Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the quarterly period ended

March 31, 2020

or

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

 

For the quarterly period endedSeptember 30, 2017
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

 

to

 

 

Commission File No.

0-55108

 

BLACKBOXSTOCKS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

45-3598066

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

5430 LBJ Freeway, Suite 1485, Dallas, Texas

                 75240

75240

(Address of principal executive offices)

(Zip Code)

 

(972) 726-9203

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

N/A

N/A

 

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. Yesx No¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). YesxNo¨

 

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,” “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 companyx

Large accelerated filer ☐Accelerated filer ☐       
 
Non-accelerated filer ☐Smaller reporting company
 Emerging growth company

 

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 Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨Nox

 

The number of shares outstanding of the Registrant’sregistrant’s Common Stock as of November 9, 2017June 24, 2020 was 23,000,000.7,958,236.

 


 

EXPLANATORY NOTE

Blackboxstocks Inc.is filing this Form 10-Q on a delayed basis in accordance with and in reliance upon the order issued by the U.S. Securities and Exchange Commission (the “SEC”) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new SEC order issued on March 25, 2020 (Release No. 34-88465) (collectively, the “Order”).

On May 7, 2020, the Company filed a Current Report on Form 8-K to indicate its intention to rely on the Order. Consistent with the Company’s statements made in the Form 8-K, the Company has experienced significant disruptions to our business and operations due to circumstances related to the COVID-19 pandemic. In particular, COVID-19 restrictions have limited access to our corporate offices and required our corporate personnel, including our accounting staff and consultants, as well as much of the staff of our independent registered public accounting firm, to work remotely. The restrictions have resulted in limited access to the Company’s financial records and data and disrupted interactions among the personnel involved in the completion of the Form 10-Q, hindering the Company’s ability to gather and vet the information required to prepare and timely file the Form 10-Q.


TABLE OF CONTENTS

 

Page

INTRODUCTORY COMMENT

Page

1

INTRODUCTORY COMMENT1

CAUTION REGARDING FORWARD LOOKING STATEMENTS

1

  

PART I –FINANCIAL INFORMATION

2

Item 1.

financial statements2

Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and

December 31, 2016

Financial Statements 

2

 Consolidated

Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019

2

Statements of Operations for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)

3

 Consolidated

Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019 (Unaudited)

4

Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)

45

 

Notes to Consolidated Financial Statements

   5

6

Item 2.

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

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

14

Item 4.

Controls and Procedures

14

 

10

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK12
Item 4.Controls and Procedures12
 

PART II – OTHER INFORMATION

13

15

Item 1.

LEGAL PROCEEDINGS

Legal Proceedings

13

15

ITEM

Item 1A.

RISK FACTORS

Risk Factors

13

15

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities and Use of Proceeds

13

16

Item 3.

DEFAULTS UPON SENIOR SECURITIES

Defaults Upon Senior Securities

13

16

Item 4.

MINE SAFETY DISCLOSURES

Mine Safety Disclosures

13

17

Item 5.

Other Information

13

17

Item 6.

eXHIBITS

Exhibits

14

17

 

Signatures

14

17

 


INTRODUCTORY COMMENT

 

Throughout thisQuarterly Report on Form 10-Q,, the terms “we,” “us,” “our,” “Blackboxstocks,” or the “Company” refers to Blackboxstocks Inc., a Nevada corporation.

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

 

Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-Q (the “Report”), we make forward-looking statements in this Item 2 and elsewhere that also involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business, and reflect our beliefs and assumptions based upon information available to us at the date of this report.Report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements include, among other things, plans for proposed operations, descriptions of our strategies, our productservice and market development plans, and other objectives, expectations and intentions, the trends we anticipate in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.

 

We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors including, but not limited to, the risks and uncertainties discussed in our other filings with the Securities Exchange Commission (“SEC”). We undertake no obligation to revise or update any forward-looking statement for any reason.

1

1

PART I - FINANCIAL INFORMATION

 

ITEMItem 1.  FINANCIAL STATEMENTSFinancial Statements

Blackboxstocks Inc.

Balance Sheets

As of March 31, 2020 (Unaudited) and December 31, 2019

  

March 31,

  

December 31,

 
  

2020

  

2019

 

Assets

        

Current assets:

        

Cash

 $74,970  $21,172 

Accounts receivable, net of allowance for doubtful accounts of $68,589 at March 31, 2020 and December 31, 2019, respectively

  3,879   5,745 

Advances receivable, related parties (Note 5)

  1,869   9,823 

Total current assets

  80,718   36,740 
         

Property and equipment:

        

Office, computer and related equipment, net of depreciation of $41,584 and $39,526 at March 31, 2020 and December 31, 2019, respectively

  7,568   9,626 

Domain name, net of amortization of $10,984 and $9,551 at March 31, 2020 and December 31, 2019, respectively

  6,208   7,641 

Right of use lease, net of amortization of $63,672 and $51,009 at March 31, 2020 and December 31, 2019, respectively

  96,461   109,064 

Total property and equipment

  110,237   126,331 
         

Long term assets:

        

Prepaid expenses

  80,868   80,868 

Prepaid expenses, related party (Note 5)

  36,700   36,700 

Total long term assets

  117,568   117,568 
         

Total Assets

 $308,523  $280,639 
         

Liabilities and Stockholders' Deficit

        

Current liabilities:

        

Accounts payable

 $639,571  $632,287 

Accrued interest

  71,000   42,566 

Accrued interest, related party

  20,320   16,680 

Unearned subscriptions

  262,091   189,007 

Lease liability right of use, current

  45,152   46,124 

Other liabilities

  180,000   180,000 

Convertible notes payable, net of discount of $97,808 and $13,859 at March 31, 2020 and December 31, 2019, respectively (Note 8)

  634,692   593,891 

Notes payable, net of note discount of $72,237 and $38,294 at March 31, 2020 and December 31, 2019, respectively (Note 6)

  275,085   218,138 

Notes payable, related party (Note 7)

