UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO |
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For the quarterly period ended | June 30, 2021 |
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☐ | 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 |
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| (I.R.S. Employer Identification No.) |
5430 LBJ Freeway, Suite 1485, | 75240 |
(Address of principal executive offices) | (Zip Code) |
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(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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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 ☐ No ☒
The number of shares outstanding of the registrant’s Common Stock as of November 12, 2020August 10, 2021 was 8,341,130.9,720,879.
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Item 1. | 2 | |
Balance Sheets as of | 2 | |
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Notes to Financial Statements for the Three and Six Months Ended June 30, 2021 and 2020 | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 5. |
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Throughout this Quarterly 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 that 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 service 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
Balance Sheets
As of September June 30,, 2020 2021 (Unaudited) and December 31, 20192020
September 30, | December 31, | June 30, | December 31, | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 165,477 | $ | 21,172 | $ | 626,490 | $ | 972,825 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $68,589 at September 30, 2020 and December 31, 2019, respectively | 20,234 | 5,745 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $68,589 at June 30, 2021 and December 31, 2020, respectively | 31,184 | 17,990 | ||||||||||||||
Inventory | 14,757 | - | 22,856 | 17,661 | ||||||||||||
Total current assets | 200,468 | 26,917 | 680,530 | 1,008,476 | ||||||||||||
Property and equipment: | ||||||||||||||||
Office, computer and related equipment, net of depreciation of $45,200 and $39,526 at September 30, 2020 and December 31, 2019, respectively | 3,952 | 9,626 | ||||||||||||||
Domain name, net of amortization of $13,849 and $9,551 at September 30, 2020 and December 31, 2019, respectively | 3,343 | 7,641 | ||||||||||||||
Right of use lease, net of amortization of $86,958 and $51,009 at September 30, 2020 and December 31, 2019, respectively | 73,115 | 109,064 | ||||||||||||||
Office, computer and related equipment, net of depreciation of $71,666 and $61,961 at June 30, 2021 and December 31, 2020, respectively | 50,484 | 5,682 | ||||||||||||||
Right of use lease, net of amortization of $123,269 and $97,725 at June 30, 2021 and December 31, 2020, respectively | 425,830 | 62,348 | ||||||||||||||
Total property and equipment | 80,410 | 126,331 | 476,314 | 68,030 | ||||||||||||
Long term assets: | ||||||||||||||||
Advances receivable, related parties (Note 5) | - | 9,823 | ||||||||||||||
Prepaid expenses | 80,868 | 80,868 | 55,701 | 44,643 | ||||||||||||
Prepaid expenses, related party (Note 5) | 36,700 | 36,700 | 36,700 | 36,700 | ||||||||||||
Total long term assets | 117,568 | 127,391 | 92,401 | 81,343 | ||||||||||||
Total Assets | $ | 398,446 | $ | 280,639 | $ | 1,249,245 | $ | 1,157,849 | ||||||||
Liabilities and Stockholders' Deficit | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 581,523 | $ | 632,287 | $ | 438,789 | $ | 352,545 | ||||||||
Accrued interest | 30,665 | 42,566 | 6,206 | 10,425 | ||||||||||||
Accrued interest, related party | 27,640 | 16,680 | ||||||||||||||
Unearned subscriptions | 416,741 | 189,007 | 926,169 | 1,016,157 | ||||||||||||
Lease liability right of use, current | 42,177 | 46,124 | 62,050 | 40,473 | ||||||||||||
Other liabilities | 180,000 | 180,000 | 0 | 180,000 | ||||||||||||
Convertible notes payable, net of discount of $335,512 and $13,859 at September 30, 2020 and December 31, 2019, respectively (Note 6) | 383,699 | 593,891 | ||||||||||||||
Notes payable, net of note discount of $7,049 and $38,294 at September 30, 2020 and December 31, 2019, respectively (Note 6) | 250,641 | 218,138 | ||||||||||||||
Senior secured note payable, current | 10,000 | 10,000 | ||||||||||||||
Convertible notes payable, net of discount of $10,171 and $194,267 at June 30, 2021 and December 31, 2020, respectively (Note 6) | 39,868 | 257,150 | ||||||||||||||
Notes payable (Note 6) | 130,200 | 131,605 | ||||||||||||||
Notes payable, related party (Note 6) | 121,509 | 228,000 | 0 | 859 | ||||||||||||
Derivative liability | 34,999 | 1,405,530 | ||||||||||||||
Total current liabilities | 2,069,594 | 3,552,223 | 1,613,282 | 1,999,214 | ||||||||||||
Long term liabilities: | ||||||||||||||||
Senior secured note payable, long term, net of debt issuance costs of $73,225 and $99,852 at June 30, 2021 and December 31, 2020, respectively | 916,775 | 890,148 | ||||||||||||||
Lease liability right of use, long term | 35,798 | 66,715 | 368,267 | 26,241 | ||||||||||||
Total long term liabilities | 1,285,042 | 916,389 | ||||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||||
Commitments and contingencies (Note 7) | ||||||||||||||||
Stockholders' Deficit: | ||||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 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 September 30, 2020 and December 31, 2019, respectively | 5,000 | 5,000 | ||||||||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized: 8,171,187 and 7,908,231 issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 8,171 | 7,908 | ||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 0 | 0 | ||||||||||||||
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 5,000,000 issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 5,000 | 5,000 | ||||||||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized: 8,590,877 and 8,410,386 issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 8,591 | 8,410 | ||||||||||||||
Common stock, subscribed | 35,060 | 35,060 | 0 | 12,500 | ||||||||||||
Additional paid in capital | 4,910,784 | 3,443,640 | 5,752,929 | 5,401,154 | ||||||||||||
Accumulated deficit | (6,665,961 | ) | (6,829,907 | ) | (7,415,599 | ) | (7,184,818 | ) | ||||||||
Total Stockholders' Deficit | (1,706,946 | ) | (3,338,299 | ) | (1,649,079 | ) | (1,757,754 | ) | ||||||||
Total Liabilities and Stockholders' Deficit | $ | 398,446 | $ | 280,639 | $ | 1,249,245 | $ | 1,157,849 | ||||||||
Statements of Operations
For the Three and NineMonths Ended September 30, 2020 and 2019
