costs. Blackboxstocks is engaged in the development of its proprietary Blackbox System technology, a proprietary algorithm driven system, through a combination of in house system analysts and outside contractors. Under the guidelines of ASC Topic 985, “Software”, the cost of the Company’s Blackbox System was expensed during development and the Blackbox System software for use in the United States, reached technical feasibility in August 2016, became marketable and was made available to subscribers beginning September 1, 2016. The Blackbox System for use in China achieved technological feasibility and became marketable and available to subscribers during the quarter ended June 30, 2017. Subsequent to that time, in accordance with ASC Topic 985 these costs were expensed. Costs incurred during this period were capitalized and amortized.

Domain Name. The Company acquired a domain nameaccounts for its exclusive use in anticipationsoftware development costs pursuant to ASC Topic 985-Software, which requires that the costs incurred for planning, designing, coding and testing of its rollout within the next three years. The cost was capitalizedsoftware prior to technological feasibility be recorded as research and due to the uncertainty of our ability to successfully market this name, we elected to amortize the cost over a period of three years.development expenses as incurred. Such costs include both internal development and engineering costs as well as development expenses contracted through third parties.

 

Prepaid Expenses. Prepaid expenses are current assets created when the Company makes payments or incurs an obligation for expenses identified for a future period. These amounts are charged to expense as the services are provided.

3. Marketable securities

The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:

 

Contingencies. Certain conditions may existLevel 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

The Company’s marketable securities are highly liquid and are quoted on major exchanges and are therefore classified as Level 1 securities. The following table summarizes the Company’s assets that were measured and recognized at fair value as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.December 31, 2021:

 

  

Level 1

  

Level 2

  

Level 3

  

Total

 
                 

Balance at January 1, 2021

 $-  $-  $-  $- 
                 

Additions

  8,004,170   -   -   8,004,170 
                 

Change in fair value

  11,712   -   -   11,712 
                 

Balance at December 31, 2021

 $8,015,882  $-  $-  $8,015,882 

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

3.   STOCKHOLDERS’ DEFICIT

4. Stockholders Equity (Deficit)

 

The Company has authorized 10,000,000 shares of preferred stock at $0.001 par value, 5,000,000 of which are designated as “Series A Convertible Preferred Stock” at $0.001 par value and 100,000,000 authorized shares of common stock at $0.001 par value (“Common Stock”).

 

F- 8

Shares of Series A Convertible Preferred Stock do not accumulate dividends, and are convertible into shares of(“Series A Stock”) rank pari passu with the Company’s Common Stock on a one-for-one basis.with respect to dividend and liquidation rights. Additionally, each share entitles the holder to 100 votes votes. During 2021, 1,730,002 previously issued and outstanding shares of the Series A Stock were converted into Common Stock. All currently issued and outstanding shares of the Series A Stock are held by Gust Kepler, the Company’s Chairman and Chief Executive Officer (“Mr. Kepler”). The Company and Mr. Kepler entered into Conversion Rights Agreement dated effective as of October 14, 2021 limiting the rights of the holder(s) of our outstanding shares of Series A Stock to convert such shares into Common Stock on a one-for one basis as provided for in the Certificate of Designation of the Series A Stock (the “Designation Conversion Rights”). Pursuant to the terms of the Conversion Rights Agreement, the Designation Conversion Rights are limited and exercisable based upon the Company reaching the following market capitalization thresholds, measured on the last day of each calendar quarter:

If the Company’s market capitalization is less than $150,000,000, the outstanding Series A Stock will be convertible into Common Stock on a 5-for-1 share basis;

If the Company’s market capitalization is equal to or greater than $150,000,000 but less than $200,000,000, the outstanding Series A Stock will be convertible into Common Stock on a 3.3-for-1 share basis;

 If the Company’s market capitalization is equal to or greater than $200,000,000 but less than $250,000,000, the outstanding Series A Stock will be convertible into Common Stock on a 2.5-for-1 share basis;

If the Company’s market capitalization is equal to or greater than $250,000,000 but less than $350,000,000 the outstanding Series A Stock will be convertible into Common Stock on a 1.75-for-1 share basis;

If the Company’s market capitalization is equal to or greater than $350,000,000 the outstanding Series A Stock will thereafter convertible into Common Stock pursuant to the Designation Conversion Rights (on a 1-for-1 share basis).