  198,000   228,000 

Derivative liability

  1,122,136   1,405,530 

Total current liabilities

  3,448,047   3,552,223 
         

Lease liability right of use, long term

  55,946   66,715 
         

Commitments and contingencies (Note 10)

        
         

Stockholders' Deficit:

        

Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

  -   - 

Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 5,000,000 issued and outstanding at March 31, 2020 and December 31, 2019, respectively

  5,000   5,000 

Common stock, $0.001 par value, 100,000,000 shares authorized: 7,958,236 and 7,908,231 issued and outstanding at March 31, 2020 and December 31, 2019, respectively

  7,958   7,908 

Common stock, subscribed

  35,060   35,060 

Additional paid in capital

  3,543,590   3,443,640 

Accumulated deficit

  (6,787,078)  (6,829,907)

Total Stockholders' Deficit

  (3,195,470)  (3,338,299)
         

Total Liabilities and Stockholders' Deficit

 $308,523  $280,639 

2

Blackboxstocks Inc.

Statements of Operations

For the Three Months Ended March 31, 2020 and 2019

(Unaudited)

  

March 31,

 
  

2020

  

2019

 

Revenue:

        

Subscriptions

 $411,801  $219,999 

Other revenues

  3,450   6,350 

Total revenues

  415,251   226,349 
         

Cost of operations

  207,848   161,318 
         

Gross margin

  207,403   65,031 
         

Expenses:

        

Software development costs

  34,331   21,978 

General and administrative

  400,294   227,885 

Depreciation and amortization

  3,491   5,233 

Total operating expenses

  438,116   255,096 
         

Operating loss

  (230,713)  (190,065)
         

Interest expense

  33,495   18,438 

Convertible note financing

  217,776   - 

Gain on derivative liability

  (601,170)  - 

Default expense

  24,750   - 

Amortization of debt discount

  51,607   - 
         

Incomce (loss) before income taxes

  42,829   (208,503)
         

Income taxes

  -   - 
         

Net income (loss)

 $42,829  $(208,503)
         

Weighted average number of common

        

shares outstanding - basic

  7,942,846   7,690,898 

shares outstanding - fully diluted

  13,549,819     
         

Net income (loss) per share - basic

 $0.01  $(0.03)

Net income per share - fully diluted

 $0.00     

3

Blackboxstocks Inc.

Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 2020(Unaudited) and the Year Eneded December 31, 2019

                          

Common

  

Additional

         
  

Series A Preferred Stock

  

Preferred Stock

  

Common Stock

  

Stock

  

Paid-in

  

Accumulated

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Subscribed

  

Capital

  

Deficit

  

Total

 
                                         

Balance at December 31, 2018

  5,000,000  $5,000   -  $-   7,678,047  $7,678  $144,060  $2,543,264  $(3,846,469) $(1,146,467)
                                         

Issuance of shares for cash

  -   -   -   -   27,500   27   (79,000)  78,973   -   - 
                                         

Common stock shares, subscribed

  -   -   -   -   -   -   10,000   -   -   10,000 
                                         

Net loss

  -   -   -   -   -   -   -   -   (208,503)  (208,503)
                                         

Balance at March 31, 2019

  5,000,000  $5,000   -  $-   7,705,547  $7,705  $75,060  $2,622,237  $(4,054,972) $(1,344,970)
                                         
                                         

Balance at 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 in settlement of expenses

  -   -   -   -   50,005   50   -   99,950   -   100,000 
                                         

Net income

  -   -   -   -   -   -   -   -   42,829   42,829 
                                         

Balance at March 31, 2020

  5,000,000  $5,000   -  $-   7,958,236  $7,958  $35,060  $3,543,590  $(6,787,078) $(3,195,470)

4

Blackboxstocks Inc.

Statements of Cash Flows

For the Threee Months Ended March 31, 2020 and 2019

(Unaudited)

  

2020

  

2019

 

Cash flows from operating activities

        

Net income (loss)

 $42,829  $(208,503)

Adjustments to reconcile net loss to net cash provided by operating activities:

        

Depreciation and amortization expense

  3,491   5,233 

Allowance for doubtful accounts

  -   - 

Amortization of note discount

  51,607   10,396 

Shares issued in settlement of financing costs

  100,000   - 

Expenses paid by lendor

  6,133   - 

Convertible note financing

  217,776     

Change in fair value of derivative liability

  (601,170)  - 

Convertible note default expense

  24,750     

Changes in operating assets and liabilities:

        

Accounts receivable

  1,866   (2,999)

Accounts payable

  7,284   78,854 

Accrued interest

  28,434   3,666 

Accrued interest, related party

  3,640   3,600 

Unearned subscriptions

  73,084   4,659 

Net cash used in operating activities

  (40,276)  (105,094)
         

Cash flows from financing activities

        

Common stock subscribed

  -   10,000 

Proceeds from notes payable

  127,100   88,755 

Proceeds from convertible notes payable

  100,000   - 

Repayment of notes payable

  (110,980)  (29,855)

Repayment of notes payable, related parties

  (27,046)    

Cash advances from related parties

  5,000   61,430 

Cash repayments to related parties

  -   (28,587)

Net cash provided by financing activities

  94,074   101,743 
         

Net increase (decrease) in cash

  53,798   (3,351)
         

Cash - beginning of period

  21,172   28,001 

Cash - end of period

 $74,970  $24,650 
         

Supplemental disclosures

        

Interest paid

 $-  $- 

Income taxes paid

 $-  $- 

Non-cash investing and financing activities:

        

Repayment of note in exchange for note payable

 $(39,370) $- 

Repayment of note payable, related party in exchange for advances

 $2,954  $- 

Lease, right of use and liability

 $-  $160,073 

Discount on notes payable

 $69,500  $16,445 

5

Blackboxstocks Inc.

