UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | September 30, |
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. | 001-41051 |
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 |
(Address of principal executive offices) | (Zip Code) |
( |
(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 |
Common Stock, par value $0.001 per share | BLBX | The Nasdaq Stock Market LLC |
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). Yesx ☒ No¨ ☐
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, 201711, 2021 was 23,000,000.10,525,323.
Page | ||
1 | ||
1 | ||
2 | ||
Item 1. | 2 | |
December 31, | 2 | |
3 | ||
Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2021 and 2020 (Unaudited) | 4 | |
Statements of Cash Flows for the Nine Months Ended September 30, |
| |
6 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. | 13 | |
Item 4. | 13 | |
14 | ||
Item 1. | 14 | |
Item 1A. | 14 | |
Item 2. | 14 | |
Item 3. | 14 | |
Item 4. | 14 | |
Item 5. | 14 | |
Item 6. | 15 | |
15 |
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. TheseWhen used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements are based uponwithin 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 our current expectations, estimatesfuture plans of operations, business strategy, operating results and projections about our business, and reflect our beliefs and assumptions based upon information available to us at the date of this 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 product 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-lookingfinancial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties described herein and assumptions that are difficult to predict. Our actual results performance or achievements couldmay differ materially from those expressed or implied byincluded within the forward-looking statements as a result of a number ofstatements. Additional factors including, but not limited to, the risks and uncertainties discussedare described in our other public reports and filings with the Securities and Exchange Commission (“SEC”(the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to revisepublicly release the result of any revision of these forward-looking statements to reflect events or updatecircumstances 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 forward-looking statementevents, trends and activities, then our estimates for future growth for our business may also be wrong. There can be no assurance that any reason.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 - FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements
Blackboxstocks Inc. and Subsidiary
Consolidated Balance Sheets
As of September 30, 20172021 (Unaudited) and December 31, 20162020
September 30, | December 31 | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 420,400 | $ | 972,825 | ||||
Accounts receivable, net of allowance for doubtful accounts of $68,589 at September 30, 2021 and December 31, 2020, respectively | 16,698 | 17,990 | ||||||
Inventory | 23,457 | 17,661 | ||||||
Other current assets | 1,804 | 0 | ||||||
Prepaid expenses | 112,914 | 44,643 | ||||||
Prepaid expenses, related party (Note 5) | 36,700 | 36,700 | ||||||
Total current assets | 611,973 | 1,089,819 | ||||||
Property and equipment: | ||||||||
Office, computer and related equipment, net of depreciation of $76,426 and $61,961 at September 30, 2021 and December 31, 2020, respectively | 51,827 | 5,682 | ||||||
Right of use lease, net of amortization of $135,029 and $97,725 at September 30, 2021 and December 31, 2020, respectively | 414,070 | 62,348 | ||||||
Total property and equipment | 465,897 | 68,030 | ||||||
Total assets | $ | 1,077,870 | $ | 1,157,849 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 533,782 | $ | 352,545 | ||||
Accrued interest | 6,296 | 10,425 | ||||||
Unearned subscriptions | 773,139 | 1,016,157 | ||||||
Lease liability right of use, current | 60,092 | 40,473 | ||||||
Other liabilities | 0 | 180,000 | ||||||
Senior secured note payable, current | 10,000 | 10,000 | ||||||
Convertible notes payable, net of discount of $-0- and $194,267 at September 30, 2021 and December 31, 2020, respectively (Note 7) | 35,220 | 257,150 | ||||||
Notes payable (Note 7) | 96,795 | 131,605 | ||||||
Notes payable, related party (Note 7) | 0 | 859 | ||||||
Total current liabilities | 1,515,324 | 1,999,214 | ||||||
Long term liabilities: | ||||||||
Senior secured note payable, long term, net of debt issuance costs of $59,911 and $99,852 at September 30, 2021 and December 31, 2020, respectively | 930,089 | 890,148 | ||||||
Lease liability right of use, long term | 353,978 | 26,241 | ||||||
Total long term liabilities | 1,284,067 | 916,389 | ||||||
Commitments and contingencies (Note 8) | ||||||||
Stockholders' deficit | ||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2021 and December 31, 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 September 30, 2021 and December 31, 2020, respectively | 3,270 | 5,000 | ||||||
Common stock, $0.001 par value, 100,000,000 shares authorized: 10,320,879 and 8,410,386 issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 10,321 | 8,410 | ||||||
Common stock, subscribed | 0 | 12,500 | ||||||
