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 | September 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 |
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Commission File No. |
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BLACKBOXSTOCKS INC. |
(Exact name of registrant as specified in its charter) |
Nevada | 45-3598066 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5430 LBJ Freeway, Suite 1485, | 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 |
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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, 202011, 2021 was 8,341,130.10,525,323.
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Item 1. | 2 | |
Balance Sheets as of September 30, | 2 | |
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Statements of Cash Flows for the Nine Months Ended September 30, | 5 | |
Notes to Financial Statements for the Three and Nine Months Ended September 30, 2021 and 2020 | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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 30,, 2020 2021 (Unaudited) and December 31, 20192020
September 30, | December 31, | September 30, | December 31 | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Assets | Assets | |||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 165,477 | $ | 21,172 | $ | 420,400 | $ | 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 September 30, 2021 and December 31, 2020, respectively | 16,698 | 17,990 | ||||||||||||||
Inventory | 14,757 | - | 23,457 | 17,661 | ||||||||||||
Other current assets | 1,804 | 0 | ||||||||||||||
Prepaid expenses | 112,914 | 44,643 | ||||||||||||||
Prepaid expenses, related party (Note 5) | 36,700 | 36,700 | ||||||||||||||
Total current assets | 200,468 | 26,917 | 611,973 | 1,089,819 | ||||||||||||
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 $76,426 and $61,961 at September 30, 2021 and December 31, 2020, respectively | 51,827 | 5,682 | ||||||||||||||
Right of use lease, net of amortization of $135,029 and $97,725 at September 30, 2021 and December 31, 2020, respectively | 414,070 | 62,348 | ||||||||||||||
Total property and equipment | 80,410 | 126,331 | 465,897 | 68,030 | ||||||||||||
Long term assets: | ||||||||||||||||
Advances receivable, related parties (Note 5) | - | 9,823 | ||||||||||||||
Prepaid expenses | 80,868 | 80,868 | ||||||||||||||
Prepaid expenses, related party (Note 5) | 36,700 | 36,700 | ||||||||||||||
Total long term assets | 117,568 | 127,391 | ||||||||||||||
Total Assets | $ | 398,446 | $ | 280,639 | ||||||||||||
Total assets | $ | 1,077,870 | $ | 1,157,849 | ||||||||||||
Liabilities and Stockholders' Deficit | Liabilities and Stockholders' Deficit | |||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 581,523 | $ | 632,287 | $ | 533,782 | $ | 352,545 | ||||||||
Accrued interest | 30,665 | 42,566 | 6,296 | 10,425 | ||||||||||||
Accrued interest, related party | 27,640 | 16,680 | ||||||||||||||
Unearned subscriptions | 416,741 | 189,007 | 773,139 | 1,016,157 | ||||||||||||
Lease liability right of use, current | 42,177 | 46,124 | 60,092 | 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 | ||||||||||||||
Notes payable, related party (Note 6) | 121,509 | 228,000 | ||||||||||||||
Derivative liability | 34,999 | 1,405,530 | ||||||||||||||
Senior secured note payable, current | 10,000 | 10,000 | ||||||||||||||
Convertible notes payable, net of discount of $-0- and $194,267 at September 30, 2021 and December 31, 2020, respectively (Note 7) | 35,220 | 257,150 | ||||||||||||||
Notes payable (Note 7) | 96,795 | 131,605 | ||||||||||||||
Notes payable, related party (Note 7) | 0 | 859 | ||||||||||||||
Total current liabilities | 2,069,594 | 3,552,223 | 1,515,324 | 1,999,214 | ||||||||||||
Long term liabilities: | ||||||||||||||||
Senior secured note payable, long term, net of debt issuance costs of $59,911 and $99,852 at September 30, 2021 and December 31, 2020, respectively | 930,089 | 890,148 | ||||||||||||||
Lease liability right of use, long term | 35,798 | 66,715 | 353,978 | 26,241 | ||||||||||||