(Unaudited)
For the three months | For the nine months | |||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue: | ||||||||||||||||
Subscriptions | $ | 1,093,245 | $ | 289,632 | $ | 2,306,094 | $ | 755,244 | ||||||||
Other revenues | 7,050 | 6,700 | 18,300 | 21,245 | ||||||||||||
Merchandise sales | 34 | - | 34 | - | ||||||||||||
Total revenues | 1,100,329 | 296,332 | 2,324,428 | 776,489 | ||||||||||||
Cost of operations | 288,213 | 159,216 | 700,723 | 438,168 | ||||||||||||
Gross margin | 812,116 | 137,116 | 1,623,705 | 338,321 | ||||||||||||
Expenses: | ||||||||||||||||
Software development costs | 83,705 | 27,140 | 175,950 | 102,489 | ||||||||||||
Selling, general and administrative | 466,224 | 290,713 | 1,131,661 | 789,088 | ||||||||||||
Advertising and marketing | 173,559 | 62,549 | 404,635 | 201,299 | ||||||||||||
Depreciation and amortization | 3,144 | 4,196 | 9,972 | 14,128 | ||||||||||||
Total operating expenses | 726,632 | 384,598 | 1,722,218 | 1,107,004 | ||||||||||||
Operating income (loss) | 85,484 | (247,482 | ) | (98,513 | ) | (768,683 | ) | |||||||||
Interest expense | 33,469 | 37,373 | 128,229 | 94,078 | ||||||||||||
Convertible note financing | - | - | 500,469 | - | ||||||||||||
Gain on derivative liability | (10,757 | ) | - | (1,166,242 | ) | - | ||||||||||
Default expense | - | - | 24,750 | - | ||||||||||||
Amortization of debt discount | 135,482 | 223,004 | 250,335 | 293,379 | ||||||||||||
Income (loss) before income taxes | (72,710 | ) | (507,859 | ) | 163,946 | (1,156,140 | ) | |||||||||
Income taxes | - | - | - | - | ||||||||||||
Net income (loss) | $ | (72,710 | ) | $ | (507,859 | ) | $ | 163,946 | $ | (1,156,140 | ) | |||||
Weighted average number of common shares outstanding - basic | 8,116,112 | 7,788,008 | 8,006,006 | 7,701,581 | ||||||||||||
Net income (loss) per share - basic | $ | (0.01 | ) | $ | (0.07 | ) | $ | 0.02 | $ | (0.15 | ) | |||||
StatementStatements of Stockholders’ DeficitOperations
For the NineThree and Six Months Ended SeptemberJune 30,, 2021 and 2020and 2019
(Unaudited)
| 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 | - | - | - | - | 191,354 | 191 | (109,000 | ) | 381,356 | - | 272,547 | |||||||||||||||||||||||||||||
Issuance of shares in settlement of accrued expenses | - | - | - | - | 13,830 | 14 | - | 127,986 | - | 128,000 | ||||||||||||||||||||||||||||||
Imputed discount on convertible notes payable (Note 6) | - | - | - | - | - | - | - | 423,726 | - | 423,726 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (1,156,140 | ) | (1,156,140 | ) | ||||||||||||||||||||||||||||
Balance at September 30, 2019 | 5,000,000 | $ | 5,000 | - | $ | - | 7,883,231 | $ | 7,883 | $ | 35,060 | $ | 3,476,332 | $ | (5,002,609 | ) | $ | (1,478,334 | ) | |||||||||||||||||||||
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 for cash | - | - | - | - | 184,617 | 185 | - | 135,971 | - | 136,156 | ||||||||||||||||||||||||||||||
Issuance of shares in settlement of expenses | - | - | - | - | 53,339 | 53 | - | 106,447 | - | 106,500 | ||||||||||||||||||||||||||||||
Issuance of shares in exchange for services | - | - | - | - | 25,000 | 25 | - | 48,725 | - | 48,750 | ||||||||||||||||||||||||||||||
Convertible note forbearance extinguishment of derivative liability | - | - | - | - | - | - | - | 522,065 | - | 522,065 | ||||||||||||||||||||||||||||||
Warrants issued for amendment of convertible notes payable | - | - | - | - | - | - | - | 653,936 | - | 653,936 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | 163,946 | 163,946 | ||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 5,000,000 | $ | 5,000 | - | $ | - | 8,171,187 | $ | 8,171 | $ | 35,060 | $ | 4,910,784 | $ | (6,665,961 | ) | $ | (1,706,946 | ) | |||||||||||||||||||||
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue: | ||||||||||||||||
Subscriptions | $ | 1,460,376 | $ | 801,048 | $ | 2,946,173 | $ | 1,212,849 | ||||||||
Other revenues | 3,230 | 7,800 | 7,101 | 11,250 | ||||||||||||
Total revenues | 1,463,606 | 808,848 | 2,953,274 | 1,224,099 | ||||||||||||
Cost of revenues | 409,578 | 242,158 | 805,352 | 412,510 | ||||||||||||
Gross margin | 1,054,028 | 566,690 | 2,147,922 | 811,589 | ||||||||||||
Operating expenses: | ||||||||||||||||
Software development costs | 203,255 | 57,914 | 333,693 | 92,245 | ||||||||||||
Selling, general and administrative | 615,727 | 315,991 | 1,222,414 | 665,436 | ||||||||||||
Advertising and marketing | 347,188 | 142,732 | 554,500 | 231,076 | ||||||||||||
Depreciation and amortization | 5,381 | 3,337 | 9,705 | 6,828 | ||||||||||||
Total operating expenses | 1,171,551 | 519,974 | 2,120,312 | 995,585 | ||||||||||||
Operating income (loss) | (117,523 | ) | 46,716 | 27,610 | (183,996 | ) | ||||||||||
Interest expense | 33,257 | 61,265 | 74,295 | 94,760 | ||||||||||||
Convertible note financing | 0 | 282,693 | 0 | 500,469 | ||||||||||||
Gain on derivative liability | 0 | (554,315 | ) | 0 | (1,155,485 | ) | ||||||||||
Default expense | 0 | 0 | 0 | 24,750 | ||||||||||||
Amortization of debt discount | 92,556 | 63,246 | 184,096 | 114,853 | ||||||||||||
Income (loss) before income taxes | (243,336 | ) | 193,827 | (230,781 | ) | 236,657 | ||||||||||
Income taxes | 0 | 0 | 0 | 0 | ||||||||||||
Net income (loss) | $ | (243,336 | ) | $ | 193,827 | $ | (230,781 | ) | $ | 236,657 | ||||||
Weighted average number of common | ||||||||||||||||
shares outstanding - basic | 8,581,448 | 7,958,231 | 8,547,758 | 7,950,539 | ||||||||||||
shares outstanding - fully diluted | 8,581,448 | 13,450,090 | 8,547,758 | 12,995,459 | ||||||||||||
Net loss per share - basic | $ | (0.03 | ) | $ | 0.02 | $ | (0.03 | ) | $ | 0.03 | ||||||
Net income per share - fully diluted | 0 | $ | 0.02 | 0 | $ | 0.02 | ||||||||||
Statement of Stockholders’ Deficit
For the Six Months Ended June 30, 2020 and 2019
(Unaudited)
| Series A | Common | Additional | ||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Stock | Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Subscribed | Capital | Deficit | Total | |||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 5,000,000 | $ | 5,000 | 0 | 0 | 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 | ||||||||||||||||||||||||||||||
Warrants issued for amendment of convertible notes payable | - | 0 | - | 0 | - | 0 | 0 | 282,693 | 0 | 282,693 | ||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 236,657 | 236,657 | ||||||||||||||||||||||||||||||
Balance at June 30, 2020 | 5,000,000 | $ | 5,000 | 0 | 0 | 7,958,236 | $ | 7,958 | $ | 35,060 | $ | 3,826,283 | $ | (6,593,250 | ) | $ | (2,718,949 | ) | ||||||||||||||||||||||