The Conversion Rights Agreement terminates when the last share of Series A Stock is either converted or the largest market capitalization threshold is met.

On January 28, 2020 the Company issued 50,000 shares of its Common Stock at a value of $2.00 to a third party in conjunction with respectthe financing arrangement executed on January 27, 2020 (Note 7).

On July 6, 2020, warrants to dividendpurchase 115,385 shares of Common Stock, issued in conjunction with Amended Convertible Promissory Notes, as described in Note 6, were exercised at $0.01 per share for aggregate cash consideration of $1,154.

On August 28, 2020 the Company issued 3,334 shares of its Common Stock at a value of $1.95 per share to a third party in settlement of services provided for marketing and liquidation rights,advertising.

During the year ended December 31, 2020 the Company issued 48,000 shares rank pari passuof its Common Stock at a value of $1.95 per share to a Winspear Investments LLC in conjunction with a consulting services agreement (Note 9).

During the year ended December 31, 2020 the Company sold 70,514 shares of Common Stock and Warrants, exercisable for a period of 5 years, to purchase 35,259 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $137,501.

During the year ended December 31, 2020 the Company sold 160,634 shares of Common Stock to third parties for $313,236 less equity placement fees of $21,349.

During the year ended December 31, 2020 holders of convertible promissory notes with an aggregate face value of $100,000 and a related derivative liability of $45,523, elected to convert the notes into 51,283 shares of the Company’s Common Stock.

 

On September 28, 2017, October 7, 2020 the Company entered intorepaid $35,060 to a Stock Repurchase and Cancellation Agreement with Gust Kepler,third party to cancel a Director and the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, pursuant to which the Company repurchased 110,000previous unexecuted subscription for 35,200 shares of Common Stock of the Company in

F-9 

exchange for cancellation and forgiveness of debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $55,000.

On September 28, 2017 and December 29, 2017,the Company also agreed to cancel and forgive debt obligations owed by Gust C. Kepler to the Company for advances in the aggregate amount of $25,000 in exchange for Mr. Kepler’s transfer of 50,000 shares of Common Stock for the benefit of the Company under the terms of a Services Agreement with PCG Advisory Group.

On September 28, 2017 and December 31, 2017dated May 24, 2018, which shares were issued to PCG Advisory Group, as partial payment per a Services Agreement providing for capital markets advisory and investor relations consulting services in exchange in part for stock compensation for a total of 50,000 common shares, restricted under Rule 144.not issued.

 

During the year ended December 31, 2018, 2021, the Company sold 70,772 shares of common stock to third parties for $138,006 and issued 6,411 shares of common stock previously subscribed for $12,500.

During the year ended December 31, 2021, the Company exchanged a liability of $180,000 for the purchase of a Simple Agreement for Future Tokens into 92,308 shares of common stock at $1.95 per share (Note 2).

F- 9

During the year ended December 31, 2021, the Company issued 33,00020,000 shares of common stock at $1.95 per share for services provided to the Company totaling $39,000 to Winspear Investments LLC (Note 9).

During the year ended December 31, 2021, the Company issued 80,000 shares of common stock at $5.00 per share for services provided to the Company totaling $400,000 to Winspear Investments LLC (Note 9).

During the year ended December 31, 2021, the Company issued 75,000 shares of common stock to a third party for services provided to the Company totaling $229,500.

During the year ended December 31, 2021, the Company issued 214,393 shares of common stock to third parties for the cashless exercise of 249,949 warrants (Note 4).

On November 9, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P. as the representative of the underwriters named therein (the “Representative” and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”), relating to the issuance and sale by the Company to the Underwriters of an aggregate of 2,400,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, at a price to the public of $5.00 per share, less underwriting discounts and commissions. Pursuant to the Underwriting Agreement, the Underwriter was granted an option (the “Over-Allotment Option”) for a period of 45 days to purchase from the Company up to an additional 360,000 shares of Common Stock, at a cashthe same price of $1.00 per share, for a total of $33,000.to cover over-allotments, if any. The Over-Allotment Option expired without being exercised during December 2021. The Company incurred $1,260,000 in underwriting discounts and commissions and incurred $220,086 in related expenses, resulting in net cash proceeds received totaling $10,519,914.