Additional paid in capital | 6,186,463 | 5,401,154 | ||||||
Accumulated deficit | (7,921,575 | ) | (7,184,818 | ) | ||||
Total stockholders' deficit | (1,721,521 | ) | (1,757,754 | ) | ||||
Total liabilities and stockholders' deficit | $ | 1,077,870 | $ | 1,157,849 |
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 financial statements. |
Statements of Operations
For the Three and Nine Months Ended September 30, 2021 and 2020
(Unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue: | ||||||||||||||||
Subscriptions | $ | 1,466,363 | $ | 1,093,245 | $ | 4,412,536 | $ | 2,306,094 | ||||||||
Other revenues | 5,451 | 7,084 | 12,552 | 18,334 | ||||||||||||
Total revenues | 1,471,814 | 1,100,329 | 4,425,088 | 2,324,428 | ||||||||||||
Cost of revenues | 469,601 | 288,213 | 1,274,953 | 700,723 | ||||||||||||
Gross margin | 1,002,213 | 812,116 | 3,150,135 | 1,623,705 | ||||||||||||
Operating expenses: | ||||||||||||||||
Software development costs | 111,898 | 83,705 | 445,591 | 175,950 | ||||||||||||
Selling, general and administrative | 1,098,427 | 466,225 | 2,320,841 | 1,131,661 | ||||||||||||
Advertising and marketing | 286,057 | 173,559 | 840,557 | 404,635 | ||||||||||||
Depreciation and amortization | 4,760 | 3,144 | 14,465 | 9,972 | ||||||||||||
Total operating expenses | 1,501,142 | 726,633 | 3,621,454 | 1,722,218 | ||||||||||||
Operating income (loss) | (498,929 | ) | 85,483 | (471,319 | ) | (98,513 | ) | |||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 30,281 | 33,469 | 104,576 | 128,229 | ||||||||||||
Convertible note financing | 0 | 0 | 0 | 500,469 | ||||||||||||
Gain on derivative liability | 0 | (10,757 | ) | 0 | (1,166,242 | ) | ||||||||||
Default expense | 0 | 0 | 0 | 24,750 | ||||||||||||
Amortization of debt discount | 10,171 | 135,482 | 194,267 | 250,335 | ||||||||||||
Gain on forgiveness of note payable | (33,405 | ) | 0 | (33,405 | ) | 0 | ||||||||||
Total other (income) expense | 7,047 | 158,194 | 265,438 | (262,459 | ) | |||||||||||
Income (loss) before income taxes | (505,976 | ) | (72,711 | ) | (736,757 | ) | 163,946 | |||||||||
Income Taxes | 0 | 0 | 0 | 0 | ||||||||||||
Net income (loss) | (505,976 | ) | (72,711 | ) | (736,757 | ) | 163,946 | |||||||||
Weighted average number of common | ||||||||||||||||
shares outstanding - basic | 9,717,580 | 8,116,112 | 8,942,024 | 8,006,006 | ||||||||||||
shares outstanding - fully diluted | 0 | 0 | 0 | 13,084,927 | ||||||||||||
Net income (loss) per share - basic | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | 0.02 | |||||
Net income per share - fully diluted | 0 | 0 | 0 | $ | 0.01 |
The accompanying notes are an integral part of these financial statements. |
financial statements. Statement of Stockholders’ Deficit
For the Nine Months Ended September 30, 2021 and 2020
(Unaudited)
Preferred Stock | Series A | Common Stock | Common Stock | Additional | Accumulated | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Subscribed | Paid in Capital | Deficit | Total | |||||||||||||||||||||||||||||||
Balances, December 31, 2019 | 0 | $ | 0 | 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 | 0 | 0 | 0 | 0 | 50,005 | 50 | 0 | 99,950 | 0 | 100,000 | ||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 42,829 | 42,829 | ||||||||||||||||||||||||||||||
Balances, March 31, 2020 | 0 | 0 | 5,000,000 | 5,000 | 7,958,236 | 7,958 | 35,060 | 3,543,590 | (6,787,078 | ) | (3,195,470 | ) | ||||||||||||||||||||||||||||
Warrants issued for amendment of convertible notes payable | - | 0 | - | 0 | - | 0 | 0 | 282,693 | 0 | 282,693 | ||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 193,828 | 193,828 | ||||||||||||||||||||||||||||||
Balances, June 30, 2020 | 0 | 0 | 5,000,000 | 5,000 | 7,958,236 | 7,958 | 35,060 | 3,826,283 | (6,593,250 | ) | (2,718,949 | ) | ||||||||||||||||||||||||||||
Issuance of shares for cash | 0 | 0 | 0 | 0 | 184,617 | 185 | 0 | 135,971 | 0 | 136,156 | ||||||||||||||||||||||||||||||
Issuance of shares in settlement of expenses | 0 | 0 | 0 | 0 | 3,334 | 3 | 0 | 6,497 | 0 | 6,500 | ||||||||||||||||||||||||||||||
Issuance of shares in exchange for services | 0 | 0 | 0 | 0 | 25,000 | 25 | 0 | 48,725 | 0 | 48,750 | ||||||||||||||||||||||||||||||
Convertible note forbearance extinguishment of derivative liability | - | 0 | - | 0 | - | 0 | 0 | 522,065 | 0 | 522,065 | ||||||||||||||||||||||||||||||
Warrants issued for amendment of convertible notes payable | - | 0 | - | 0 | - | 0 | 0 | 371,243 | 0 | 371,243 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (72,711 | ) | (72,711 | ) | ||||||||||||||||||||||||||||
Balances, September 30, 2020 | 0 | $ | 0 | 5,000,000 | $ | 5,000 | 8,171,187 | $ | 8,171 | $ | 35,060 | $ | 4,910,784 | $ | (6,665,961 | ) | $ | (1,706,946 | ) | |||||||||||||||||||||
Balances, December 31, 2020 | 0 | $ | 0 | 5,000,000 | $ | 5,000 | 8,410,386 | $ | 8,410 | $ | 12,500 | $ | 5,401,154 | $ | (7,184,818 | ) | $ | (1,757,754 | ) | |||||||||||||||||||||
Issuance of shares for cash | 0 | 0 | 0 | 0 | 70,772 | 71 | 0 | 137,935 | 0 | 138,006 | ||||||||||||||||||||||||||||||
Issuance of subscribed shares | 0 | 0 | 0 | 0 | 6,411 | 6 | (12,500 | ) | 12,494 | 0 | 0 | |||||||||||||||||||||||||||||