Balance at December 31, 2020 | 5,000,000 | $ | 5,000 | 0 | 0 | 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 | 103,308 | 104 | 0 | 201,346 | 0 | 201,450 | ||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (230,781 | ) | (230,781 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2021 | 5,000,000 | $ | 5,000 | 0 | 0 | 8,590,877 | $ | 8,591 | $ | 0 | $ | 5,752,929 | $ | (7,415,599 | ) | $ | (1,649,079 | ) | ||||||||||||||||||||||
Statements of Cash Flows
For the NineSix Months EndedSeptember June 30,, 2021 and 2020 and 2019
(Unaudited)
June 30, | ||||||||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||||||
Cash flows from operating activities | Cash flows from operating activities | |||||||||||||||||||
Net income (loss) | Net income (loss) | $ | 163,946 | $ | (1,156,140 | ) | $ | (230,781 | ) | $ | 236,657 | |||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||||||
Depreciation and amortization expense | Depreciation and amortization expense | 9,972 | 14,128 | 9,705 | 6,828 | |||||||||||||||
Amortization of note discount | Amortization of note discount | 250,335 | 346,088 | 184,096 | 114,853 | |||||||||||||||
Amortization of debt issuance costs | 26,628 | 0 | ||||||||||||||||||
Shares issued in settlement of financing costs | Shares issued in settlement of financing costs | 100,000 | - | 0 | 100,000 | |||||||||||||||
Shares issued in settlement of services | Shares issued in settlement of services | 55,250 | - | 21,450 | 0 | |||||||||||||||
Expenses paid by lender | Expenses paid by lender | 6,030 | 24,984 | 0 | 6,030 | |||||||||||||||
Convertible note financing | Convertible note financing | 500,469 | - | 0 | 500,469 | |||||||||||||||
Change in fair value of derivative liability | Change in fair value of derivative liability | (1,166,242 | ) | - | 0 | (1,155,485 | ) | |||||||||||||
Convertible note default expense | Convertible note default expense | 24,750 | - | 0 | 24,750 | |||||||||||||||
Financing cost | - | 26,275 | ||||||||||||||||||
Lease expense | 1,086 | - | ||||||||||||||||||
Right of use lease expense | 120 | 1,350 | ||||||||||||||||||
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | |||||||||||||||||||
Investments, market testing | - | (12 | ) | |||||||||||||||||
Accounts receivable | Accounts receivable | (14,489 | ) | (40 | ) | (13,194 | ) | (7,655 | ) | |||||||||||
Inventory | Inventory | (14,757 | ) | - | (5,195 | ) | 0 | |||||||||||||
Prepaid expenses | (11,058 | ) | 0 | |||||||||||||||||
Accounts payable | Accounts payable | (50,764 | ) | 34,387 | 86,244 | 22,514 | ||||||||||||||
Accrued interest | Accrued interest | (11,901 | ) | 23,143 | (4,219 | ) | 69,637 | |||||||||||||
Accrued interest, related party | Accrued interest, related party | 10,960 | 10,920 | 0 | 7,280 | |||||||||||||||
Unearned subscriptions | Unearned subscriptions | 227,734 | 18,343 | (89,988 | ) | 160,452 | ||||||||||||||
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 92,379 | (657,924 | ) | (26,192 | ) | 87,680 | |||||||||||||
Cash flows from investing activities | Cash flows from investing activities | |||||||||||||||||||
Cash advances to related parties | - | (134,673 | ) | |||||||||||||||||
Cash repayments from related parties | 6,890 | 93,442 | ||||||||||||||||||
Purchases of property and equipment | Purchases of property and equipment | - | (1,587 | ) | (54,507 | ) | 0 | |||||||||||||
Net cash used in investing activities | Net cash used in investing activities | 6,890 | (42,818 | ) | (54,507 | ) | 0 | |||||||||||||
Cash flows from financing activities | Cash flows from financing activities | |||||||||||||||||||
Common stock issued for cash | Common stock issued for cash | 136,156 | 272,547 | 150,506 | 0 | |||||||||||||||
Common stock subscribed | Common stock subscribed | - | - | (12,500 | ) | 0 | ||||||||||||||
Proceeds from notes payable | 127,100 | 175,684 | ||||||||||||||||||
Proceeds from convertible notes payable | 100,000 | 473,725 | ||||||||||||||||||
Proceeds from Payroll Protection Program Loan | 130,200 | - | ||||||||||||||||||
Repayment of notes payable | (331,573 | ) | (225,214 | ) | ||||||||||||||||
Repayment of convertible notes payable | (13,289 | ) | - | |||||||||||||||||
Advances from others | - | 11,100 | ||||||||||||||||||
Repayment of notes payable, related parties | (103,558 | ) | - | |||||||||||||||||
Net cash provided by financing activities | 45,036 | 707,842 | ||||||||||||||||||
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 | ) | (233,800 | ) | ||||||||||||||||
Principal payments on convertible notes payable | (401,378 | ) | 0 | |||||||||||||||||
Principal payments on notes payable, related parties | (859 | ) | (78,246 | ) | ||||||||||||||||
Cash advances from related parties | 0 | 5,000 | ||||||||||||||||||
Net cash provided by (used in) financing activities | (265,636 | ) | 50,254 | |||||||||||||||||
Net increase in cash | 144,305 | 7,100 | ||||||||||||||||||
Net increase (decrease) in cash | (346,335 | ) | 137,934 | |||||||||||||||||
Cash - beginning of period | 21,172 | 28,001 | ||||||||||||||||||
Cash - beginning of year | 972,825 | 21,172 | ||||||||||||||||||
Cash - end of period | Cash - end of period | $ | 165,477 | $ | 35,101 | $ | 626,490 | $ | 159,106 | |||||||||||
Supplemental disclosures | Supplemental disclosures | |||||||||||||||||||
Interest paid | Interest paid | $ | - | $ | - | $ | 78,502 | $ | 0 | |||||||||||
Income taxes paid | Income taxes paid | $ | - | $ | - | $ | 0 | $ | 0 | |||||||||||
Non-cash investing and financing activities: | Non-cash investing and financing activities: | |||||||||||||||||||
Repayment of note in exchange for note payable | Repayment of note in exchange for note payable | $ | (39,370 | ) | $ | - | $ | 0 | $ | (39,370 | ) | |||||||||
Common stock issued in settlement of accrued expenses | $ | - | $ | 128,000 | ||||||||||||||||
Lease, right of use and liability | $ | - | $ | 160,073 | ||||||||||||||||
Common stock issued in settlement of accrued liabilities | $ | 180,000 | $ | 0 | ||||||||||||||||
Discount on notes payable | Discount on notes payable | $ | 69,500 | $ | 52,845 | $ | 0 | $ | 69,500 | |||||||||||
Discount on convertible notes payable | $ | - | $ | 473,725 | ||||||||||||||||
Repayment of note payable, related party in exchange for advances | Repayment of note payable, related party in exchange for advances | $ | 2,933 | $ | - | $ | 0 | $ | 4,823 | |||||||||||
Issuance of warrants for forbearance agreements | $ | 371,243 | $ | - | ||||||||||||||||
BlackboxstocksBlackboxstocks Inc.