Notes to Financial Statements

For the Three Months Ended March 31, 2020 and 2019

1. Organization

 

Blackboxstocks Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2017 (Unaudited) and December 31, 2016

  September 30,   December 31, 
   2017   2016 
Assets        
Current assets:        
Cash $163,913  $703,638 
Investments, trading  931   —   
Accounts receivable  800   1,567 
Advances, related party (Note 5)  895   42,690 
Prepaid expenses  458,481   236,300 
Prepaid expenses, related parties (Note 5)  36,700   36,700 
Total current assets  661,720   1,020,895 
Property:        
Computer and related equipment, net of depreciation of $11,906 and $5,336        
at September 30, 2017 and December 31, 2016, respectively  16,706   16,664 
Software development, net of amortization of $1688 and $0        
at September 30, 2017 and December 31, 2016, respectively  7,312   —   
Total property  24,018   16,664 
Total Assets $685,738  $1,037,559 
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable $442,490  $72,279 
Unearned subscriptions  26,359   17,682 
Total current liabilities  468,849   89,961 
Commitments and contingencies (Note 6)        
Stockholders' Equity:        
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares       
 issued and outstanding at September 30, 2017 and December 31, 2016, respectively  —     —   
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000        
 shares authorized; 5,000,000 issued and outstanding at September        
 30, 2017 and December 31, 2016, respectively  5,000   5,000 
Common stock, $0.001 par value, 100,000,000 shares        
authorized:23,000,000 and 23,110,000 issued and outstanding at         
September 30, 2017 and December 31, 2016, respectively  23,000   23,110 
Additional paid in capital  2,381,192   2,352,332 
Accumulated deficit  (2,192,303)  (1,432,844)
Total Stockholders' Equity  216,889   947,598 
Total Liabilities and Stockholders' Equity $685,738  $1,037,559 

The accompanying notes are an integral part of these consolidated

financial statements. 

Blackboxstocks Inc. and Subsidiary
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2017 and 2016
(unaudited)
         
  For the Three Months For the Nine Months
  Ended September 30, Ended September 30,
  2017 2016 2017 2016
         
Revenue:                
Subscriptions $84,279  $19,540  $308,837  $19,540 
Licensing  300,000   —     400,000   —   
Total revenues  384,279   19,540   708,837   19,540 
                 
Cost of operations  163,071   15,633   392,543   15,633 
                 
Gross margin  221,208   3,907   316,294   3,907 
                 
Expenses:                
Software development costs  122,515   35,445   355,243   124,764 
General and administrative  310,075   124,013   710,966   335,497 
Depreciation and amortization  3,487   1,289   8,258   3,866 
Total operating expenses  436,077   160,747   1,074,467   464,127 
                 
Operating loss  (214,869)  (156,840)  (758,173)  (460,220)
                 
Interest expense  320   3,118   1,286   3,118 
                 
Loss before income taxes  (215,189)  (159,958)  (759,459)  (463,338)
                 
Income taxes  —     —     —     —   
                 
Net loss $(215,189) $(159,958) $(759,459) $(463,338)
                 
Weighted average number of common                
shares outstanding - basic  23,107,609   20,164,565   23,109,194   20,180,202 
                 
Net loss per share - basic $(0.01) $(0.01) $(0.03) $(0.02)

The accompanying notes are an integral part of these consolidated

financial statements. 

Blackboxstocks Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2017 and 2016
(unaudited)
     
  2017 2016
Cash flows from operating activities    
Net loss $(759,459) $(463,338)
Adjustments to reconcile net loss to net cash used in        
  operating activities:        
Depreciation and amortization expense  8,258   3,866 
Shares issued in exchange for services  96,250     
Changes in operating assets and liabilities:        
Investment, trading  (931)  414 
Accounts receivable  767   (3,501)
Prepaid expenses  (222,181)  (365)
Prepaid expenses, related parties  —     130,450 
Accounts payable  370,211   95,551 
Accrued interest  —     2,139 
Unearned subscriptions  8,677   14,323 
Net cash used in operating activities  (498,408)  (220,461)
         
Cash flows from investing activities        
Purchases of property  (15,612)  —   
Cash repayments from shareholder  70,000   29,042 
Cash advances to shareholder  (95,705)  —   
Net cash provided by(used in) investing activities  (41,317)  29,042 
         
Cash flows from financing activities        
Common stock issued for cash  —     110,000 
Proceeds from notes issued  —     50,000 
Net cash provided by financing activities  —     160,000 
         
Net increase(decrease) in cash  (539,725)  (31,419)
         
Cash - beginning of period  703,638   60,286 
Cash - end of period $163,913  $28,867 
         
Supplemental disclosure-        
Non-cash investing and financing activities:        
  Cancellation of common shares $67,500  $835 

The accompanying notes are an integral part of these consolidated

financial statements. 

4

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

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 ceased to exist.

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.

The Company is in the business of developing and marketing a real timeweb and mobile based analytical platform andsoftware 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, including the OTC Markets Group, Inc. (“OTC”), the New York Stock Exchange, the NYSE MKT, LLC (formerly the American Stock Exchange), the NASDAQ markets, the Hong Kong Stock Exchange (“HKEX”), the Shanghai Stock Exchange (“SSE”) and the Shenzhen Stock Exchange.Exchange (“SZSE”).

 

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 March 31, 2020, the Company had an accumulated deficit of $6,787,078 and for the three months ended March 31, 2020 and 2019 the Company incurred net income of $42,829 and a net loss of $208,503, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 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. 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.

2. Summary of Significant Accounting Policies

 

The accompanying interim unaudited financial statements and footnotes of Blackboxstocks Inc. have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).GAAP. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with GAAPthe rules and regulation of the SEC have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report. The accompanying unaudited financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results for any subsequent quarter or the entire year ending December 31, 2017.

Basisof Presentation - The accompanying financial statements were prepared in conformity with GAAP.

5

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

2. Summary of Significant Accounting Policies (continued)2019.

 

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 - 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.

Recently Issued Accounting Pronouncements- During the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”).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.