Issuance of shares in settlement of liabilities | 0 | 0 | 0 | 0 | 92,308 | 93 | 0 | 179,907 | 0 | 180,000 | ||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 12,555 | 12,555 | ||||||||||||||||||||||||||||||
Balances, March 31, 2021 | 0 | 0 | 5,000,000 | 5,000 | 8,579,877 | 8,580 | 0 | 5,731,490 | (7,172,263 | ) | (1,427,193 | ) | ||||||||||||||||||||||||||||
Issuance of in settlement of services | 0 | 0 | 0 | 0 | 11,000 | 11 | 0 | 21,439 | 0 | 21,450 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (243,336 | ) | (243,336 | ) | ||||||||||||||||||||||||||||
Balances, June 30, 2021 | 0 | 0 | 5,000,000 | 5,000 | 8,590,877 | 8,591 | 0 | 5,752,929 | (7,415,599 | ) | (1,649,079 | ) | ||||||||||||||||||||||||||||
Issuance of common shares from conversion of Series A preferred shares | 0 | 0 | (1,730,002 | ) | (1,730 | ) | 1,730,002 | 1,730 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Issuance of warrants for compensation | - | 0 | - | 0 | - | 0 | 0 | 10,635 | 0 | 10,635 | ||||||||||||||||||||||||||||||
Issuance of options for compensation | - | 0 | - | 0 | - | 0 | 0 | 422,899 | 0 | 422,899 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (505,976 | ) | (505,976 | ) | ||||||||||||||||||||||||||||
Balances, September 30, 2021 | 0 | $ | 0 | 3,269,998 | $ | 3,270 | 10,320,879 | $ | 10,321 | $ | 0 | $ | 6,186,463 | $ | (7,921,575 | ) | $ | (1,721,521 | ) |
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 | ) |
Statements of Cash Flows
For the Nine Months Ended September 30, 2021 and 2020
(Unaudited)
For the nine months ended | ||||||||
September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (736,757 | ) | $ | 163,946 | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 14,465 | 9,972 | ||||||
Amortization of note discount and issuance costs | 234,208 | 250,335 | ||||||
Shares issued in settlement of financing costs | 0 | 100,000 | ||||||
Shares issued in settlement of services | 21,450 | 55,250 | ||||||
Stock based compensation | 433,534 | 0 | ||||||
Expenses paid by lender | 0 | 6,030 | ||||||
Convertible note financing | 0 | 500,469 | ||||||
Change in fair value of derivative liability | 0 | (1,166,242 | ) | |||||
Convertible note default expense | 0 | 24,750 | ||||||
Gain on forgiveness of note payable | (33,405 | ) | 0 | |||||
Right of use lease | (4,366 | ) | 1,086 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,292 | (14,489 | ) | |||||
Inventory | (5,796 | ) | (14,757 | ) | ||||
Other current assets | (1,804 | ) | 0 | |||||
Prepaid expenses | (68,271 | ) | 0 | |||||
Accounts payable | 181,237 | (50,764 | ) | |||||
Accrued interest | (4,129 | ) | (11,901 | ) | ||||
Accrued interest, related party | 0 | 10,960 | ||||||
Unearned subscriptions | (243,018 | ) | 227,734 | |||||
Net cash provided by (used in) operating activities | (211,360 | ) | 92,379 | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (60,610 | ) | 0 | |||||
Cash repayments from related parties | 0 | 6,890 | ||||||
Net cash used in investing activities | (60,610 | ) | 6,890 | |||||
Cash flows from financing activities: | ||||||||
Common stock issued for cash | 138,006 | 136,156 | ||||||
Proceeds from issuance of notes payable | 0 | 127,100 | ||||||
Proceeds from issuance of convertible notes payable | 0 | 100,000 | ||||||
Proceeds from Payroll Protection Program | 0 | 130,200 | ||||||
Principal payments on notes payable | (1,405 | ) | (331,573 | ) | ||||
Principal payments on convertible notes payable | (416,197 | ) | (13,289 | ) | ||||
Principal payments on notes payable, related parties | (859 | ) | (103,558 | ) | ||||
Net cash provided by (used in) financing activities | (280,455 | ) | 45,036 | |||||
Net increase (decrease) in cash | $ | (552,425 | ) | $ | 144,305 | |||
Cash - beginning of year | 972,825 | 21,172 | ||||||
Cash - end of period | $ | 420,400 | $ | 165,477 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | 108,705 | $ | 0 | ||||
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 | ||||
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 | ||||
Preferred Series A shares converted to common shares | $ | 1,730 | $ | 0 |
The accompanying notes are an integral part of these financial statements. |
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.
Blackboxstocks Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172021 and 20162020
1. Organization
Blackboxstocks Inc. 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 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 a real time analytical platform and subscription basedstock or option. The 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, CBOE, and other options markets, analyzing over 8,000 stocks and up to 1,000,000 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 NYSE MKT, LLC (formerlyCompany 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 American Stock Exchange),community. The platform was initially made available to subscribers in September 2016. Subscriptions for the NASDAQ markets,use of the Hong Kong Stock Exchange,platform are sold on a monthly and/or annual subscription basis to individual consumers through the Shanghai Stock Exchange and the Shenzhen Stock Exchange.Company website at http://www.blackboxstocks.com.