 

4. STOCK OPTIONS AND WARRANTS

5. Warrants to Purchase Common Stock

 

Costs attributable to the issuance of stock options and sharewarrants to purchase warrantscommon stock are measured at fair value at the date of issuance and offset with a corresponding increase in ‘Additional Paid in Capital’ at the time of issuance.

 

WhenUntil January 1, 2021, the fair value cost was computed utilizing the Black-Scholes model using the following inputs: the price of the Company’s common stock on the date of issuance, a risk-free interest rate based on applicable treasury rates, and expected volatility of the Company’s common stock of based on historical volatility, various exercise prices, and terms reflecting the term of the warrant issued.

Beginning January 1, 2021, the Company computes fair value cost using the Cox-Ross-Rubinstein binomial model. During the period ended December 31, 2021, the Company estimated the fair value of the warrants based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance, a risk-free interest rate of 1.30%, and expected volatility of 50% based on the volatility of comparable publicly traded entities, various exercise prices, and terms of up to 10 years.

Concurrently with the execution of certain securities purchase agreements during 2020, the Company issued warrants to purchase common stock. Each warrant is exercisable for a period of one to five years from the date of the securities purchase agreement. The fair value cost at the date of issuance of these warrants was $639,194.

In conjunction with the issuance of convertible notes payable during 2020 as described in Note 7, a warrant for the purchase of up to 115,385 shares of common stock exercisable for a one-year period was issued at an exercise price of $0.01 per share and warrants for the purchase of up to 360,000 shares of common stock exercisable for a five-year period was issued at an exercise price of $1.00 per share.

On September 11, 2021, the Company issued Robert Winspear, Chief Financial Officer, Secretary and a director of the Company, a warrant to purchase up to 100,000 shares of common stock exercisable for a ten-year period at an exercise price of $1.95. The warrant vests monthly over 36 months after the issuance date. The fair value of the warrant at the issuance date was $382,571, which is being expensed as vesting occurs.

F- 10

On September 11, 2021, the Company issued warrants to purchase up to a total of 32,129 shares of common stock exercisable for a ten-year period at an exercise price of $1.95. The warrants vested on the issuance date. The fair value of these warrants at the issuance date was $122,916, which was expensed at issuance.

On November 9, 2021, as part of the Underwriting Agreement (Note 3), the Company issued a warrant to purchase up to 144,000 shares of common stock exercisable for a five-year period at an exercise price of $6.25 per share.

The following table presents the Company’s warrants as of December 31, 2021 and 2020:

  

Number of Shares

  

Weighted Average Exercise Price

  

Weighted Average Remaining Life (in years)

 

Warrants as of December 31, 2019

  84,295  $1.95   4.45 

Issued

  510,644  $0.84   5.00 

Exercised

  (115,385) $0.01   - 

Warrants as of December 31, 2020

  479,554  $1.24   4.34 

Issued

  328,731  $3.77   7.01 

Exercised

  (249,949) $1.04   3.77 

Warrants as of December 31, 2021

  558,336  $3.28   5.09 

At December 31, 2021, warrants for the purchase of 469,450 shares of common stock were vested and warrants for the purchase of 88,886 shares of common stock remained unvested. The Company expects to incur expenses for the unvested warrants totaling $340,056 as they vest.

6. Incentive Stock Plan

On August 4, 2021, our Board of Directors created, and our stockholders approved, the 2021 Blackboxstocks, Inc. Incentive Stock Plan (the “2021 Plan”) which became effective August 31, 2021. We have reserved 750,000 of our outstanding shares of our common stock for issuance under the 2021 Plan. The 2021 Plan allows the Company, under the direction of the Board of Directors or a committee thereof, to make grants of stock options, restricted and unrestricted stock and other stock-based awards to employees, including our executive officers, consultants and directors.