 

In May 2014,February 2016, the FASB issued ASU No.2014-09,2016-02, Revenue from ContractsLeases. This is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It requires all leases that have a term in excess of 12 months be recognized on the balance sheet with Customers (Topic 606)the liability for lease payments and the corresponding right-of-use asset value based on the present value of future aggregate payments. 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 provides a single set of guidelines for revenue recognition to be used across all industriesbecame effective beginning January 1, 2019 and requires additional disclosures. It is effective for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption, but not before December 15, 2016, and permits the use of either a retrospective or cumulative effect transition method. We are currently evaluating the potential impact of this standardwas adopted on our financial position and results of operations, as well as our selected transition method. Based on our preliminary assessment, we believestatements. The Company recorded the new standard will not have a material impact on our financial position and results of operations, as we do not expect to changeright-of-use asset for the manner or timing of recognizing revenue on a majority of our revenue transactions. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

Property and Equipment - Blackboxstocks is engagedlease in the developmentamount of its proprietary Blackbox System technology, an algorithm driven system, through a combination$160,073 and the related lease liability. The current liability for the lease is $45,152 and non-current 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$55,946 as of three years.March 31, 2020.

 

Earnings or (Loss) (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 September 30, 2017 and 2016,March 31, 2019 the potential dilution would be 5,000,000 shares of common stock, respectively, in the event the issued and outstanding shares of Series A Convertible Preferred Stock or other potentially dilutive securities are converted.

6

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

2. Summary of Significant Accounting Policies (continued)exercised.

 

Revenue Recognition - TheOn January 1, 2018, the Company recognizes revenueadopted 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, when persuasive evidence of an arrangement exists, delivery and collectability is probable.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.

In addition, the Company earns revenue from the licensing of its Blackbox System application for use in China, whereby Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a licensee is authorized to sell subscriptions for and sublicense the use of a version of the web application customized for analysis of data from certain Asian exchanges. A monthly licensing fee is charged to the licensee which began effective June 1, 2017.current liability.

 

Software DevelopmentMarketing Costs - Blackboxstocks is engaged inThe Company incurs significant marketing expenses related to the development and expansion of its proprietary Blackbox System technology, an algorithm driven system, through a combination of in house system analystssubscription base to potential users. During the three months ended March 31, 2020 and outside contractors. Under the guidelines of Accounting Standards Codification (“ASC”) Topic 985 the cost of the Company’s Blackbox System was expensed during development and the Blackbox System software for use in the US, 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 technical feasibility during the quarter and became marketable and available to subscribers effective May 15, 2017. In continued accordance with ASC Topic 985 these costs were expensed until technical feasibility was achieved, costs incurred until May 15, 2017 were capitalized and subsequently amortized.

Prepaid Expenses - Prepaid expenses are current assets created when2019, the Company makes payments or incurs an obligation for expenses identified for a future period.  The Company has prepaidreported $88,344 and $69,339 for marketing and advertising services to be used over approximately the next twelve months and expensed a prorated amount during the quarter ended September 30, 2017. In addition, the Company entered into a consulting services agreement for investor relations advisory services for the period August 11, 2017 through February 10, 2018.costs, respectively.

 

3.   Stockholders’ EquityDeficit

 

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”).

 

Shares of Series A Convertible Preferred Stock do not accumulate dividends and are convertible into shares of Common Stock on a one-for-one basis. Additionally, each share entitles the holder to 100 votes and, with respect to dividend and liquidation rights, the shares rankpari passu with the Company’s Common Stock.

 

On December

The Company announced and approved a reverse stock split effective July 15, 2019 at a ratio of 1 2015, the Company entered into an Exchange Agreement with Tiger Trade and its Stockholders (Note 1). Under the terms and conditions of the Exchange Agreement, the Company offered and sold Seventeen Million Nine Hundred Thousand (17,900,000) newly issuedfor 3, whereby every 3 shares of Company Common Stock and Five Million (5,000,000) newly issued shares of Company Series A Convertible Preferred Stock in consideration for all thecommon stock issued and outstanding shareswere automatically reclassified and combined into one share of Tiger Trade capital stock.common stock (“Reverse Stock Split”). The effect of the issuance was that Tiger Trade stockholders acquired approximately 85.91% of the issued and outstanding shares of Company CommonReverse Stock and 100% of the issued and outstanding shares of Company Series A Convertible Preferred Stock. Tiger Trade became a wholly owned subsidiary of the Company as a result of the Exchange Agreement transaction.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

3.   Stockholders’ Equity (continued)

Tiger Trade was subsequently merged with and into the Company on February 9, 2016, at which timeSplit has been reflected retroactively in these financial statements for all of the outstanding shares of capital stock of Tiger Trade outstanding immediately before the effective date were canceled, retired and ceased to exist.periods presented.

 

On February 10, 2016, the Company entered into a Stock Cancellation Agreement with Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, pursuant to which Mr. Kepler cancelled and forfeited 835,010 shares of the Company’s Common Stock.

During the year ended December 31, 2016,January 28, 2020 the Company issued a total of 3,310,00050,000 shares of Common Stockits common stock at a cash pricevalue of $0.50 per share for$2.00 to a total of $1,655,000. However,third party in conjunction with the Company subsequently honored a request by one investor to rescind the purchase of 200,000 of such shares of Common Stockfinancing arrangement on October 28, 2016.January 27, 2020.

 

On September 28, 2017, the Company 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.

4. Stock Options and Warrants

 

Costs attributable to the issuance of stock options and share purchase warrants 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. The fair value cost is computed utilizing the Black-Scholes model and assuming volatility based on U.S. Treasury yield rates for a similar period. The cost of these warrants was not recognized in the financial statements because they were granted in connection with raising capital for the Company.

When the options or warrants are exercised, the receipt of consideration is an increase in stockholders’ equity.

Concurrently with certain of the securities purchase agreements entered into as described in Note 3 above, warrants to purchase the Company’s Common Stock were issued to the subscribers. Each warrant is exercisable for a period of five years from the date of the securities purchase agreement at an exercise price of $1.95 per share. The fair value cost at the date of issuance of the warrants was $560,935. There was no stock option or warrant activity during the ninethree months ended September 30, 2017 and 2016March 31, 2020 and as of November 14, 2017, no options orMarch 31, 2020, there are 84,295 warrants were outstanding.