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 of America (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). TheAccordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements reflect all adjustments that are, instatements. In the opinion of management, necessary to fairly present such information. All suchthese unaudited consolidated financial statements contain all adjustments, areconsisting of a normal recurring nature. Althoughadjustments, considered necessary for a fair presentation of the Company believes thatresults of the disclosuresinterim periods, but are adequatenot necessarily indicative of the results of operations to makebe anticipated for 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 GAAP have been condensed or omitted pursuant to such rules and regulations. full year ending December 31, 2021. 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 flowsReport on Form 10-K for the interim periods, but are not necessarily indicative of the results for any subsequent quarter or the entire year ending ended December 31, 2017.2020.
Basis
Use of Presentation Estimates - The accompanying financial statements were prepared in conformity with GAAP.
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)
Use of Estimates - Blackboxstocks’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 nine months ended September 30, 2017 and 2016, 2021 there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”).FASB. Each of thesethe 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 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 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 standard on our financial position and results of operations, as well as our selected transition method. Based on our preliminary assessment, we believe the new standard will not have a material impact on our financial position and results of operations, as we do not expect to change 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 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.
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 September 30, 2017 and 2016, 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.
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)
Revenue Recognition- The Company recognizes revenueRevenue 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,performance obligation by the Company earns revenue fromis in exchange for the licensing of its Blackbox System application for use in China, whereby a licenseemonthly subscription fee, the subscriber is authorizedallowed access 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.
Software Development Costs - Blackboxstocks 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 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 softwareon the website for use in the US, reached technical feasibility in August 2016, became marketable and was made availablecalendar month. Revenue related 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 accordanceannual subscriptions is recognized each month with ASC Topic 985 these costs were expensed until technical feasibility was achieved, costs incurred until May 15, 2017 were capitalized and subsequently amortized.unearned subscriptions reflected as a current liability.
Prepaid Expenses - Prepaid expenses are current assets created when the Company makes payments or incurs an obligation for expenses identified for a future period. The Company has prepaid 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.
3. Stockholders’ EquityStockholders’ 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”).
Shares of Series A Convertible Preferred Stock do not accumulate dividends, have no liquidation preferences and are convertible into shares of Common Stock on a one-for-one1-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.
Until May 27, 2021 all shares were held by Gust C. Kepler, Director, Chief Executive Officer, President and Chief Financial Officer (“Mr. Kepler”). On December 1, 2015, the Company entered into an Exchange Agreement with Tiger TradeMay 27, 2021 Mr. Kepler sold and its Stockholders (Note 1). Under the terms and conditionstransferred 1,130,002 shares of the Exchange Agreement, the Company offered and sold Seventeen Million Nine Hundred Thousand (17,900,000) newly issued 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 the issued and outstandingof which were converted into 1,130,002 shares of Tiger Trade capital stock. The effectcommon stock during July 2021. During August 2021, Mr. Kepler converted an additional 600,000 shares of the issuance was that Tiger Trade stockholders acquired approximately 85.91% of the issued and outstanding shares of Company Common Stock and 100% of the issued and outstanding shares of Company Series A Convertible Preferred Stock. Tiger Trade became a wholly owned subsidiaryStock into 600,000 shares of the Company as a resultcommon stock. As 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 time all of the outstanding shares of capital stock of Tiger Trade outstanding immediately before the effective date were canceled, retired and ceased to exist.
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 2021 Mr. Kepler cancelled and forfeited 835,010 shares of the Company’s Common Stock.held 3,269,998 shares.
During the yearnine months ended December 31, 2016, September 30, 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.
During the nine months ended September 30, 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 nine months ended September 30, 2021, the Company issued a total of 3,310,00011,000 shares of Common Stockcommon stock at a cash price of $0.50$1.95 per share for a totalin settlement of $1,655,000. However, the Company subsequently honored a request by one investor to rescind the purchase of 200,000 of such shares of Common Stock on October 28, 2016.
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. Keplerservices provided to the Company for advances in the aggregate amount of $55,000.totaling $21,450 to Winspear Investments LLC.
4. Warrants to Purchase Common Stock Options and Warrants
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. When the options or warrants are exercised, the receipt of consideration is an increase in stockholders’ equity. There was no stock option or warrant activity during the nine months ended September 30, 2017 and 2016 and as of November 14, 2017, no options or warrants were outstanding.
Until 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.
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 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 another warrant 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.
Beginning January 1, 2021, the Company computes fair value cost using the Cox-Ross-Rubinstein binomial model. During the period ended September 30, 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.
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 warrants vest monthly over 36 months after the issuance date. The fair value of these warrants at the issuance date was $382,571, which is being expensed as vesting occurs.
The following table presents the Company’s warrants as of September 30, 2021 and December 31, 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 | 152,602 | $ | 1.80 | 10.00 | ||||||||
Exercised | 0 | $ | 0 | - | ||||||||
Warrants as of September 30, 2021 | 632,156 | $ | 1.37 | 4.64 |
At September 30, 2021, warrants for the purchase of 534,937 shares were vested and warrants for the purchase of 97,219 shares remained unvested. The Company expects to incur expenses for the unvested warrants totaling $371,936 as they vest.
5. Related Party Transactions Incentive Stock Plan
On August 11, 2021, the Company filed an information statement with the SEC disclosing that the Company had created the 2021 Blackboxstocks, Inc. Incentive Stock Plan (the “Plan”). The Plan provides for the grant of stock options and restricted stock grants to employees, directors and certain non-employee consultants. The Plan is administered by the Company’s board of directors or a committee thereof. 750,000 shares of the common stock are reserved for issuance under the plan.