During the period ended December 31, 2021, the Company calculated the fair value of the options or warrants are exercised,granted based on assumptions used in the receiptCox-Ross-Rubinstein binomial pricing model using the following inputs: the price of considerationthe Company’s common stock on the date of issuance; a risk-free interest rate of 1.30%, and expected volatility of 50% based on the volatility of comparable publicly traded entities, various exercise prices, and terms of 10 years. The fair value of options granted is an increase in stockholders’ equity. There was no stock option or warrant activity duringexpensed as vesting occurs over the years ended December 31, 2018 and 2017, and as of December 31, 2018 no options or warrants were outstanding.applicable service periods

 

5.  RELATED PARTY TRANSACTIONSIn addition, 6,048 shares of restricted common stock were granted on September 11, 2021, with 25% vesting at issuance and the remaining shares vesting quarterly over nine months. As of December 31, 2021, 3,024 of the restricted common stock shares have vested and are included in common stock payable.

The following table presents the Company’s options as of December 31, 2021 and 2020:

  

Number of Shares

  

Weighted Average Exercise Price

  

Weighted Average Remaining Life (in years)

 

Options as of December 31, 2020

  -  $-   - 

Issued

  682,500  $3.07   10.00 

Forfeited

  (6,667) $2.99   9.69 

Exercised

  -  $-   - 

Options as of December 31, 2021

  675,833  $3.07   9.69 

F- 11

At December 31, 2021, options to purchase 228,891 shares of common stock were vested and options to purchase 453,609 shares of common stock remained unvested. The Company expects to incur expenses for the unvested options totaling $756,965 as they vest.

7. Related Party Transactions

As of January 1, 2020, the Company was owed $9,823 from Gust C. Kepler. During the year ended December 31, 2020 Mr. Kepler repaid the advance. During the year ended December 31, 2021, the Company advanced Mr. Kepler $189,477 of which $139,859 was repaid by Mr. Kepler and $50,618 was recorded as compensation expense.

 

During the year ended December 31, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $126,000 to the Company and he was repaid $146,081. The balance remaining of $36,382 owed to Mr. Kepler is unsecured and bears no interest.

During the years ended December 31, 2018 and 2017, 2020, the Company engaged the services of Karma Black Box LLC (“Karma”), whose two stockholders became Company stockholders as a result of the Exchange Agreement (Note 1), for application development services of the Company’s Blackbox System technology. Karma began operating as EDM Operators, (“EDM”) in the last quarter of 2018., whose two stockholders are Company stockholders. During the yearsyear ended December 31, 2018 and 2017, Karma/2020, EDM was paid $45,000 and $99,500$40,200 for services, respectively.services. One of the stockholders of EDM is Eric Pharis, who was appointed as our Chief Operating Officer on September 11, 2021.

 

G2 International, Inc. (“(G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and SecretaryKepler. As of December 31, 2020, the Company and the Company’s controlling stockholder. As of December 31, 2018 the Company hashad a prepaid balance of $36,700 for public relations and marketing services with G2/IPA. These funds are reserved in anticipation of a future campaign to movewere utilized during the Company’s stock to listing on a national exchange.year ended December 31, 2021.

 

On August 9, 2017, 11, 2020 we entered into a License Agreement (the “BBTR License”)letter agreement with EIGH8T TECHNOLOGIES INC. (also knownWinspear Investments, LLC (“Winspear”), pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters. Winspear is 100% owned by our Chief Financial Officer, Robert Winspear, and his wife. Pursuant to the letter agreement, the Company paid or accrued a total of 68,000 shares of common stock prior to the appointment of Mr. Winspear as Black Box Tradersa director and referred to hereinour Chief Financial Officer and Secretary, and paid Winspear an additional 80,000 shares of common stock as “BBTR”), a British Virgin Island registered company, for the development, customization and license to use and sublicense a versionresult of the Blackbox System (known as the “BBTR System”) with data from the HKEX, SSE and SZSE. Stephen Chiang, an individual citizen of Singapore who holds 3,000,000 of Company Common Stock (approximately 13% of the issued and outstanding Common Stock), is a principal of BBTR. The BBTR license was terminated effective November 13, 2017. Under the terms of the BBTR License the Company received $500,000 of licensing revenue during the year ended December 31, 2017.

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6. NOTES PAYABLECompany’s listing on Nasdaq.