Total long term liabilities | 1,284,067 | 916,389 | ||||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||||
Stockholders' Deficit: | ||||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 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 | ||||||||||||||
Stockholders' deficit | ||||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 0 | 0 | ||||||||||||||
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 3,269,998 and 5,000,000 issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 3,270 | 5,000 | ||||||||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized: 10,320,879 and 8,410,386 issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 10,321 | 8,410 | ||||||||||||||
Common stock, subscribed | 35,060 | 35,060 | 0 | 12,500 | ||||||||||||
Additional paid in capital | 4,910,784 | 3,443,640 | 6,186,463 | 5,401,154 | ||||||||||||
Accumulated deficit | (6,665,961 | ) | (6,829,907 | ) | (7,921,575 | ) | (7,184,818 | ) | ||||||||
Total Stockholders' Deficit | (1,706,946 | ) | (3,338,299 | ) | ||||||||||||
Total stockholders' deficit | (1,721,521 | ) | (1,757,754 | ) | ||||||||||||
Total Liabilities and Stockholders' Deficit | $ | 398,446 | $ | 280,639 | ||||||||||||
Total liabilities and stockholders' deficit | $ | 1,077,870 | $ | 1,157,849 | ||||||||||||
The accompanying notes are an integral part of these financial statements. |
Statements of Operations
For the Three and NineMonths Ended September 30,, 2020 2021 and 20192020
(Unaudited)
For the three months | For the nine months | For the three months ended | For the nine months ended | |||||||||||||||||||||||||||||
ended September 30, | ended September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||
Subscriptions | $ | 1,093,245 | $ | 289,632 | $ | 2,306,094 | $ | 755,244 | $ | 1,466,363 | $ | 1,093,245 | $ | 4,412,536 | $ | 2,306,094 | ||||||||||||||||
Other revenues | 7,050 | 6,700 | 18,300 | 21,245 | 5,451 | 7,084 | 12,552 | 18,334 | ||||||||||||||||||||||||
Merchandise sales | 34 | - | 34 | - | ||||||||||||||||||||||||||||
Total revenues | 1,100,329 | 296,332 | 2,324,428 | 776,489 | 1,471,814 | 1,100,329 | 4,425,088 | 2,324,428 | ||||||||||||||||||||||||
Cost of operations | 288,213 | 159,216 | 700,723 | 438,168 | ||||||||||||||||||||||||||||
Cost of revenues | 469,601 | 288,213 | 1,274,953 | 700,723 | ||||||||||||||||||||||||||||
Gross margin | 812,116 | 137,116 | 1,623,705 | 338,321 | 1,002,213 | 812,116 | 3,150,135 | 1,623,705 | ||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Software development costs | 83,705 | 27,140 | 175,950 | 102,489 | 111,898 | 83,705 | 445,591 | 175,950 | ||||||||||||||||||||||||
Selling, general and administrative | 466,224 | 290,713 | 1,131,661 | 789,088 | 1,098,427 | 466,225 | 2,320,841 | 1,131,661 | ||||||||||||||||||||||||
Advertising and marketing | 173,559 | 62,549 | 404,635 | 201,299 | 286,057 | 173,559 | 840,557 | 404,635 | ||||||||||||||||||||||||
Depreciation and amortization | 3,144 | 4,196 | 9,972 | 14,128 | 4,760 | 3,144 | 14,465 | 9,972 | ||||||||||||||||||||||||
Total operating expenses | 726,632 | 384,598 | 1,722,218 | 1,107,004 | 1,501,142 | 726,633 | 3,621,454 | 1,722,218 | ||||||||||||||||||||||||
Operating income (loss) | 85,484 | (247,482 | ) | (98,513 | ) | (768,683 | ) | (498,929 | ) | 85,483 | (471,319 | ) | (98,513 | ) | ||||||||||||||||||
Other (income) expense: | ||||||||||||||||||||||||||||||||
Interest expense | 33,469 | 37,373 | 128,229 | 94,078 | 30,281 | 33,469 | 104,576 | 128,229 | ||||||||||||||||||||||||
Convertible note financing | - | - | 500,469 | - | 0 | 0 | 0 | 500,469 | ||||||||||||||||||||||||
Gain on derivative liability | (10,757 | ) | - | (1,166,242 | ) | - | 0 | (10,757 | ) | 0 | (1,166,242 | ) | ||||||||||||||||||||
Default expense | - | - | 24,750 | - | 0 | 0 | 0 | 24,750 | ||||||||||||||||||||||||
Amortization of debt discount | 135,482 | 223,004 | 250,335 | 293,379 | 10,171 | 135,482 | 194,267 | 250,335 | ||||||||||||||||||||||||
Gain on forgiveness of note payable | (33,405 | ) | 0 | (33,405 | ) | 0 | ||||||||||||||||||||||||||