During the nine monthsperiod ended September 30, 2017, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary2021, the Company estimated the fair value of the Company was advanced $95,705 by 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 by Mr. Kepler to the Company for advancesoptions based on assumptions used in the aggregate amount of $55,000. On September 28, 2017,Cox-Ross-Rubinstein binomial pricing model using the Company also agreed to cancel and forgive debt obligations owed by Mr. Kepler tofollowing inputs: 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 months ended June 30, 2017 and 2016, the Company (and its predecessor, Tiger Trade) engaged the services of Karma Black Box LLC (“Karma”), which became a Company stockholder as a result of the Exchange Agreement (Note 1 and 3), for application development servicesprice of the Company’s Blackbox System technology. Duringcommon stock on the nine months ended September 30, 2017date of issuance; a risk-free interest rate of 1.30%, and 2016, Karma was paid $85,500expected volatility of 50% based on the volatility of comparable publicly traded entities, various exercise prices, and $10,500 for services, respectively.terms of 10 years.
Blackboxstocks Inc. and Subsidiary
NotesOn August 31, 2021, options to Consolidated Financial Statements
Forpurchase up to 597,500 shares of common stock exercisable for a ten-year period were issued at an exercise price of $2.99. The fair value of these options at the Three and Nine Months Ended September 30, 2017 and 2016issuance date was $1,076,340, which is being expensed as vesting occurs over the applicable service periods.
5. On September 11, 2021, options to purchase up to 15,000 shares of common stock exercisable for a ten-year period were issued at an exercise price of $4.96. The fair value of these options at the issuance date was $44,823, which is being expensed as vesting occurs over the applicable service periods. In addition, 6,048 shares of restricted common stock were granted on Spetember 11,2021 and vest monthly over twelve months. As of September 30, 2021, none of the restricted common stock shares have vested or been issued.
The following table presents the Company’s options as of September 30, 2021 and December 31, 2020:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (in years) | ||||||||||
Options as of December 31, 2020 | 0 | $ | 0 | - | ||||||||
Issued | 612,500 | $ | 3.04 | 10.00 | ||||||||
Exercised | 0 | $ | 0 | - | ||||||||
Options as of September 30, 2021 | 612,500 | $ | 3.04 | 9.92 |
At September 30, 2021, options to purchase 222,085 shares were vested and options to purchase 390,415 shares remained unvested. The Company expects to incur expenses for the unvested options totaling $698,264 as they vest.
6.Related Party Transactions (continued)
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 Mr. Kepler. As of September 30, 2021 and Secretary of2020 the Company and the Company’s controlling stockholder. In 2016 G2/IPA refunded $117,800 of prepayments for marketing services leavinghad a prepaid balance of $36,700 asfor public relations and marketing services with G2/IPA. These funds are expected to be used over the next three to six months.
7. Debt
A summary of the Company’s debt at September 30, 2017. At September 30, 2017 2021 and 2016, there were no accounts payable owed to G2.December 31, 2020, by counterparty, is as follows:
9/30/2021 | 12/31/2020 | |||||||
$1,000,000 12% Senior secured note due November 12 2022 | $ | 1,000,000 | $ | 1,000,000 | ||||
$130,200 loan bearing interest at 1% per annum maturing May 1, 2022 issued under the Payroll Protection Program | 96,795 | 130,200 | ||||||
$108,000 related party note payable due November 30, 2020 | - | 859 | ||||||
$385,000 8% convertible note payable due July 2021 | 35,220 | 318,012 | ||||||
$165,000 8% convertible note payable due July 2021 | 0 | 133,405 | ||||||
Miscellaneous equipment loans | - | 1,405 | ||||||
1,132,015 | 1,583,881 | |||||||
Less unamortized discount and debt issuance costs | (59,911 | ) | (294,119 | ) | ||||
Total notes payable | $ | 1,072,104 | $ | 1,289,762 | ||||
Current portion of long-term debt | 142,015 | 399,614 | ||||||
Long-term portion | $ | 930,089 | $ | 890,148 |
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 9, 2017, we2021, the Company received partial loan forgiveness from the SBA reducing the principal balance of the note to $96,795.
On November 12, 2020, the Company executed a Loan Agreement with certain Lenders (“the Lenders”) and FVP Servicing LLC, 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 a License Agreement (the “BBTR License”)an agreement with EIGH8T TECHNOLOGIES INC. (also known as Black Box Tradersan affiliate of FVP to provide certain credit and referred to herein as “BBTR”), a British Virgin Island registered company,debit card processing services for the development, customizationCompany, which services will continue for a period of one year after the loan is repaid and licensecontains a right of first refusal to use and sublicensecontinue to provide such services in the future subject to certain limitations. Mr. Kepler executed a versionguaranty in favor of FVP in connection with the Blackbox System (known as the “BBTR System”) with dataloan. Proceeds from the HKEX, SSEloan 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 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. Under the terms of the BBTR Licensefor general working capital purposes. In addition, the Company has received $400,000granted the Lender a security interest in substantially all of licensing revenue as of September 30, 2017.its assets.
6.Notes Payable, related party
On December 6, 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 nine months ended September 30, 2021 and year ended December 31, 2020 the Company repaid $859 and $107,141, respectively, reducing the balance due as of September 30, 2021 to $0.