Notes to Financial Statements
For the Three and NineSix Months Ended SeptemberJune 30,, 2021 and 2020 and 2019
1.Organization 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.
The Company changed its name 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’sCompany believes its web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the price of a stock or option. The software continuously scans the NASDAQ, New York Stock Exchange, CBOE, and other options markets, analyzing over 8,000 stocks and up to 900,0001,000,000 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 Company also introduced a live audio/video feature that allows members to broadcast on their own channels to share trade strategies and market insight within the community. The platform was initially made available to subscribers in September 2016. Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through the Company website at http://www.blackboxstocks.com.
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 10-0110-01 of Regulation S-XS-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2020. 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 on Form 10-K10-K for the year ended December 31, 2019.2020.
The accompanying financial statements have been prepared in assumption of the 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 SeptemberJune 30, 2020, 2021, the Company had an accumulated deficit of $6,665,961$7,415,599, and for the nine monthsyears ended September 30,December 31, 2020 and 2019 the Company incurred net incomelosses of $163,946$354,911 and a net loss of $1,156,140,$2,983,438, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. As discussed in Note 9, subsequent events, on November 12, 20206, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest, and certain outstanding trade payables in the amount of $133,880. In addition, the Company granted the Lender a security interest in substantially all of its assets. Excluding transaction costs,As a result of this financing and the cash flows from operations, the Company will receive net proceedshad a cash balance of approximately $766,000 after repayment of the notes and payables described above. $626,490 at June 30, 2021. Management believes that this will be sufficient to fund its operations and service its debt for the next twelve months. In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development. There can be no assurance that the Company will be able to raise additional capital or on what terms.
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.
Use of Estimates - The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP. Actual results could differ from those estimates.
Cash - Cash includes all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.
Recently Issued Accounting Pronouncements - During the ninesix months ended SeptemberJune 30, 2020 2021 there were several new accounting pronouncements issued by the FASB. Each of the new 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.
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 for period of loss.
Revenue Recognition -Revenue is recognized from the sale of subscriptions for the use of the Blackbox System web application, on a monthly or annual basis. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The performance obligation by the Company is in exchange for the monthly subscription fee, the subscriber is allowed access to the Blackbox System on the website for the calendar month. Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.
Reclassification - Affiliate referral expenses totaling $173,999$92,943 as of SeptemberJune 30, 2020 have been reclassed from cost of operations to selling, general and administrative expenses on the statement of operations.
3. Stockholders’Stockholders’ 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 rank pari passu with the Company’s Common Stock. AllUntil May 27, 2021 all shares arewere held by Gust C. Kepler, Director, Chief Executive Officer, and President and Chief Financial OfficersOfficer (“Mr. Kepler”). On May 27, 2021 Mr. Kepler sold and transferred 1,130,002 shares of the Series A Convertible Preferred Stock and as of June 30, 2021 he holds 3,869,998 shares.
On January 28, 2020 During the six months ended June 30, 2021 the Company issued 50,000 sharesexchanged a liability of its Common Stock at$180,000 for the purchase of a value of $2.00 to a third party in conjunction with the financing arrangement executed on January 27, 2020 (Note 6).
On July 6, 2020, warrants to purchase 115,385Simple Agreement for Future Tokens into 92,308 shares of Common Stock at $1.95 per share.
During the six months ended June 30, 2021 the Company sold 70,772 shares of Common Stock to third parties for $138,006 and issued in conjunction with Amended Convertible Promissory Notes, as described in Note 6, were exercised at $0.01 per share6,411 shares of Common Stock previously subscribed for aggregate cash consideration of $1,154.$12,500.
On August 27, 2020 the Company sold 5,129 shares of Common Stock to a third party for $10,001.
On August 28, 2020 the Company issued 3,334 shares of its Common Stock at a value of $1.95 to a third party in settlement of services provided for marketing and advertising.
On September 25, 2020 the Company issued 25,000 shares of its Common Stock at a value of $1.95 to a third party in conjunction with a consulting services agreement (Note 8).
During the quarter ended September 30, 2020 the Company sold 64,103 shares of Common Stock and Warrants, exercisable for a period of 5 years, to purchase 32,053 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $125,000.
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. 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 will be reported as an increase in stockholders’ equity.
Concurrently with the execution of certain securities purchase agreements, entered into,the Company issued warrants to purchase the Company’s Common Stock were issued to the subscribers.Stock. Each warrant is exercisable for a period of one to five years from the date of the securities purchase agreement at an exercise price of $1.95 per share (Note 3).agreement. The fair value cost at the date of issuance of these warrants was $614,805.$639,194.
In conjunction with the issuance of convertible notes payable as described in Note 6, a warrant for the purchase of up to 115,385 shares of Commoncommon Stock exercisable for a one-yearone-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-yearfive-year period was issued at an exercise price of $1.00 per share. During the quarteryear ended September 30,December 31, 2020, the warrants for the purchase of 115,385 shares of Common Stock were exercised at $0.01 and as of SeptemberJune 30, 2020, 2021, there are warrants fofor the purchase of up to 476,348479,554 shares of Common Stock outstanding.