 

  

Number of Shares

  

Exercise Price

  

Weighted Average

Remaining Life (in years)

 

Warrants as of December 31, 2018

  -   -     

Issued during 2019

  84,295  $1.95     

Warrants as of December 31, 2019

  84,295  $1.95   4.53 

Issued during 2020

  -   -     
Warrants as of March 31, 2020  84,295  $1.95   4.28 

5.  Related Party Transactions

 

DuringAs of January 1, 2020 the nine months ended September 30, 2017,Company was owed $9,823 from Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company was advanced $95,705 byCompany. During the Company and he repaid $70,000. On September 28, 2017, the Company entered into a Stock Repurchase and Cancellation Agreement (Note 3) with Mr. Gust Kepler, pursuant to which the Company repurchased 110,000 shares of Common Stock in exchange for cancellation and forgiveness of debt obligations owed bythree months ended March 31, 2020 Mr. Kepler repaid $5,000 and agreed to offset $2,954 of the advances as partial settlement of the note payable to him (Note 7). The resulting balance of $1,869 is owed to the Company, for advances in the aggregate amount of $55,000. On September 28, 2017, the Company also 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. The remaining advance of $895 is unsecured and bears no interest.

 

During the six monthsyear ended June 30, 2017 and 2016,December 31, 2019 the Company (andadvanced $1,500 to its predecessor, Tiger Trade) engagedVP/Director of Operations and the services of Karma Black Box LLC (“Karma”), which became a Company stockholder as a result of the Exchange Agreement (Note 1balance remains outstanding, is unsecured and 3), for application development services of the Company’s Blackbox System technology. During the nine months ended September 30, 2017 and 2016, Karma was paid $85,500 and $10,500 for services, respectively.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

5.  Related Party Transactions (continued)bears no interest.

 

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 Secretary of the Company, and the Company’s controlling stockholder. In 2016 G2/IPA refunded $117,800As of prepayments for marketing services leavingboth March 31, 2020 and 2019 the Company has 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 move the Company’s stock to listing on a national exchange.

8

6. Notes Payable

On March 13, 2020 a third party advanced $25,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $291.67, through August 31, 2020. The related note discount of $12,500 is being amortized over the term of the agreement for a total of $1,316 in interest expense as of September 30, 2017. At September 30, 2017 and 2016, there were no accounts payable owedMarch 31, 2020.

On January 27, 2020 a third party advanced $207,000 to G2.the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $1,035, through November 3, 2020. The related note discount of $57,000 is being amortized over the term of the agreement for a total of $13,092 in interest expense as of March 31, 2020. A portion of the proceeds of this financing settled the balance of approximately $39,000 of previous funding from the third party with an original due date of May 28, 2020.

In October 2019 third parties advanced $80,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $761 through May 2020. Approximately $39,000 of this funding was settled with proceeds of the January 27, 2020 financing described in the preceding paragraph. The related note discount of $31,600 is being amortized over the term of the agreements for a total of $25,493 in interest expenses as of March 31, 2020.

 

On August 9, 2017, we entered into8, 2018 a Licensethird 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 (the “BBTR License”) with EIGH8T TECHNOLOGIES INC. (also known as Black Box Tradersproviding for a continuing lien and referred to herein as “BBTR”), a British Virgin Island registered company, forfirst priority security interest in the development, customization and license to use and sublicense a versionassets of the Blackbox System (knownCompany 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 in the amount of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. The principal balance of $100,000 remains outstanding and is in default as of March 31, 2020.

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 “BBTR System”) with dataCompany advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on January 28, 2019. The note remains unpaid as of December 31, 2019 and is in default; however, no demand for repayment has been made by the holder. Accrued interest due on the note is $16,680 as of March 31, 2020.

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 the Company for payment to a third party note holder (Note 6) in exchange for an unsecured promissory note. During the three months ended March 31, 2020 the Company repaid $27,046 in principal and Mr. Kepler agreed to offset previous cash advances to him of $2,954 as additional repayment of the note, reducing the balance due as of March 31, 2020 to $78,000.

8. Convertible Notes Payable

On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value up to $550,000, which included an original issue discount of 10% on the investment amount of up to $500,000. The note specifies that the note holder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matured 180 days from the HKEX, SSEeffective date. The note provides for a redemption premium of 115% if retired after the 91st day. The note holder paid the first consideration of $350,000 and SZSE. Stephen Chiang,no further consideration was remitted within the allowed thirty days. As the note was not retired on or before the maturity date, the note holder may convert a portion or all the outstanding principle into shares of the Company’s common stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95 per share or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the note holder’s election to convert. As of March 31, 2020 the note is in default and the Company recorded a redemption fee of $57,750. The note included a beneficial conversion feature recorded at inception of $207,308 and the conversion into the Company’s common stock resulted in the recognition of a derivative liability in the amount of $563,466 as of March 31, 2020.

On July 17, 2019, the Company issued an individual citizen8% Fixed Convertible Promissory Note payable to a third party for a total face value of Singapore who holds 3,000,000$165,000, which included an original issue discount of 10% on the investment amount of $150,000. The note specifies that the note holder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective date. If the Company prepays the note within 90 days, the Company must pay a cash redemption premium of 110%; if such prepayment is made between the 91st day and the 180th day, then such redemption premium is 115%. Until maturity, the note holder may convert all or a portion of the outstanding principal into shares of Common Stock (approximately 13% of the issued andCompany at a fixed conversion price equal to $1.95 per share. If the note is not retired on or before the maturity date, the note holder may convert a portion or all the outstanding Common Stock), is a principal of BBTR. Under the termsprinciple into shares of the BBTR LicenseCompany’s common stock at a variable conversion price which equals the lower of the fixed conversion price or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the note holder’s election to convert. The note included a beneficial conversion feature recorded at inception of $135,000. This note is currently in default and the Company has received $400,000recognized a derivative liability in the amount of licensing revenue$ 241,486 as of September 30, 2017.March 31, 2020.