Convertible Notes Payable
On May 21, 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. On July 17, 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 recorded the value of the notes conversion feature in the amount of $342,308 at inception. The Company defaulted on the notes and incurred default fees of $57,750 and $24,750 for the years ended December 31, 2019 and 2020, respectively which amounts were added to the principal balance.
On July 10, 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.
During the nine months ended September 30, 2021, the Company repaid $133,405 of the principal on the July 17, 2019 note, reducing the balance due as of September 30, 2021 to $0. During the nine months ended September 30, 2021, the Company repaid $282,792 of the principal on the May 21, 2019 note, reducing the balance due as of September 30, 2021 to $35,220.
8. Commitments and Contingencies
TheOn August 11, 2020 the Company entered into a subleaseletter agreement with G2 effective July 1, 2015 subject to the termsWinspear Investments, LLC (“Winspear”), an entity controlled by Robert Winspear, Winspear, Chief Financial Officer, Secretary and conditionsa director of the officeCompany, pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters. The agreement provided for a minimum three-month term and that Winspear would be compensated with the grant of 20,000 shares of the Company’s common stock at inception and an additional 5,000 shares per month for the initial three months and an additional grant of 3,000 shares per month thereafter. The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ. As of September 30, 2021, 59,000 common shares have been issued and 9,000 shares remain payable to Winspear. On November 9, 2021, the Company was approved for listing on the NASDAQ Capital Market and the remaining 80,000 shares became payable to Winspear (see Note 9 Subsequent Events).
On February 22, 2021 the Company amended its lease between G2 andwith Teachers Insurance and Annuity Association of America for(“TIAA”) to expand its space by approximately 1,502847 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, 2017 and 2016 we incurred $35,072 and $33,742, respectively, in office rental expense.
On August 11, 2017, the Company entered into a six month consulting Services Agreement with PCG Advisory Group, providing for capital markets advisory 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 1442,685 square feet and extended the expiration date to be issued during the six months of the agreement. September 30, 2025. On September 28, 2017, April 14, 2021, the Company also agreed to cancel and forgive debt obligations owed by Gust C. Kepler toamended its lease with TIAA extending the Company for advances inlease expiration until September 30, 2028.
The table below shows 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 the Services Agreement.future lease payment obligations:
Year Ending December 31, | Amount | |||
2021 | $ | 22,291 | ||
2022 | 88,792 | |||
2023 | 87,934 | |||
2024 | 89,948 | |||
2025 | 9,112 | |||
Thereafter | 260,781 | |||
$ | 558,858 |
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.
ITEM9. Subsequent Events
On November 9, 2021 the Company entered into an underwriting agreement with Alexander Capital LP as representative for the underwriters named therein, pursuant to which the Company sold 2,400,000 shares of its Common Stock at an offering price of $5.00 in an underwritten public offering upon which its shares became listed on the NASDAQ Capital Market. Net proceeds to the Company after underwring discounts and offering expenses were approximately $10,610,000. The underwriting agreement grants the underwriter(s) an over-allotment option whereby they may purchase up to 360,000 additional shares of the Company’s Common Stock at $5.00 per share for a period of 45 days. The Company also granted the underwriter a warrant to purchase up to 6% of the total shares offered (144,000 shares) at a price equal to 125% of the oferring price for a period term of five years.The agreement also includes standard indemnification provisions between the Company and the Underwriter.
On November 1, 2021, the Company issued 204,444 shares of common stock undrer the cashless exercise provision of warrants exercisable for the purchase of 240,000 shares of Common Stock.
Item 2.Management’s 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, 2016,2020 as well as with our condensed financial statements and the notes thereto included elsewhere herein.
Overview
The CompanyBlackboxstocks, Inc. is in the businessa 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 price of a stock’s price. The Blackbox System was initially designed to monitor and analyze over 13,000 stocks onstock or option. We continuously scan the OTC Markets Group, Inc. (“OTC”), New York Stock Exchange (“NYSE”), the NYSE MKT, LLC (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 StockChicago Board Options Exchange (“HKEX”), Shanghai Stock Exchange (“SSE”(the “CBOE”) and Shenzhen Stock Exchange (“SZSE”) for licenseother options markets, analyzing over 8,000 stocks and use primarily in Asia.over 1,000,000 options contracts multiple times per second. We considerprovide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and ideas 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 trading strategies and market insight within the Blackbox System technology to be among the most user-friendlycommunity. We employ a subscription based Software as a Service (“SaaS”) business model and maintain a growing base of its kind.users that spans 42 countries.
The CompanyBlackbox System is a unique and disruptive financial technology platform combining proprietary analytics and broadcast enabled social media to connect traders of all types worldwide on an intuitive, user-friendly system. The complexity of our backend analytics is neatly hidden from the end user by our simple and easy to navigate dashboard which includes real-time alerts, scanners, financial news, institutional grade charting and proprietary analytics.
We 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.Nasdaq Stock Market LLC (the “OTC Pink”“Nasdaq”) 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. 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, 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, the Company had an accumulated deficit of $2,192,303 and for the three and nine months ended September 30, 2017, incurred net losses of $215,189 and $759,459, respectively. Management expects that the Company may 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.March 31, 2021.