Total other (income) expense | 7,047 | 158,194 | 265,438 | (262,459 | ) | |||||||||||||||||||||||||||
Income (loss) before income taxes | (72,710 | ) | (507,859 | ) | 163,946 | (1,156,140 | ) | (505,976 | ) | (72,711 | ) | (736,757 | ) | 163,946 | ||||||||||||||||||
Income taxes | - | - | - | - | ||||||||||||||||||||||||||||
Income Taxes | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Net income (loss) | $ | (72,710 | ) | $ | (507,859 | ) | $ | 163,946 | $ | (1,156,140 | ) | (505,976 | ) | (72,711 | ) | (736,757 | ) | 163,946 | ||||||||||||||
Weighted average number of common shares outstanding - basic | 8,116,112 | 7,788,008 | 8,006,006 | 7,701,581 | ||||||||||||||||||||||||||||
Weighted average number of common | ||||||||||||||||||||||||||||||||
shares outstanding - basic | 9,717,580 | 8,116,112 | 8,942,024 | 8,006,006 | ||||||||||||||||||||||||||||
shares outstanding - fully diluted | 0 | 0 | 0 | 13,084,927 | ||||||||||||||||||||||||||||
Net income (loss) per share - basic | $ | (0.01 | ) | $ | (0.07 | ) | $ | 0.02 | $ | (0.15 | ) | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | 0.02 | ||||||||||
Net income per share - fully diluted | 0 | 0 | 0 | $ | 0.01 | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements. |
Statement of Stockholders’Stockholders’ Deficit
For the Nine Months Ended September 30,, 2020 2021 and 2019 2020
(Unaudited)
| Common | Additional | Preferred Stock | Series A | Common Stock | Common Stock | Additional | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Preferred Stock | Common Stock | Stock | Paid-in | Accumulated | Shares | Amount | Shares | Amount | Shares | Amount | Subscribed | Paid in Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Subscribed | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, December 31, 2019 | 0 | $ | 0 | 5,000,000 | $ | 5,000 | 7,908,231 | $ | 7,908 | $ | 35,060 | $ | 3,443,640 | $ | (6,829,907 | ) | $ | (3,338,299 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 in settlement of expenses | 0 | 0 | 0 | 0 | 50,005 | 50 | 0 | 99,950 | 0 | 100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares for cash | - | - | - | - | 191,354 | 191 | (109,000 | ) | 381,356 | - | 272,547 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 42,829 | 42,829 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in settlement of accrued expenses | - | - | - | - | 13,830 | 14 | - | 127,986 | - | 128,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2020 | 0 | 0 | 5,000,000 | 5,000 | 7,958,236 | 7,958 | 35,060 | 3,543,590 | (6,787,078 | ) | (3,195,470 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Imputed discount on convertible notes payable (Note 6) | - | - | - | - | - | - | - | 423,726 | - | 423,726 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for amendment of convertible notes payable | - | 0 | - | 0 | - | 0 | 0 | 282,693 | 0 | 282,693 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (1,156,140 | ) | (1,156,140 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 193,828 | 193,828 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2020 | 0 | 0 | 5,000,000 | 5,000 | 7,958,236 | 7,958 | 35,060 | 3,826,283 | (6,593,250 | ) | (2,718,949 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares for cash | - | - | - | - | 184,617 | 185 | - | 135,971 | - | 136,156 | 0 | 0 | 0 | 0 | 184,617 | 185 | 0 | 135,971 | 0 | 136,156 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in settlement of expenses | - | - | - | - | 53,339 | 53 | - | 106,447 | - | 106,500 | 0 | 0 | 0 | 0 | 3,334 | 3 | 0 | 6,497 | 0 | 6,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in exchange for services | - | - | - | - | 25,000 | 25 | - | 48,725 | - | 48,750 | 0 | 0 | 0 | 0 | 25,000 | 25 | 0 | 48,725 | 0 | 48,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible note forbearance extinguishment of derivative liability | - | - | - | - | - | - | - | 522,065 | - | 522,065 | - | 0 | - | 0 | - | 0 | 0 | 522,065 | 0 | 522,065 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for amendment of convertible