 

During the years ended December 31 2020 and 2021 the Company paid Cyfeon Solutions Inc $65,000 and $183,062, respectively, for services related to the development and management of the Company’s software platform. Cyfeon Solutions Inc is owned by Brandon Smith who was appointed as our Chief Technology Officer in December of 2021. There was an outstanding payable of $15,000 at December 31, 2021 to Cyfeon Solutions Inc.

The Company entered into Conversion Rights Agreement dated effective as of October 14, 2021 with Mr. Kepler. The Conversion Agreement limits the rights of the holder(s) of our outstanding shares of Series A Preferred Stock to convert such shares into Common Stock (see Note 4).

8. Debt

Notes Payable

On May 1, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”), the Company was awarded a loan of $130,200. The loan carries an interest rate of 1% and matures on May 1, 2022. During August 2021, the Company received partial loan forgiveness from the SBA reducing the principal balance of the note to $96,795. During December 2021, the terms of the note were amended to carry an interest rate of 1% and mature on May 4, 2025.

On November 12, 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company also entered into an agreement with an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Mr. Kepler executed a guaranty in favor of FVP in connection with the loan. Proceeds from the loan were used to repay the existing senior secured loan balance of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes. In addition, the Company granted the Lender a security interest in substantially all of its assets. As of December 31, 2021 and 2020, the unpaid balances of the note totaled $990,000 and $1,000,000, respectively.

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On March 9, 2022 the Company and FVP amended the Loan Agreement to change the Debt Service Coverage Ratio measurement date from the quarter ending December 31, 2021 to the quarter ending September 30, 2022, the effect of which was to cure what would otherwise have caused a breach of the Debt Service Coverage Ratio for the quarter ending December 31, 2021.

Notes Payable, related party

During December 2018, Mr. Kepler, advanced $108,000 to the Company for payment to a third party note holder in exchange for an unsecured promissory note. During the years ended December 31, 2021 and 2020, the Company repaid $859 and $107,141 in principal, respectively, reducing the balances due as of December 31, 2021 and 2020 to $0 and $859, respectively.

Convertible Notes Payable

During May 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party with a face value of $385,000, which included an original issue discount of 10% on the investment amount. During July 2019 the Company issued another 8% Fixed Convertible Promissory Note with a face value of $165,000 which also included an original discount of 10% on the investment amount. The two notes contain substantially identical terms. The Company defaulted on the notes and incurred default fees of $24,750 for the year ended December 31, 2018, 2020, which was added to the principal balance.

During July 2020 the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the holders of the 8% Fixed Convertible Promissory Notes agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreements stipulate the Company remit payment of all accrued interest and principal outstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full. Upon execution of these Agreements, effectively extinguishing the above-described notes, the Company recognized a cancellation of the derivative liability previously related to the conversion feature of $522,065. As additional consideration for the Agreements, the holders were issued warrants to purchase up to 360,000 shares of the Company’s Common Stock at a price of $1.00 per share, exercisable beginning January 10, 2021, and expiring on July 10, 2025. The fair value of the warrants at the date of issuance was $371,243 and was reflected in paid in capital and the related debt discount was amortized over the term of the Agreements. The notes were fully repaid during the year ended December 31, 2021.

On March 23, 2020, third parties advanced a total of $121,821$75,000 and $25,000 to the Company in exchange for quasi factoring financing arrangementsConvertible Promissory Notes bearing interest at 52% per annum to be repaidpaid monthly in daily installments, currently $450, through September 18, 2019. The related note discounts of $55,190 have been amortized overarrears beginning April 30, 2020, secured by the term ofCompany’s assets, with rights to convert into the agreements for a total of $29,756 in interest expense as of December 31, 2018.

Company’s common stock at $0.60, and maturing on March 25, 2021. On June 26, 2018 23, 2020 the Company enteredamended the notes changing the provision for conversion into a note payable with a third partythe Company’s common stock from $0.60 to $1.95. Additional consideration for $8,309the amended and restated notes included the issuance of warrants for the purchase of office telecommunication equipment. The note bears interestup to 115,385 shares of common stock at a price of $0.01. On July 6, 2020 the rateholders exercised their warrants. On November 12, 2020, the holders of 18% per annum for 36 installments and matures on May 22, 2021.these notes elected to convert the obligations in the aggregate principal amount of $100,000 into 51,282 shares of Common Stock.