 

6. CommitmentsOn March 23, 2020 third parties advanced $75,000 and Contingencies$25,000 to the Company in exchange for interest bearing Convertible Promissory Notes, bearing interest at 52% per annum to be paid monthly in arrears beginning April 30, 2020, and secured by the Company’s assets, with provisions to be converted into the Company’s common stock at $0.60, and maturing on March 25, 2021.

9. Derivative Liabilities

During the year ended December 31, 2019, notes payable aggregating an initial $550,000 were issued as convertible debt or became convertible and qualified as a derivative liability under FASB ASC 820. As of March 31, 2020 the aggregate fair value of the outstanding derivative liability using the Black-Scholes option pricing model used the following key assumptions:

Volatility

349.69%

Risk-free interest rate

0.15%

Expected dividends

-

Expected term (in years)

.5

Additional notes payable in the principal amount of $100,000 were issued as convertible debt and qualified as derivative liabilities. As of March 31, 2020 the aggregate fair value of the outstanding derivative liability for these notes using the Black-Scholes option pricing model used the following key assumptions:

Volatility

211.66%

Risk-free interest rate

0.17%

Expected dividends

-

Expected term (in years)

1

 

The Company entered into a sublease agreement with G2 effective Julydetermines the fair market 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:

Level 1 2015 subjectinputs 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 following table presents the termsCompany’s liabilities that were measured and conditionsrecognized at fair value as of the office lease between G2 and Teachers Insurance and Annuity Association of America for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. The sublease agreement expires March 31, 2020. During the nine months ended September 30, 20172020:

  

Level 1

  

Level 2

  

Level 3

 

Balance January 1, 2019

  -   -   - 

Additions

  -   -  $1,321,764 

Change in Fair Value

  -   -   83,766 

Balance at December 31, 2019

 $-  $-  $1,405,530 

Additions

  -   -   317,776 

Change in Fair Value

  -   -   (601,170)

Balance at March 31, 2020

 $-  $-  $1,122,136 

10. Commitments and 2016 we incurred $35,072 and $33,742, respectively, in office rental expense.Contingencies

 

On August 11, 2017,February 13, 2020, a creditor of the Company, entered intowhich provided employee staffing, filed a six month consulting Services Agreement with PCG Advisory Group, providingpetition in the State of Texas for capital markets advisorysatisfaction of services invoiced between the period of June and investor relations consulting services in exchange for cash payments totaling $32,000 and stock compensation for a total of 75,000 common shares, restricted under Rule 144 to be issued during the six months of the agreement. On September 28, 2017, the Company also agreed to cancel and forgive debt obligations owed by Gust C. Kepler to the Company for advances2019 in the aggregate amount of $12,500$45,030, included in exchange for Mr. Kepler’s transferaccounts payable as of 25,000 shares of Common StockMarch 31, 2020, for the benefit ofunpaid invoices. The Company has entered into negotiations with the Company underattorney for the terms of the Services Agreement.creditor and arrangements are being made to establish repayment in instalments to be determined.

 

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

11. Subsequent Events

On June 23, 2020 the Company amended notes with third parties, originally dated March 23, 2020, changing the provision for conversion into the Company’s common stock from $0.60 to $1.95. Additional consideration for the amended and restated notes provides the issuance of warrants for the purchase of up to 115,385 shares of common stock at a price of $0.01 to be exercised at any time until the maturity date of the notes. In the event the notes are not converted prior to the maturity date, the Company has the right to repurchase one warrant share for each $0.8666 of unconverted principal. The derivative liability recognized at March 23, 2020 for these notes totaled $317,776 and the amended conversion price will result in a reduction in the derivative liablity on June 23, 2020 of $236,045.

11

ITEMItem 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

We urge you to read the following discussion in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as well as with our condensed financial statements and the notes thereto included elsewhere herein.

 

Overview

 

The Company isWe are in the business of developing and marketing a real time analytical 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 enhanced by artificial intelligence to find volatility and unusual market activity that can 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 MKT, LLCAmerican (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. We consider the Blackbox System technology to be among the most user-friendly of its kind.

 

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

 

On August 9, 2017, we entered into a License Agreement (the “BBTR License”) with EIGH8T TECHNOLOGIES INC. (referred to in the agreementas “BBTR”), a British Virgin Island registered company, for the development, customization and license to use and sublicense a version of the Blackbox System (known as the “BBTR System”) 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. 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 EIGH8T TECHNOLOGIES INC.

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 tier of the OTC Markets Group, Inc. (the “OTC Pink”) under the symbol “BLBX.” Prior to March 9, 2016, our Common Stock was quoted under the symbol “SMQA.” Our corporate website is located at http://www.blackboxstocks.com.www.blackboxstocks.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this Report on Form 10-Q.

 

Basis of Presentation of Financial Information

 

The accompanying financial statements have been prepared in conformity with GAAP,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 establish itself as a profitable business. At September 30, 2017,March 31, 2020, the Company had an accumulated deficit of $2,192,303$6,787,078 and for the three and nine months ended September 30, 2017, incurredMarch 31, 2020, reported net lossesincome of $215,189 and $759,459, respectively.$42,829, as compared to a net loss of $208,503 for the same period in 2019. Management expects that the Company maywill need to raise additional capital to sustain operations until such time as the Company can achieve profitability. 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.

 

Significant Accounting Policies

 

There have been no changes from the Summary of Significant Accounting Policies described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 12, 2017.16, 2020.

 

12

Liquidity and Capital Resources

 

The CompanyWe launched itsthe Blackbox System web application for domestic use and made it available to subscribers in September 2016, andbut 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 the fourth quarter of 2017,2020, nor is there any assurance that such an operating level can ever be achieved. Unless there is a significant change in cash requirements, the Company believes it has sufficient working capital to fund any operating deficiencies and future development costs until the end of 2018.