Number of Shares | Exercise Price | Weighted Average Remaining Life (in years) | Number of Shares | Exercise Price | Weighted Average Remaining Life (in year) | ||||||||||||||||||||
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 | 84,295 | $1.95 | 4.53 | ||||||||||||||||||
Issued during 2020 | 115,385 | $ | 0.01 | 0 | $0.01 | - | $1.95 | ||||||||||||||||||
| Issued during 2020 | 32,053 | $ | 1.95 | ||||||||||||||||||||||
| Issued during 2020 | 360,000 | $ | 1.00 | ||||||||||||||||||||||
| Exercised during 2020 | (115,385 | ) | $ | 0.01 | |||||||||||||||||||||
| Warrants as of September 30, 2020 | 476,348 | $ | 0.97 | 8.57 | |||||||||||||||||||||
Exercise during 2020 | (115,385 | ) | $0.01 | ||||||||||||||||||||||
Warrants as of December 31, 2020 | 479,554 | $0.97 | |||||||||||||||||||||||
| Warrants as of June 30, 2021 | 479,554 | $0.97 | 7.95 | ||||||||||||||||||||||
5.Related Party Transactions
As of January 1, 2020 the Company was owed $9,823 from Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company. During the nine months ended September 30, 2020 Mr. Kepler repaid $6,890 and agreed to offset $2,933 of the advances as partial settlement of the note payable to him (Note 6).
During the year ended December 31, 2019 the Company advanced $1,500 to its VP/Director of Operations and the balance remains outstanding, is unsecured and 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 Mr. Kepler. As of June 30, 2021 and Secretary of2020 the Company and the Company’s controlling stockholder. As of both September 30, 2020 and 2019 the Company hashad a prepaid balance of $36,700 for public relations and marketing services with G2/IPA. These funds are reserved in anticipation of a future campaign to move the Company’s stock to listing on a national exchange.
6.Debt
A summary of the Company’s debt at SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, by counterparty, is as follows:
Shares if | Interest | Balance | |||||||||||||||||
Origination | Maturity | Convertible | Converted | Rate | 9/30/2020 | 12/31/2019 | |||||||||||||
Noteholder 1 | |||||||||||||||||||
08/08/2018 | 11/20/2018 | No | - | 12 | % | a | $ | 100,000 | $ | 100,000 | |||||||||
Noteholder 2 | |||||||||||||||||||
09/13/2019 | 08/12/2020 | No | - | b | - | 79,270 | |||||||||||||
10/04/2019 | 06/03/2020 | No | - | b | (1,624 | ) | 45,053 | ||||||||||||
10/30/2019 | 06/03/2020 | No | - | b | - | 27,690 | |||||||||||||
03/13/2020 | 08/13/2020 | No | - | b | - | - | |||||||||||||
01/27/2020 | 11/03/2020 | No | - | b | 26,910 | - | |||||||||||||
Noteholder 3 | |||||||||||||||||||
05/01/2020 | 05/01/2022 | No | - | 1 | % | c | 130,200 | - | |||||||||||
Noteholder 4 | |||||||||||||||||||
06/21/2018 | 05/22/2021 | No | - | 18 | % | d | 2,204 | 4,419 | |||||||||||
Noteholder 5, related party | |||||||||||||||||||
11/09/2018 | 05/01/2024 | No | - | 12 | % | e | 120,000 | 120,000 | |||||||||||
12/06/2018 | 11/30/2020 | No | - | - | f | 1,509 | 108,000 | ||||||||||||
Noteholder 6 | |||||||||||||||||||
| 05/21/2019 | 11/21/2019 | Yes | 285,585 | 18 | % | g | 436,231 | 442,750 | |||||||||||
Noteholder 7 | |||||||||||||||||||
| 07/17/2019 | 01/17/2020 | Yes | 119,791 | 18 | % | h | 182,981 | 165,000 | |||||||||||
Noteholder 8 | |||||||||||||||||||
03/23/2020 | 03/25/2021 | Yes | 38,462 | 52 | % | I | 75,000 | - | |||||||||||
Noteholder 9 | |||||||||||||||||||
03/23/2020 | 03/25/2021 | Yes | 12,821 | 52 | % | j | 25,000 | - | |||||||||||
| 456,659 | 1,098,411 | 1,092,182 | |||||||||||||||||
Less unamortized discount | (342,561 | ) | (52,153 | ) | |||||||||||||||
| $ | 755,850 | $ | 1,040,029 | ||||||||||||||||
Loan Description | 6/30/2021 | 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 | 130,200 | 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 | 14,819 | 133,405 | ||||||
Miscellaneous equipment loans | -- | 1,405 | ||||||
| 1,180,239 | 1,583,881 | |||||||
Less unamortized discount and debt issuance costs | (83,396 | ) | (294,119 | ) | ||||
Total notes payable | $ | 1,096,843 | $ | 1,289,762 | ||||
Current portion of long-term debt | 180,068 | 399,614 | ||||||
Long-term portion | $ | 916,775 | $ | 890,148 | ||||
Notes Payable
a – 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 was in default as of September 30, 2020. This note was repaid on Novermber 12, 2020. See Note 9.
b – On September 13, 2019 a third party advanced $90,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $490, through August 18, 2020. The related note discount of $27,000 was amortized as interest expense over the term of the agreement.
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 June 2020. Approximately $39,000 of this funding was settled with proceeds of the January 27, 2020 financing described in a later paragraph. The related note discount of $31,600 was amortized as interest expense over the term of the agreement.
On March 13, 2020 a third party advanced $35,000 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 was amortized as interest expense over the term of the agreement
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, and the debt was fully paid on November 5, 2020. The related note discount of $57,000 is being amortized over the term of the agreement for a total of $49,951 in interest expense as of September 30, 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 June 3, 2020.
c – 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. By December 31, 2020, theThe Company may apply for loan forgiveness following SBA guidelines and a portion or all of the loan may be forgiven.
Notes Payable, related party
e- On November 9, 2018, Mr. Kepler, 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. On November 12, 2020, Mr. Kepler and the Company agreed to waive the deault and extend the maturity to the earlier of May 1, 2024 or such time as the senior secured note issued contemporaneously with the waiver is repaid (see Note 9). Accrued interest due on the note is $27,640 as of September 30, 2020.
f- On December 6, 2018, Mr.Kepler, 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 nine months ended September 30, 2020 the Company repaid $103,558 in principal and Mr. Kepler agreed to offset previous cash advances of $2,933 to him as additional repayment of the note, reducing the balance due as of September 30, 2020 to $1,509.
Convertible Notes Payable
g- On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a $350,000, which included an original issue discount of 10% on the investment amount. The note specified that the note holder retain an original issue discount of 10% of any consideration, bore interest of 8%, and matured 180 days from the effective date. The note provided a redemption premium of 115% if retired after the 91st day. As the note was not retired on or before the maturity date, the note-holder was entitled to convert a portion or all the outstanding principal 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. The note was in default and the Company recorded a default fee of $57,750 which was added to the principal balance. The note included a conversion feature recorded at inception of $207,308.
h - On July 17, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value of $165,000, which included an original issue discount of 10% on the investment amount of $150,000. The note specified that the note holder shall retain an original issue discount of 10% of any consideration, bore interest of 8%, and matured 180 days from the effective date. The note provided for a redemption premium of 115% if retired after the 91st day. As the note was not retired on or before the maturity date, the note holder was entitled to convert a portion or all the outstanding principal into shares of the Company’s Common Stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95per 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. The note was in default and the Company recorded a default fee of $24,750 which was added to the principal balance. The note included a conversion feature recorded at inception of $135,000.