notes payable | - | - | - | - | - | - | - | 653,936 | - | 653,936 | - | 0 | - | 0 | - | 0 | 0 | 371,243 | 0 | 371,243 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | 163,946 | 163,946 | - | 0 | - | 0 | - | 0 | 0 | 0 | (72,711 | ) | (72,711 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2020 | 0 | $ | 0 | 5,000,000 | $ | 5,000 | 8,171,187 | $ | 8,171 | $ | 35,060 | $ | 4,910,784 | $ | (6,665,961 | ) | $ | (1,706,946 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, December 31, 2020 | 0 | $ | 0 | 5,000,000 | $ | 5,000 | 8,410,386 | $ | 8,410 | $ | 12,500 | $ | 5,401,154 | $ | (7,184,818 | ) | $ | (1,757,754 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares for cash | 0 | 0 | 0 | 0 | 70,772 | 71 | 0 | 137,935 | 0 | 138,006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of subscribed shares | 0 | 0 | 0 | 0 | 6,411 | 6 | (12,500 | ) | 12,494 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in settlement of liabilities | 0 | 0 | 0 | 0 | 92,308 | 93 | 0 | 179,907 | 0 | 180,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 12,555 | 12,555 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2021 | 0 | 0 | 5,000,000 | 5,000 | 8,579,877 | 8,580 | 0 | 5,731,490 | (7,172,263 | ) | (1,427,193 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of in settlement of services | 0 | 0 | 0 | 0 | 11,000 | 11 | 0 | 21,439 | 0 | 21,450 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (243,336 | ) | (243,336 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2021 | 0 | 0 | 5,000,000 | 5,000 | 8,590,877 | 8,591 | 0 | 5,752,929 | (7,415,599 | ) | (1,649,079 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares from conversion of Series A preferred shares | 0 | 0 | (1,730,002 | ) | (1,730 | ) | 1,730,002 | 1,730 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants for compensation | - | 0 | - | 0 | - | 0 | 0 | 10,635 | 0 | 10,635 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of options for compensation | - | 0 | - | 0 | - | 0 | 0 | 422,899 | 0 | 422,899 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | 0 | - | 0 | - | 0 | 0 | 0 | (505,976 | ) | (505,976 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2021 | 0 | $ | 0 | 3,269,998 | $ | 3,270 | 10,320,879 | $ | 10,321 | $ | 0 | $ | 6,186,463 | $ | (7,921,575 | ) | $ | (1,721,521 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Cash Flows
For the Nine Months EndedSeptember 30,, 2020 2021 and 20192020
(Unaudited)
2020 | 2019 | For the nine months ended | ||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
September 30, | ||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | 163,946 | $ | (1,156,140 | ) | $ | (736,757 | ) | $ | 163,946 | |||||||||
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 | 14,465 | 9,972 | |||||||||||||||
Amortization of note discount | 250,335 | 346,088 | ||||||||||||||||||
Amortization of note discount and issuance costs | 234,208 | 250,335 | ||||||||||||||||||
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 | 55,250 | |||||||||||||||
Stock based compensation | 433,534 | 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 | (1,166,242 | ) | |||||||||||||
Convertible note default expense | Convertible note default expense | 24,750 | - | 0 | 24,750 | |||||||||||||||
Financing cost | - | 26,275 | ||||||||||||||||||
Lease expense | 1,086 | - | ||||||||||||||||||
Gain on forgiveness of note payable | (33,405 | ) | 0 | |||||||||||||||||
Right of use lease | (4,366 | ) | 1,086 | |||||||||||||||||
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | |||||||||||||||||||
Investments, market testing | - | (12 | ) | |||||||||||||||||
Accounts receivable | Accounts receivable | (14,489 | ) | (40 | ) | 1,292 | (14,489 | ) | ||||||||||||
Inventory | Inventory | (14,757 | ) | - | (5,796 | ) | (14,757 | ) | ||||||||||||
Other current assets | (1,804 | ) | 0 | |||||||||||||||||
Prepaid expenses | (68,271 | ) | 0 | |||||||||||||||||
Accounts payable | Accounts payable | (50,764 | ) | 34,387 | 181,237 | (50,764 | ) | |||||||||||||