 

At September 30, 2017,March 31, 2020, the Company had a cash balance of $163,913$74,970 and oura working capital was $192,871deficit of $3,367,329 as compared to a cash balance of $28,867$24,650 and a working capital deficit of $160,006$1,418,223 at September 30, 2016.March 31, 2019. As discussed below, during the three months ended March 31, 2020 we raised $100,000 in net proceeds to the Company from the sale of two convertible promissory notes and $232,000 in net proceeds to the Company from other quasi-factoring debt financing. Such cash amount is not sufficient to fund our plans of operation. As such, we will need to raise additional funds to carry out our plans of operation and fund our ongoing operational expenses including the marketing of our Blackbox System. We expect that costs and expenses necessary to implement our planned marketing operations over the next 12 months will be between $1 Million to $2 Million. Additional funding is expected to be generated through equity financing from the sale of our Common Stock and/or the incurrence of debt. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company. We do not have any financing arranged and we cannot provide investors with any assurance that we will be able to raise sufficient funding from 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.

 

Sale of Convertible Promissory Notes

On March 23, 2020 two lenders advanced an aggregate of $100,000 to the Company in exchange for Convertible Promissory Notes, bearing interest at 52% per annum to be paid monthly in arrears beginning April 30, 2020, and secured by the Company’s assets, which are convertible into the Company’s Common Stock at a price of $0.60 per share, and maturing on March 25, 2021. On June 23, 2020 the notes were amended to adjust the conversion price from $0.60 to $1.95. The amendment also provided for the issuance of warrants for the purchase of Company Common Stock to be exercised at any time until the maturity date of the notes. The warrants provide for purchase of up to 115,385 shares at $0.01 per share of Common Stock in the aggregate. In the event that the Convertible Promissory Notes are not converted before maturity, the Company retains a call right to repurchase one share of Common Stock for each $0.8666 of unconverted principal at a price of $0.01.

Other Debt Financing

On March 13, 2020 a third party advanced $25,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $291.67, through August 31, 2020. The related note discount of $12,500 is being amortized over the term of the agreement for a total of $1,316 in interest expense as of March 31, 2020.

On January 27, 2020 a third party advanced $207,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $1,035, through November 3, 2020. The related note discount of $57,000 is being amortized over the term of the agreement for a total of $13,092 in interest expense as of March 31, 2020.

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Results of Operations

 

Comparison of Three Months Ended September 30, 2017March 31, 2020 and 20162019

 

For the three months ended September 30, 2017March 31, 2020 and 2016,2019, the Company’s revenue totaled $384,279$415,251 and $19,540,$226,349, respectively, for which our respective costs of revenues totaled $163,071$207,848 and $15,633.$161,318. The $188,902 increase in revenue and costs of operations are the result of the Company’s launch of our Blackbox System web applicationresulted from an expanded subscription base for subscription in September 2016. We also generated $300,000 in license fee revenues from the BBTR System which was made available on a trial basis in May 2017.monthly revenues. The majority of the costs of operations are data feed expenses for exchange information totaling approximately $70,099$81,691 for the three months ended September 30, 2017.March 31, 2020. Other costs of operations included affiliatesubscriber referral program referral,payments of $37,496 and customer retention and media coordination payments of approximately $43,818$69,528 to certain select online program moderators, on-boarders and website design and maintenance costs of approximately $46,777.educator partners.

                                                    

For the three months ended September 30, 2017,March 31, 2020, the Company had operating expenses totaling $436,077$438,116 compared to $160,747$255,096 for the same period in 2016,2019, an increase of $275,330.$183,020. This change is primarily a result of an increase in general and administrative expenses from $227,885 for the three months ended March 31, 2019 compared to $400,294 for the three months ended March 31, 2020.  The increase in general and administrative expenses of $172,409 was due to increases in financing expenses of $106,030; advertising expense of $19,005; professional and outside consulting services of $17,334; rent expense of $5,997; general administrative expenses of $1,934; salary and related $18,316; and computer and internet expenses of $3,793. Software development costs also increased by approximately $87,070 from $35,445 for the three months ended September 30, 2016 compared to $122,515 for the three months ended September 30, 2017. The increased software development costs were primarily attributable to the development and testing of the Blackbox System’s new software chat features. General and administrative expenses also increased approximately $186,062 from $124,013 for the three months ended September 30, 2016 compared to $310,075 for the three months ended September 30, 2017. The majority of the increase is a result of increased internet and telecom expense of $41,762, marketing and investor relations of $140,811, increased travel expense of $18,964 offset by a reduction in administrative expenses of $15,476. The Company$12,353. We also recorded depreciation and amortization expense of $3,487$3,491 for the three months ended September 30, 2017March 31, 2020 compared to $1,289$5,233 for the three months ended September 30, 2016. 

Comparison of Nine Months Ended September 30, 2017 and 2016

For the nine months ended September 30, 2017 and 2016, the Company’s revenue totaled $708,837 and $19,540, respectively, for which our respective costs of revenues totaled $392,543 and $15,633. The increase in revenue and costs of operations are the result of the Company’s launch of our Blackbox System web application for subscription in September 2016. We also generated $400,000 in license fee revenues from the BBTR System which was made available on a trial basis in May 2017. The majority of the costs of operations are data feed expenses for exchange information totaling approximately $218,812 for the nine months ended September 30, 2017. Other costs of operations included affiliate program referral, customer retention and media coordination payments of approximately $71,702 and website design and maintenance costs of approximately $93,851.

For the nine months ended September 30, 2017, the Company had operating expenses totaling $1,074,467 compared to $464,127 for the same period in 2016, an increase of $610,340. Software development costs also increased by approximately $230,479 from $124,764 for the nine months ended September 30, 2016 compared to $355,243 for the nine months ended September 30, 2017. The increased software development costs were primarily attributable to the development of the BBTR System for use by the BBTR Licensee in connection with certain Asian securities exchanges and development of the Blackbox System’s new software chat features. General and administrative expenses also increased approximately $375,469 from $335,497 for the nine months ended September 30, 2016 compared to $710,966 for the nine months ended September 30, 2017. The increase is largely due to increases in internet and telecom expenses of $80,054, increased marketing and investor relations expenses of $200,613, an increase in travel and related expense of $80,876 and increases in administrative expense of $13,926. The Company also recorded depreciation and amortization expense of $8,258 for the nine months ended September 30, 2017 compared to $3,866 for the nine months ended September 30, 2016.March 31, 2019.