 

On August 8, 2018, a third party advanced $200,000 to the Company in exchange for a secured promissory note, bearing interest at the rate of 12% per annum with a maturity date of November 20, 2018. The note is secured by a Security Agreement providing for a continuing lien and first priority security interest in the assets of the Company and by a personal Guaranty Agreement with Gust Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. On December 6, 2018, Mr. Kepler made a payment on the note of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. The principal balance remains outstanding and is in default as of April 17, 2019, although the holder has made no demand for settlement of the note.

7.  NOTES PAYABLE, RELATED PARTY

On November 9, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety day period, maturing February 7, 2019. The note remains unpaid as of April 17, 2019; however, no demand for repayment has been made by the holder.

On December 6, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, advanced $108,000 tothe Company for payment toa third party note holder (Note 6) in exchange for an unsecured promissory note.

8. COMMITMENTS AND CONTINGENCIES

9. Derivative Liabilities

 

The Company entered into a sublease agreement with G2 effective July 1, 2015 subjectdetermines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the termsuse of observable inputs and conditionsminimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the office lease between G2Company has the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and Teachers Insuranceinclude quoted prices for similar assets and Annuity Associationliabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

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The Company’s derivative liabilities were classified as Level 3 instruments. The following table summarizes the Company’s liabilities that were measured and recognized at fair value as of office space at 5430 LBJ Freeway, Dallas, Texas. On December 31, 2020:

  

Level 1

  

Level 2

  

Level 3

 

Balance at December 31, 2019

 $-  $-  $1,405,530 

Additions

  -   -   317,776 

Amendments

  -   -   (224,066)

Retirements

  -   -   (567,588)

Change in fair value

  -   -   (931,652)

Balance at December 31, 2020

 $-  $-  $- 

10. Commitments and Contingencies

During August 28, 2017 the Company acquired and was assigned all right, title and interest in thean office lease from G2. On with Teachers Insurance and Annuity Association of America (“TIAA”) for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. During September 19, 2017 the Company amended the lease to expand its space by approximately 336 square feet for a total of 1,838 square feet and extended the expiration date to September 30, 2022.During February 2021, the Company amended its lease with TIAA to expand its space by approximately 847 square feet for a total of 2,685 square feet and extended the expiration date to September 30, 2025. On April 14, 2021, the Company amended its lease with TIAA extending the lease expiration until September 30, 2028.

Operating lease agreements are required to be recognized on the balance sheet as right of use assets and corresponding lease liabilities under ASC 842, Leases. When measuring right of use assets and the corresponding liabilities, the Company discounted lease payments using an estimated incremental borrowing rate of 10%. As a result of the February and April 2021 amendments, the Company recognized additional right of use assets and lease liabilities totaling $389,026.

The Company records rent expense associated with this lease on a straight-line basis in conjunction with the terms of the underlying lease. During the years ended December 31, 2018 2021 and 2017 we incurred $60,584 and $48,848, respectively, in2020, the Company’s office rental expense. Future minimum rental payments under the extended lease for years ending December 31, are:

2019$55,646
2020$59,006
2021$61,803
2022$46,869

On June 18, 2018 the Company entered into a letter agreement with IC Ventures, Inc. (“ICV”), pursuant to which the Company retained ICV to provide strategic advisory services for marketingexpenses totaled approximately $77,400 and financial matters relating to investment and acquisition issues which services commenced July 1, 2018. The agreement provided for a twenty-month (24) month term and that ICV would be compensated monthly in Company common stock valued at

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$20,000 with such compensation to be increased by $15,000 in cash for a twelve-month period during the term, payable in cash beginning on the earlier of (i) the election by the Company or (ii) the sixth full month following the execution of the agreement. The agreement also provided that ICV would be issued 920,000 shares of the Company’s common stock if listing on NASDAQ is achieved during the term of the agreement and ICV shall be paid a closing fee of 1.5% of gross proceeds or a minimum of $500,000 if the Company should be acquired during the term of the agreement or within 12 months of the termination of the agreement. On December 18, 2018 the Company terminated the agreement and as of April 17, 2019 has not issued the Company common stock valued at an aggregate of $128,000 and on the date of termination of the agreement was the equivalent of 41,481 shares.$59,600, respectively.