On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the third parties agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreements stipulate the Company will 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 cost at the date of issuance of the warrants was $371,243, reflected in paid in capital and the related debt discount is being amortized over the term of the Agreements.
i - On March 23, 2020 third parties advanced $75,000 and $25,000 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, secured by the Company’s assets, with rights to convert into the Company’s Common Stock at $0.60, and maturing on March 25, 2021. On June 23, 2020 the Company amended the notes 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 included the issuance of warrants for the purchase of up to 115,385 shares of Common Stock at a price of $0.01. On July 6, 2020 the holders exercised their warrants. 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 Company recognized a derivative liability in the amount of $34,999 as of September 30, 2020. As discussed in Note 9, the holders of these notes elected to convert the notes into common stock.
7. Derivative Liabilities
On March 23, 2020 notes payable in the principal amount of $100,000 were issued as convertible debt and qualified as derivative liabilities. As of September 30, 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:
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The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;
Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and
Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.
The following table presents the Company’s liabilities that were measured and recognized at fair value as of September 30, 2020:
| 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 | |||||||||
| Amendments | (224,066 | ) | ||||||||||
| Retirements | (522,065 | ) | ||||||||||
| Change in Fair Value | (942,176 | ) | ||||||||||
| Balance at June 30, 2020 | $ | $ | $ | 34,999 | ||||||||
8. Commitments and Contingencies
On August 11, 2020 the Company entered into a letter agreement with Winspear Investments, LLC (“Winspear”), pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters. The agreement provides 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 term. In the event Winspear continues to provide services, Winspear shall be compensated an additional grant of 3,000 shares per month for a total of twelve-months and such grants shall not exceed an aggregate issuance of 71,000 shares. The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ. The total shares issuable under the agreement shall not be less than a minimum of 35,000 and not exceed a maximum of 151,000 shares.
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. Subsequent Events
On October 7, 2020 the Company repaid $35,060 to a third party to cancel a previous unexecuted subscription for 35,200 shares of Common Stock dated May 24, 2018, which shares were not issued.
On October 14, 2020 the Company entered into a subscription agreement to sell 12,820 shares of Common Stock at $1.95 per share, to a third party, for aggregate consideration of $24,999.
On October 15, 2020 the Company entered into subscription agreements to sell 77,300 shares of Common Stock at $1.95 per share, to a third party, for aggregate consideration of $150,735.
On November 3, 2020 the Company entered into subscription agreements to sell 25,641 shares of Common Stock at $1.95 per share, to a third party, for aggregate consideration of $49,996.
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 an agreement with an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Mr. Kepler executed a guaranty in favor of FVP in connection with the loan. Proceeds from the loan will bewere used to repay anthe existing senior secured note payable in the amountloan balance of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes. In addition, the Company granted the Lender a security interest in substantially all of its assets.
Notes Payable, related party
On November 12,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 six months ended June 30, 2021 and year ended December 31, 2020the Company repaid $859 and $107,141, respectively, reducing the balance due as of June 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 am 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 certain amended and restated convertible promissory notes dated June 23, 2020 electedthe 8% Fixed Convertible Promissory Notes agreeing to convert obligations under such notestake no further action to avail themselves of the remedies of default defined in the aggregateNotes. The Agreements stipulate the Company remit payment of all accrued interest and principal amotunoutstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full. Upon execution of $100,000 intothese 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.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 is being amortized over the term of the Agreements.
7. Commitments and Contingencies
On August 11, 2020 the Company entered into a letter agreement with Winspear Investments, LLC (“Winspear”), 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 term. In the event Winspear continues to provide services, Winspear shall be compensated an additional grant of 3,000 shares per month for a total of twelve-months and such grants shall not exceed an aggregate issuance of 71,000 shares. The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ. The total shares issuable under the agreement shall not be less than a minimum of 35,000 and not exceed a maximum of 151,000 shares. As of June 30, 2021 59,000 common shares have been issued.
On February 22, 2021 the Company amended its lease with Teachers Insurance and Annuity Association of America (“TIAA”) to expand its space by approximately 847 square feet for a total of 2,685 square feet and extended the expiration date to September 30, 2025.
On April 14, 2021, the Company amended its lease with TIAA extending the lease expiration until September 30, 2028. The table below shows the future lease payment obligations.
Year ended | Amount | |||
2021 | 44,357 | |||
2022 | 88,792 | |||
2023 | 87,934 | |||
2024 | 89,948 | |||
2025 | 91,122 | |||
2026 and thereafter | 260,781 | |||
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.
8. Subsequent Events
On July 9 and July 14, 2021 holders of 1,130,002 of the Company’s Series A Convertible Preferred Shares converted their Series A Convertible Preferred Shares into 1,130,002 shares of the Company’s Common Stock.
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 shall be 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.
Item 2. Management’Management’ss 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, 2019,2020 as well as with our condensed financial statements and the notes thereto included elsewhere herein.
Overview
Blackboxstocks, Inc. is a financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of all levels. Our web-based software (the “Blackbox System”) employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the trading price of a stock or option. BlackboxWe continuously scansscan the NASDAQ, New York Stock Exchange CBOE,(“NYSE”), NASDAQ, Chicago Board Options Exchange (the “CBOE”) and other options markets, analyzing over 8,000 stocks and up to 900,000over 1,000,000 options contracts multiple times per second. We also provide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and 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 tradetrading strategies and market insight within the Blackbox community. We employ a subscription based Software as a Service (“SaaS”) business model and maintain a growing base of users that spans 42 countries.
The Blackbox 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 our platformthe Blackbox System web application for domestic use and made it available to subscribers in September 2016. Subscriptions for the use of the platformBlackbox System web application are sold on a monthly and/or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com.
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.” 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 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'sour ability to establish itselfthe Company as a profitable business. At SeptemberJune 30, 2021, we had an accumulated deficit of $ 7,415,599 and for the three and six months ended June 30, 2021, reported net losses of $243,336 and $230,781, respectively. By contrast, at December 30, 2020, the Company had an accumulated deficit of $6,665,961$7,184,818 and for the three and ninesix months ended SeptemberJune 30, 2020, reported a net loss of $72,710 and net income of $163,946,$193,827 and $236,657, respectively. By contrast, at September 30, 2019, the Company had an accumulated deficit of $5,002,609
In November 2020, we executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the threeLenders 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.