 

Off Balance Sheet Arrangements

 

We doAs of March 31, 2020, we did not have any off balancematerial off-balance sheet arrangements.

 

ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative 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 4.CONTROLS AND PROCEDURESItem 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Gust Kepler, our principal executive officer and 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 September 30, 2017,March 31, 2020, 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 September 30, 2017March 31, 2020 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.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the quarter endedSeptember 30, 2017 March 31, 2020 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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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.

 

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 material weakness 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.

 

PART II - OTHER INFORMATION

 

ITEMItem 1.  LEGAL PROCEEDINGSLegal Proceedings

 

None.On February 13, 2020, Creative Circle LLC, a creditor of the Company, which provided employee staffing, filed a petition in the State of Texas for satisfaction of services invoiced between the period of June and September 2019 in the aggregate amount of $45,030, for unpaid invoices. A default judgement was entered against the Company on April 9, 2020 and the Company has made arrangements to pay the judgment amount in installments.

 

ITEMItem 1A.  RISK FACTORSRisk Factors

 

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. However, in light of recent developments relating to the COVID-19 global pandemic, the Company is supplementing “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 to present the following risk factor in compliance with the order issued by the SEC under Section 36 of the Exchange Act, dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new SEC order issued on March 25, 2020 (Release No. 34-88465:

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The effect of the COVID-19 pandemic, or the perception of its effects, on our operations and the operations of our customers, could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

The World Health Organization has declared the outbreak of COVID-19, or coronavirus, which began in December 2019, a pandemic and the U.S. federal government has declared it a national emergency. Our business and operations could be materially and adversely affected by the effects of COVID-19. The global spread of COVID-19 has already created significant volatility, uncertainty and economic disruption in the markets in which we operate. Governments, public institutions, and other organizations in countries and localities where cases of COVID-19 have been detected are taking certain emergency measures to mitigate its spread, including implementing travel restrictions and closing factories, schools, public buildings, and businesses. While the full impact of this outbreak is not yet known, we are closely monitoring the spread of COVID-19 and continually assessing its potential effects on our business.

As the result of current restrictions put in place to address COVID-19, we have limited access to our corporate offices, cannot efficiently and fully access our data and records, and our corporate staff is required to work remotely, disrupting interactions among our staff, with our customers and suppliers, and with our accountants, consultants and advisors. The extent to which our results continue to be affected by COVID-19 will largely depend on future developments which cannot be accurately predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and the impact on the global economy, our customers’ demand for our products and services, and our ability to provide our services, particularly as result of our employees working remotely and/or the closure of certain offices and facilities. While these factors are uncertain, the COVID-19 pandemic or the perception of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows.

 

ITEMItem 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEEDSUnregistered Sales of Equity Securities and Use of Proceeds

 

None.On March 23, 2020 two lenders advanced an aggregate of $100,000 to the Company in exchange for Convertible Promissory Notes, bearing interest at 52% per annum to be paid monthly in arrears beginning April 30, 2020, and secured by the Company’s assets, which are convertible into the Company’s Common Stock at a price of $0.60 per share, and maturing on March 25, 2021. On June 23, 2020 the notes were amended to adjust the conversion price from $0.60 to $1.95. The amendment also provided for the issuance of warrants for the purchase of Company Common Stock to be exercised at any time until the maturity date of the notes. The warrants provide for purchase of up to 115,385 shares at $0.01 per share of Common Stock in the aggregate. In the event that the Convertible Promissory Notes are not converted before maturity, the Company retains a call right to repurchase one share of Common Stock for each $0.8666 of unconverted principal at a price of $0.01.

The Convertible Promissory Notes and Warrants described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. The Company reasonably believed that each of the purchasers of such securities had access to information concerning its operations and financial condition, were acquiring the securities for their own account and not with a view to the distribution thereof, and each investor qualified as 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.

 

ITEMItem 3.DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities

 

None.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 in the amount of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. The principal balance of $100,000 remains outstanding and is in default as of March 31, 2020, although the holder has made no demand for settlement of the note.

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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 on January 28, 2019. The note remains unpaid as of March 31, 2020; however, no demand for repayment has been made by the holder.

 

ITEMItem 4.MINE SAFETY DISCLOSURESMine Safety Disclosures

 

Not applicable.

 

ITEM 5.OTHER INFORMATIONItem 5.Othe Information

 

None.

 

13

ITEM 6. EXHIBITSItem 6.Exhibits

 

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

 

Exhibit

Description

10.1

31.1

Services Agreement dated August 11, 2017 between the Blackboxstocks, Inc. and PCG Advisory Group*
10.2Stock Repurchase and Cancellatoin 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)
10.3License Agreement dated August 9, 2017 between Blackboxstocks Inc. and EIGH8T TECHNOLOGIES INC. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2017)
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**

32.2

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

101.1

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

*

Filed herewith.

**

Furnished herewith

*           Filed herewith.

**        Furnished herewith

SIGNATURES

 

Pursuant to the requirements 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.

June 29, 2020

BLACKBOXSTOCKS INC.

   
November 14, 2017

BLACKBOXSTOCKS INC.

By:

      /s/ Gust Kepler

 
  By:

Gust Kepler

 /s/ Gust Kepler
 Gust Kepler
 

President, Chief Executive Officer and Secretary (Principal

(Principal Executive Officer and Principal Financial

and Accounting Officer)

 

14
17

EXHIBIT INDEX

 

Exhibit

Description

10.1

31.1

Services Agreement dated August 11, 2017 between the Blackboxstocks, Inc. and PCG Advisory Group*
10.2Stock Repurchase and Cancellatoin 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)
10.3License Agreement dated August 9, 2017 between Blackboxstocks Inc. and EIGH8T TECHNOLOGIES INC. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2017)
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**

32.2

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

101.1

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

*

Filed herewith.

**

Furnished herewith

*           Filed herewith.

**        Furnished herewith

15
18