 

The Company engaged software design consulting services from a vendor for its Blackbox System whichtable below shows the Company found did not meet its standards and entered into negotiations to dispute the services rendered. The entity providing these services sought satisfaction through a complaint with the state of California for the disputed amount and a judgement in favor of the plaintiff/vendor was granted in the amount of $29,523. This amount represents $24,920 for the disputed services, interest of $2,200 and legal costs of $2,433. The Company is optimistic that a negotiated settlement of the judgement may be reached. The aggregate of the judgement of $29,523 is included in accounts payable as of December 31, 2018.future lease payment obligations:

Year Ending

December 31,

 

Amount

 

2022

 $88,786 

2023

  87,934 

2024

  89,948 

2025

  91,122 

2026

  93,136 

Thereafter

  167,645 
  $618,571 

 

The Company is not currently a defendant in any material litigation or any threatened litigation that could have a material effect on the Company’s financial statements.

 

9.       INCOME TAXES11. Income Taxes

 

The Company has established deferred tax assets and liabilities for the recognition of future deductions or taxable amounts and operating loss carry forwards. Deferred federal income tax expense or benefit is recognized as a result of the change in the deferred tax asset or liability during the year using the currently enacted tax laws and rates that apply to the period in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amounts that will more likely than not be realized.

 

During the years ended December 31, 2018 2021 and 2017,2020, a reconciliation of income tax expense at the statutory rate of 21% and 34%, respectively to income tax expense at the Company’s effective tax rate is as follows:

 

   2018 2017 
 Income tax benefit at statutory rate $242,000 $429,000 
 Permanent differences  (3,000)  (9,000) 
 Change in valuation allowance  (239,000)  (420,000) 
 Provision for federal income taxes $—   $—   
  

2021

  

2020

 

Income tax benefit at statutory rate

 $549,000  $75,000 

Temporary differences

  0   0 

Permanent differences

  (153,000)  233,000 

Valuation allowance

  (396,000)  (308,000)

Provision for federal income taxes

 $0  $0 

 

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At December 31, 2018, 2021, the Company had approximately $3,493,000$7,035,554 of unused net operating loss carry forwards. Unused net operating loss carry forwards may provide future tax benefits, although there can be no assurance that these net operating losses will be realized in the future. The tax benefits of these loss carryforward have been fully offset by a valuation allowance. These losses may be used to offset future taxable income and, if not fully utilized, begin to expire in the year 2038.

 

10. SUBSEQUENT EVENTS

12. Subsequent Events

 

On February 14, 2019 January 7, 2022, the Company issued 72,500 sharesCompany’s Board of its commonDirectors authorized a stock in exchangerepurchase plan for $72,500.

On February 28, 2019 the Company issued 10,000 shares of its common stock in exchange for $6,500.

On March 6, 2019 the Company entered into a letter agreement with Boustead Securities (“Boustead”), pursuantup to which the Company retained Boustead to provide exclusive financial advisory services relating to corporate

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development, investment and acquisition issues. The agreement provides for an engagement fee of $20,000 due upon execution of the agreement; $5,000 upon the closing of any pre-IPO financing and $25,000 upon the closing of the IPO. The agreement is subject to a period of due diligence investigation, not yet completed. The agreement also provides for cash success fees should any business combination transactions or debt financing be achieved. Additionally, Boustead will earn warrants for purchase$2,500,000 of the Company’s common stockstock. The program will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized. As of March 28, 2022, the Company has repurchased 430,171 shares for each debt financing transactions and success fees for any equity financingan aggregate purchase price of $837,520. This use of proceeds was not anticipated or initial public offering.disclosed in the Company’s prospectus.

 

On March 9, 2022 the Company and FVP amended the loan agreement to change the Debt Service Coverage Ratio measurement date from the quarter ending December 31, 2021 to the quarter ending September 30, 2022, the effect of which was to cure what would otherwise have caused a breach of the Debt Service Coverage Ratio for the quarter ending December 31, 2021.

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