Liquidity and Capital Resources
The Company launched its Blackbox System web application for domestic use 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 the fourth quarter of 2017, 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, the Company2021, we had a cash balance of $163,913$420,400 and oura working capital was $192,871deficit of $903,351 as compared to a cash balance of $28,867$972,825 and a working capital deficit of $160,006$990,738 at December 31, 2020. Our cash flows from operations were ($211,360) for the nine months ended September 30, 2016.2021 as compared to $92,379 for the prior year period. For the nine months ended September 30, 2021, the net loss was largely offset by amortization of debt discount and debt issuance costs as well as stock based compensation. During the nine months ended September 30, 2021, the Company also incurred capital expenditures in the amount of $60,610 related primarily to the purchase of new servers. We do not expect this level of capital expenditures to continue for the next twelve months.
Net cash used in financing activities was $280,455 for the nine months ended September 30, 2021. This consisted of $418,461 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $35,220 in principal payments remaining on its convertible notes payable which are expected to be paid in the fourth quarter of 2021. Principal payments on our $1,000,000 senior debt begin in December 2021 at $10,000 per month until its maturity in November 2022, which can be extended. As a result of retiring our convertible notes payable, the Company’s debt service requirements will be significantly lower for the next twelve months.
On November 9, 2021 the Company enter into an underwriting ageeement pursuant to which it sold 2,400,000 shares of its Common Stock at an offering price of $5.00 in an underwritten public offering upon which our shares became listed on the NASDAQ Capital Market. Net proceeds to the Company after underwring discounts and offering expenses were approximately $11,610,000. We expect to use proceeds from this offering to further develop our Blackbox System platform, expand our product offerings, fund marketing efforts to grow our subscriber base, as well as for general and administration expenses and other general corporate purposes.
We believe that the Company has sufficient capital resources to fund current operations and debt service requirements.
Results of Operations
Comparison of Three Months Ended September 30, 20172021 and 20162020
For the three months ended September 30, 2017 and 2016, the Company’s revenue totaled $384,279 and $19,540, respectively, for which our respective costs of revenues totaled $163,071 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 $300,000 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 $70,099 for the three months ended September 30, 2017. Other costs of operations included affiliate program referral, customer retention and media coordination payments of approximately $43,818 and website design and maintenance costs of approximately $46,777.
For the three months ended September 30, 2017, the Company had operating expenses totaling $436,077 compared to $160,747 for the same period in 2016,2021 and 2020, our revenue was $1,471,814 and $1,100,329, respectively, an increase of $275,330. Software development costs also increased by approximately $87,07034%. The $371,485 increase in revenue resulted from $35,445growth in our subscriber base which we beleve resultred from additional marketing and advertising expenditures and continued subscriber acceptance and use of our platform. Cost of revenues for the three months ended September 30, 20162021 and 2020 were $469,601 and $288,213, resulting in gross margins of 68% and 74%, respectively. The primary components of cost of revenues include costs related to data and news feed expenses for exchange information which comprise the majority of the costs, as well as the costs for program moderators. Costs for online program moderators increased 44% for the quarter ended September 30, 2021 as compared to $122,515the 2020 period and comprise the second largest portion of our cost of revenues. We do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.
For the three months ended September 30, 2021, operating expenses were $1,501,142 compared to $726,633 for the same period in 2020, an increase of $774,509 or 107%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $466,225 for the three months ended September 30, 2017. The increased software development costs were primarily attributable2020 compared 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$1,098,427 for the three months ended September 30, 20162021, an increase of 136%. The increase in selling, general and administrative expenses of $632,202 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in referral expenses, professional and outside consulting services, and salary and stock based compensation. Stock based compensation expense was $433,544 for the three months ended Spetember 30, 2021. Advertising and marketing expenses increased by $112,498 or 65% from $173,559 in the three months ended September 30, 2020 to $286,057 in the three months ended September 30, 2021. Software development costs also increased by $28,193 or 34% from $83,705 in the three months ended September 30, 2020 as compared to $310,075$111,898 in same period in 2021. The increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development.
We expect to continue to incur increases in our operating costs for the foreseeable future. Expense increases for advertising and marketing activities should correlate most closely to sales growth, but as seen in the 2021 quarter, will not necessarily be directly correlated. Software development costs were relatively low in the quarter ended September 30, 2020 due to limited capital resources of the Company at that time. We anticipate that software development costs will remain relatively consistent with their current level through the balance of calendar 2021 and that any significant increases will be attributable to new product development.
Loss from operations for the three months ended September 30, 2017. The majority2021 was $498,929 as compared to income from operations of $85,483 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above with stock based compensation of $433,544 accounting for approximately 74% 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 administrativechange. Non-operating expenses of $15,476. The Company also recorded depreciation and amortization expense of $3,487 for the three months ended September 30, 2017 compared to $1,2892021 consisted of interest expense of $30,281 and amortization of debt discount of $10,171, as well as non-operating income of $33,405 from the gain on forgiveness of notes payable, resulting in a net loss for the period of $505,976. Non-operating expenses for the three months ended September 30, 2016. 2020 included interest expense of 33,469 and amortization of debt discount of $135,482. In addition, during the 2020 period we also had a gain on derivative liabilities of 10,757. These non-recurring losses offset the gain from operations and result in net loss for the period of $72,711. The amortization of debt discount has declined in the third quarter of 2021 and will be eliminated with the retirement of the related debt resulting in net interest expense that should remain consistent at its current levels for the next year.