Accrued interest | Accrued interest | (11,901 | ) | 23,143 | (4,129 | ) | (11,901 | ) | ||||||||||||
Accrued interest, related party | Accrued interest, related party | 10,960 | 10,920 | 0 | 10,960 | |||||||||||||||
Unearned subscriptions | Unearned subscriptions | 227,734 | 18,343 | (243,018 | ) | 227,734 | ||||||||||||||
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 92,379 | (657,924 | ) | (211,360 | ) | 92,379 | |||||||||||||
Cash flows from investing activities | ||||||||||||||||||||
Cash advances to related parties | - | (134,673 | ) | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of property and equipment | (60,610 | ) | 0 | |||||||||||||||||
Cash repayments from related parties | Cash repayments from related parties | 6,890 | 93,442 | 0 | 6,890 | |||||||||||||||
Purchases of property and equipment | - | (1,587 | ) | |||||||||||||||||
Net cash used in investing activities | Net cash used in investing activities | 6,890 | (42,818 | ) | (60,610 | ) | 6,890 | |||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Common stock issued for cash | Common stock issued for cash | 136,156 | 272,547 | 138,006 | 136,156 | |||||||||||||||
Common stock subscribed | - | - | ||||||||||||||||||
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 | ) | (331,573 | ) | ||||||||||||||||
Principal payments on convertible notes payable | (416,197 | ) | (13,289 | ) | ||||||||||||||||
Principal payments on notes payable, related parties | (859 | ) | (103,558 | ) | ||||||||||||||||
Net cash provided by (used in) financing activities | (280,455 | ) | 45,036 | |||||||||||||||||
Net increase in cash | 144,305 | 7,100 | ||||||||||||||||||
Cash - beginning of period | 21,172 | 28,001 | ||||||||||||||||||
Net increase (decrease) in cash | $ | (552,425 | ) | $ | 144,305 | |||||||||||||||
Cash - beginning of year | 972,825 | 21,172 | ||||||||||||||||||
Cash - end of period | Cash - end of period | $ | 165,477 | $ | 35,101 | $ | 420,400 | $ | 165,477 | |||||||||||
Supplemental disclosures | ||||||||||||||||||||
Supplemental disclosures: | ||||||||||||||||||||
Interest paid | Interest paid | $ | - | $ | - | $ | 108,705 | $ | 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 | $ | 2,933 | |||||||||||
Issuance of warrants for forbearance agreements | Issuance of warrants for forbearance agreements | $ | 371,243 | $ | - | $ | 0 | $ | 371,243 | |||||||||||
Preferred Series A shares converted to common shares | $ | 1,730 | $ | 0 | ||||||||||||||||
The accompanying notes are an integral part of these financial statements. |
BlackboxstocksBlackboxstocks Inc.
Notes to Financial Statements
For the Three and Nine Months Ended September 30,, 2020 2021 and 20192020
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 September 30, 2020, the Company had an accumulated deficit of $6,665,961 and for the nine months ended September 30, 2020 and 2019 the Company incurred net income of $163,946 and a net loss of $1,156,140, 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, 2020 the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company 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 $766,000 after repayment of the notes and payables described above. 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 nine months ended September 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 as
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, all of which were converted into 1,130,002 shares of common stock during July 2021. During August 2021, Mr. Kepler converted an additional 600,000 shares of the Series A Convertible Preferred Stock into 600,000 shares of common stock. As of September 30, 2021 Mr. Kepler held 3,269,998 shares.
On January 28, 2020 During the nine months ended September 30, 2021, the Company exchanged a liability of $180,000 for the purchase of a Simple Agreement for Future Tokens into 92,308 shares of common stock at $1.95 per share.
During the nine months ended September 30, 2021, the Company sold 70,772 shares of common stock to third parties for $138,006 and issued 6,411 shares of common stock previously subscribed for $12,500.