As a result of our debt financing and nine months ended Septembercash flows from operations, we had a cash balance of $626,490 at June 30, 2019, incurred net losses of $507,8592021. Management believes that this will be sufficient to fund our operations and $1,156,140, respectively. Management expects thatservice our debt requirements for the Companynext twelve months. In addition, management may needcontinue to raise additional debt or equity capital in order to sustain operations until such time as the Company can achieve consistent profitability. However,improve liquidity or finance more aggressive growth or development. Nevertheless, there can be no assurance that managementwe will be successful in obtainingable to raise additional fundingcapital or in attaining profitable operations on a consistent basis.what terms.
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 Companywe 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 16, 2020.March 31, 2021.
Liquidity and Capital Resources
At SeptemberJune 30, 2020, the Company2021, we had a cash balance of $165,477$626,490 and a working capital deficit of $1,869,126. Although the Company experienced substantial increases in revenues during 2020$932,752 as compared to 2019a cash balance of $972,825 and significantly lower lossesa working capital deficit of $990,738 at December 31, 2020. Our cash flows from operations were negative $26,192 for the six months ended June 30, 2021 as compared to a positive $87,680 for the prior year period. For the six months ended June 30, 2021, the net loss was largely offset by amortization of debt discount and net losses, there can be no assurance that such trends will continue. The company has current debt outstandingissuance costs. During the same period, the Company incurred capital expenditures in the amount of $1,098,411.$54,507 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 from financing activities was $265,636 for the six months ended June 30, 2021. This consisted of $403,642 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $50,039 in principal payments remaining on its convertible notes payable which will be paid in the third quarter of 2021. Principal payments on our $1,000,000 senior debt begin in December of 2021 at $10,000 per month until its maturity in November 2022, which can be extended. As a result of its financial position,retiring our convertible notes payable, the Company may not be able to generate sufficient cash flows from operations to sustain its operations andCompany’s debt service its debt. 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.
On November 12, 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note (the “FPV Note”) in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest and certain outstanding trade payables in the amount of $133,880. In addition, the Company granted the Lender a security interest in substantially all of its assets. Excluding transaction costs, the Company will receive net proceeds of approximately $666,000 after repayment of the notes and payables described above. Management believes that thisrequirements will be sufficient to fund its operations and service its debtsignificantly lower for the next twelve months. In addition, managementWe may continue to raisealso issue additional debtequity or equity capitaldebt in order to improve liquidity or finance more aggressive growth or development. Theredevelopment initiatives although there can be no assurance that the Companywe will be able to raise additional capitaldo so or on what terms. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company.
Sale of Common Stock and Warrants
During the nine months ended Sepember 30, 2020,We believe that the Company received subscriptions for the purchase of 69,232 shares of Common Stock at a cash price of $1.95 per share for an aggregate of $135,001. In connection with certain of the sales, warrantshas sufficient capital resources to purchase up to 32,053 shares of the Company’s Common Stock at a cash price of $1.95 per share were issued to certain of the subscribers.fund current operations and debt service requirements.
Results of Operations
Comparison of Three Months Ended SeptemberJune 30, 20202021 and 20192020
For the three months ended SeptemberJune 30, 2021 and 2020, our revenue was $1,463,606 and 2019, the Company’s revenue totaled $1,100,329 and $296,332,$808,848, respectively, for which our respective costsan increase of operations totaled $288,213 and $159,216.81%. The $803,997$654,758 increase in revenue resulted from growth in our usersubscriber base which is primarily attributablewas due to a consistent dailyadditional marketing and advertising spend duringexpenditures and continued acceptance of our platform. Cost of revenues for the period.three months ended June 30, 2021 and 2020 were $409,578 and $242,158, resulting in gross margins of 72% and 70%, respectively. The majorityprimary components of thecost of revenues include costs of operations arerelated to data and news feed expenses for exchange information totaling approximately $121,650which comprise the majority of the costs as well as the costs for program moderators. Costs for online program moderators increased 62% for the three monthsquarter ended SeptemberJune 30, 2020 and customer retention expenditures of $92,547. Other costs of operations include $46,497 for website maintenance.
For the three months ended September 30, 2020 the Company had operating expenses totaling $726,632 compared to $384,598 for the same period in 2019, an increase of $342,034. This change is primarily a result of an increase in selling, general and administrative expenses of $175,511, from $290,713 for the three months ended September 30, 2019 compared to $466,224 for the three months ended September 30, 2020, as a result of increases of $44,928 for referral expenses, salary and related employee expenses of $37,122, consulting and business development expense of $92,439 and $1,022 in aggregate other general and administrative expenses. We also incurred increased advertising and marketing expenses by $111,010 to $173,559 from $62,549 for the three months ended September 30, 20202021 as compared to the three months ended September 30, 2020. Software development costs also increased by $56,565 as a result2020 period and comprise the second largest portion of platform enhancement and related data feed expense.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 June 30, 2021, operating expenses were $1,171,551 compared to $519,974 for the same period in 2020, an increase of $651,577 or 125%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $315,991 for the three months ended June 30, 2020 compared to $615,727 for the three months ended June 30, 2021, an increase of 95%. The increase in selling, general and administrative expenses of $299,736 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in referral expenses of $37,766; professional and outside consulting services of $68,673, general administrative expenses of $42,842, salary and payroll of $134,491 and financing expense of $13,315. Advertising and marketing expenses increased by $204,456 or 143% from $142,732 in the three months ended June 30, 2020 to $347,188 in the three months ended June 30, 2021. Software development costs also increased significantly by $145,341 or 251% from $57,914 in the three months ended June 30, 2020 as compared to $203,255 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 June 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 June 30, 2021 was $117,523 as compared to income from operations of $46,717 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above. Non-operating expenses for the three months ended June 30, 2021 consisted of interest expense of $33,257 and amortization of debt discount of $92,556 resulting in a net loss for the period of $243,336. Non-operating expenses for the three months ended June 30, 2020 included interest expense of 61,265 and amortization of debt discount of $63,246. In addition, during the 2020 period we also incurred $282,693 of convertible debt expense and a gain on derivative liabilities of $554,315. These non-recurring items more than offset the interest expense and amortization of debt discount to result in net income for the period of $193,827. The amortization of debt discount will decline in the third quarter of 2021 and 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 NineSix Months Ended SeptemberJune 30, 20202021 and 20192020