Comparison of Nine Months Ended September 30, 20172021 and 20162020
For the nine months ended September 30, 20172021 and 2016,2020, the Company’sour revenue totaled $708,837was $4,425,088 and $19,540,$2,324,428, respectively, for which our respective costsan increase of revenues totaled $392,543 and $15,633.90%. The $2,100,660 increase in revenue resulted from growth in our subscriber base which we believe resulted from additional marketing and costsadvertising expenditures and continued subscriber acceptance and use of operations areour platform throughout the resultyear. Relative growth was stronger in the first quarter of 2021 than the second quarter as the first quarter of 2020 was when the Company’s launchaggressive growth began, as well as significant gains in the first quarter of our Blackbox System web application for subscription2021 which we believe may have been attributable to unusual market activity in September 2016. We also generated $400,000 in license feestocks such as Gamestop and AMC which we believe could have drove short term subscriptions. Cost of 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 costs2021 and 2020 were $1,274,953 and $700,723 resulting in gross margins of operations included affiliate program referral, customer retention71% and media coordination payments70%, respectively. As noted above, we do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.
For the nine months ended September 30, 2017, the Company had2021, we incurred operating expenses totaling $1,074,467$3,621,454 compared to $464,127$1,722,218 for the same period in 2016,2020, an increase of $610,340. Software development costs also$1,899,236 or 110%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased by approximately $230,479 from $124,764$1,722,218 for the nine months ended September 30, 2016 compared2020 to $355,243$3,621,454 for the nine months ended September 30, 2017.2021, an increase of 105%. The primary components of the $1,189,180 increase were increases in referral expenses, professional and outside consulting services, and salary and stock based compensation. Advertising and marketing expenses increased by $435,922 or 108% from $404,635 in the nine months ended September 30, 2020 to $840,557 in the nine months ended September 30, 2021. Software development costs also significantly increased by $269,641 or 153% from $175,950 in the nine months ended September 30, 2020 as compared to $445,591 in same period in 2021. As noted above, the increased software development costs were primarily attributableincurred for improvements to theour platform including our online social media component, development of a native application and new product development.
For the BBTR System for use by the BBTR Licensee in connection with certain Asian securities exchanges and developmentnine months ended September 30, 2021 we recorded a loss from operations of the Blackbox System’s new software chat features. General and administrative expenses also increased approximately $375,469$471,319 as compared to a loss from $335,497operations of $98,513 for the nine months ended September 30, 2016 compared2020, an increase of $372,806 due to $710,966increased operating expenses. Non-operating expenses for the nine months ended September 30, 2017. The increase is largely due to increases in internet and telecom expenses2021 consisted of $80,054, increased marketing and investor relations expenses of $200,613, an increase in travel and relatedinterest expense of $80,876$104,576, amortization of debt discount of $194,267, and increasesa gain on the foregiveness of a note payable of $33,405 resulting in administrative expensea net loss for the period of $13,926. The Company also recorded depreciation and amortization expense of $8,258$736,757. Non-operating expenses for the nine months ended September 30, 2017 compared2020 included interest expense of $128,229, amortization of debt discount of $250,335, and default expense of $24,750. In addition, during 2020, we incurred $500,469 of convertible debt expense and a gain on derivative liabilities of $1,166,242. These non-recurring items more than offset the loss from operations as well as interest expense and amortization of debt discount to $3,866result in net income for the nine months ended September 30, 2016.period of $163,946.
Off Balance Sheet Arrangements
We doAs of September 30, 2021, 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 isWe are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, iswe are not required to provide the information required under this Item.
ITEMItem 4.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 September 30, 2017,2021, 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'sour principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of September 30, 20172021, 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
ThereOn September 11, 2021 the Company appointed Robert Winspear as its Chief Financial Officer and Secretary. This appointment provides for additional segregation of duties as both of these offices were previously held by our Chief Executive Officer. In addition, the Company also appointed three new independent directors and created an audit committee, compensation committee and a nominating and governance committee. Part of Mr. Winspear’s responsibilities will be to design and implement improved internal controls. Except as provided above, there were no other changes in our internal controls over financial reporting during the quarter endedSeptember 30, 20172021 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.
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.
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
None.
ITEMItem 1A. RISK FACTORSRisk Factors
Our Company isWe are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, iswe are not required to provide the information required under this Item.
ITEMItem 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEEDS Unregistered Sales of Equity Securities and Use of Proceeds
On August 31, 2021, our Board of Directors granted stock options for the purchase of an aggregate of 597,500 shares of common stock to certain employees and consultants and on September 11, 2021 granted options on an additional 15,000 shares to our independent directors under the terms of our 2021 Stock Incentive Plan.
On September 11, 2021, we issued a warrant to Robert Winspear for the purchase of 100,000 shares of our Common Stock at an exercise price of $1.95 per share. The warrant vests ratably over 36 months and has a term of ten years.
The securities described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. We 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 our 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.
Item 3. Defaults Upon Senior Securities
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEMItem 4.MINE SAFETY DISCLOSURES Mine Safety Disclosures
Not applicable.
ITEMItem 5.OTHER INFORMATION Other Information
None.
ITEM
The following exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference as described below.
* Filed herewith.
** Furnished herewith
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.
November 15, 2021 | |||
BLACKBOXSTOCKS INC. | |||
By: | /s/ Gust Kepler | ||
Gust Kepler | |||
President, Chief Executive Officer and Secretary (Principal Executive Officer) |
By: | /s/ Robert Winspear | |
Robert Winspear | ||
Chief Financial Officer and and Accounting Officer) |
EXHIBIT INDEX
Exhibit | Description |
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 | 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.
** Furnished herewith