For the ninesix months ended SeptemberJune 30, 2021 and 2020, our revenue was $2,953,274 and 2019, the Company’s revenue totaled $2,324,428$1,224,099, respectively, and $776,489, respectively, for which our respective costsincrease of operations totaled $700,723 and $438,168.141%. The $1,547,939$1,729,175 increase in revenue resulted from growth in our usersubscriber base which is primarilywas due to additional marketing and advertising expenditures and continued acceptance of our platform throughout the year. 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 aggressive growth began, as well as significant gains in the first quarter of 2021 which we believe were attributable to a consistent daily advertising spend duringunusual market activity in stocks such as Gamestop and AMC which we believe drove short term subscriptions. Cost of revenues for the period.six months ended June 30, 2021 and 2020 were $805,232 and $412,510 resulting in gross margins of 73% and 66%, respectively. The majorityhigher margins in the 2021 period were the result of increased leverage of fixed costs including the fixed cost components of the costs of operations are data and news feed expenses for exchange information totaling approximately $307,564which comprise the majority of the costs. Costs for online program moderators increased 74% for the ninesix months ended SeptemberJune 30, 2021 as compared to the 2020 period and customer retention expenditurescomprised the second largest portion of $241,403. Other costsour cost of operations included $92,314 for website maintenance and other costs of $59,442.revenues. 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 ninesix months ended SeptemberJune 30, 2020 the Company had2021, we incurred operating expenses totaling $1,722,218$2,120,312 compared to $1,107,004$995,585 for the same period in 2019,2020, an increase of $615,214. This change is primarily a result$1,124,727 or 113%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $665,436 for the six months ended June 30, 2020 to $1,222,414 for the six months ended June 30, 2021, an increase of 84%. The increase in selling, general and administrative expenses of $342,573, from $789,088 for the nine months ended September 30, 2019 compared$556,978 was primarily due to $1,131,661 for the nine months ended September 30, 2020, as a result of increases of $86,497 forin referral expenses of $126,404; professional and outside consulting services of $175,245; general administrative expenses of $94,076; salary and relatedpayroll of $70,389, consulting and business development expense of $156,125, investment and financing expense of $20,037, internet and computer expense of $46,235 and other general and administrative expense of $18,429 netted with$225,983, which were partially offset by a decrease in professional feesfinancing expenses of $55,140. We also incurred increased advertising$79,402. Advertising and marketing expenses of $203,336,increased by $323,424 or 140% from $201,299 for$231,076 in the threesix months ended SeptemberJune 30, 2019 compared2020 to $404,635 for$554,500 in the ninesix months ended SeptemberJune 30, 2020.2021. Software development costs also significantly increased by $73,461$241,448 or 262% from $92,245 in the six months ended June 30, 2020 as compared to $333,693 in same period in 2021. As noted above, 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 and were significantly higher in the second quarter of 2021 than in the first quarter.
For the six months ended June 30, 2021 we recorded income from operations of $27,610 as compared to a loss from operations of $183,996 for the six months ended June 30, 2020, an increase of $ 211,606. Gross margin for the six months ended June 30, 2021 of $2,147,922 was $1,336,333 or 165% higher than the same period in 2020, but was partially offset by $1,124,727 in higher operating expenses. Non-operating expenses for the six months ended June 30, 2021 consisted of interest expense of $74,295 and amortization of debt discount of $184,086 resulting in a net loss for the period of $230,781. Non-operating expenses for the six months ended June 30, 2020 included interest expense of $94,760 and amortization of debt discount of $114,853. In addition, the 2020 period also had $500,469 of convertible debt expense and a gain on derivative liabilities of $1,155,485. These non-recurring items more than offset the loss from operations as well as interest expense and amortization of debt discount to result in net income for the period of the enhancements to the platform and the related increased data feed expense.$236,657.
Off Balance Sheet Arrangements
As of SeptemberJune 30, 2020,2021, we did not have any material off-balance sheet arrangements.
Item 3. Quantitative 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.
Item 4. 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 SeptemberJune 30, 2020,2021, 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 SeptemberJune 30, 20202021 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 ended SeptemberJune 30, 20202021 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 Companywe only has one directorhave two directors and executive officerofficers dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officer/directorofficers and directors 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’sour current cash flow situation, the Company doeswe do not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.
None.
IItem 1A.tem 1A. RiskRisk 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 6, 2020, warrants to purchase 115,385June 16, 2021 we issued 11,000 shares of Common Stock issued in conjunction with Amended Convertible Promissory Notes were exercisedvalued at $0.01 per share for aggregate cash consideration of $1,154.
On July 10, 2020 the Company sold 25,641 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares of Common Stock at an exercise price of $1.95 per share, to third partiesWinspear Investments, LLC, in exchange for aggregate consideration of $49,995. A sales commission of $6,000 is payable in connection with the sale.
On July 31, 2020 the Company sold 25,641 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $49,995. A sales commission of $6,000 is payable in connection with the sale.
On August 14, 2020 the Company sold 12,821 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 6,411 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $25,001. A sales commission of $1,750 is payable in connection with the sale..
On August 27, 2020 the Company sold 5,129 shares of Common Stock to a third party for $10,001.
On August 28, 2020 the Company issued 3,334 shares of its Common Stock at a value of $1.95 to a third party in settlement of services provided for marketing and advertising.
On September 25, 2020 the Company issued 25,000 shares of its Common Stock at a value of $1.95 to a third party in conjunction with a consulting services agreement.services.
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. The CompanyWe 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’sour 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
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. This note was in default on Spetember 30, 2020 but was subsequently repaid on November 12, 2020.
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 September 30, 2020. On November 12, 2020 Mr. Kepler and the Company agreed to waive the deault and extend the maturity to the earlier of May 1, 2024 or such time as the FPV Note issued contemporaneously with the waiver is repaid.
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 effective date. The note provides for a redemption premium of 115% if retired after the 91st day. The noteholder paid the first consideration of $350,000 and no further consideration was remitted within the allowed thirty days. As the note was not retired on or before the maturity date, the noteholder is entitled to 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 noteholder’s election to convert. As of September 30, 2020 the note is in default.
On July 17, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value of $165,000, which included an original issue discount of 10% on the investment amount of $150,000. The note specifies that the noteholder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective date. The note provides for a redemption premium of 115% if retired after the 91st day. Until maturity, the noteholder may convert all or a portion of the outstanding principal into shares of Common Stock of the Company 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 is entitled to 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 or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the noteholder’s election to convert. As of September 30, 2020 the note is in default.Item 3. Defaults Upon Senior Securities
On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the third parties agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreements stipulate the Company will 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.None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5.OtherItem 5. Other Information
Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation
On November 12, 2020, the Company executed a Loan Agreement with certain Lenders and FVP Servicing LLC (“FPV”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company also entered into an Exclusivity Agreement with Feenix Payment Systems, LLC, an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company executed a Guaranty in favor of FVP in connection with the Loan Agreement. Proceeds from the loan will be to repay an existing secured note payable in the amount of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes. In addition, the Company entered into a Security Agreement pursuant to which it granted the Lender a security interest in substantially all of its assets as collateral for the loan obligations.None.
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 |
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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 (embedded within the Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith
* | 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.
| BLACKBOXSTOCKS INC. | |
By: |
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Gust Kepler | ||
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President, Chief Executive Officer and Secretary (Principal Executive Officer and | ||
EXHIBIT INDEX
Exhibit | Description |
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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 (embedded within the Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** |
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