During the nine months ended September 30, 2021, the Company issued 50,00011,000 shares of its Common Stockcommon stock at 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 115,385 shares of Common Stock, issued in conjunction with Amended Convertible Promissory Notes, as described in Note 6, were exercised at $0.01$1.95 per share for aggregate cash consideration of $1,154.
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, 2020to the Company issued 25,000 shares of its Common Stock at a value of $1.95totaling $21,450 to a third party in conjunction with a consulting services agreement (Note 8).Winspear Investments LLC.
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
Until January 1, 2021, the fair value cost iswas computed utilizing the Black-Scholes model and assuming volatilityusing the following inputs: the price of the Company’s common stock on the date of issuance, a risk-free interest rate based on U.S. Treasury yieldapplicable treasury rates, for a similar period. The costand expected volatility of these warrants was not recognized in the financial statements because they were granted in connection with raising capital forCompany’s common stock of based on historical volatility, various exercise prices, and terms reflecting the Company. Whenterm of the options or warrants are exercised, the receipt of consideration will be reported as an increase in stockholders’ equity.warrant issued.
Concurrently with the execution of certain securities purchase agreements entered into,during 2020, 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 6,7, 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.
Beginning January 1, 2021, the Company computes fair value cost using the Cox-Ross-Rubinstein binomial model. During the quarterperiod ended September 30, 2020,2021, the Company estimated the fair value of the warrants forbased on assumptions used in the purchaseCox-Ross-Rubinstein binomial pricing model using the following inputs: the price of 115,385 sharesthe Company’s common stock on the date of Common Stock were exercised at $0.01issuance, a risk-free interest rate of 1.30%, and asexpected volatility of September 30, 2020, there are warrants fo50% based on the purchasevolatility of comparable publicly traded entities, various exercise prices, and terms of up to 476,348 shares of Common Stock outstanding.
Number of Shares | Exercise Price | Weighted Average Remaining Life (in years) | ||||||||||
Warrants as of December 31, 2018 | - | - | ||||||||||
Issued during 2019 | 84,295 | $ | 1.95 | |||||||||
Warrants as of December 31, 2019 | 84,295 | $ | 1.95 | 4.53 | ||||||||
Issued during 2020 | 115,385 | $ | 0.01 | |||||||||
| 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 | ||||||||
5. Related Party Transactions10 years.
As of January 1, 2020 On September 11, 2021, the Company was owed $9,823 from Gust C. Kepler, a Director, President, Chief Executive Officer,issued Robert Winspear, Chief Financial Officer, Secretary and Secretarya director of the Company. DuringCompany, a warrant to purchase up to 100,000 shares of common stock exercisable for a ten-year period at an exercise price of $1.95. The warrants vest monthly over 36 months after the nine months ended September 30, 2020 Mr. Kepler repaid $6,890 and agreed to offset $2,933issuance date. The fair value of these warrants at the advancesissuance date was $382,571, which is being expensed as partial settlement of the note payable to him (Note 6).vesting occurs.
The following table presents the Company’s warrants as of September 30, 2021 and December 31, 2020:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (in years) | ||||||||||
Warrants as of December 31, 2019 | 84,295 | $ | 1.95 | 4.45 | ||||||||
Issued | 510,644 | $ | 0.84 | 5.00 | ||||||||
Exercised | (115,385 | ) | $ | 0.01 | - | |||||||
Warrants as of December 31, 2020 | 479,554 | $ | 1.24 | 4.34 | ||||||||
Issued | 152,602 | $ | 1.80 | 10.00 | ||||||||
Exercised | 0 | $ | 0 | - | ||||||||
Warrants as of September 30, 2021 | 632,156 | $ | 1.37 | 4.64 | ||||||||
At September 30, 2021, warrants for the purchase of 534,937 shares were vested and warrants for the purchase of 97,219 shares remained unvested. The Company expects to incur expenses for the unvested warrants totaling $371,936 as they vest.
5. Incentive Stock Plan
On August 11, 2021, the Company filed an information statement with the SEC disclosing that the Company had created the 2021 Blackboxstocks, Inc. Incentive Stock Plan (the “Plan”). The Plan provides for the grant of stock options and restricted stock grants to employees, directors and certain non-employee consultants. The Plan is administered by the Company’s board of directors or a committee thereof. 750,000 shares of the common stock are reserved for issuance under the plan.
During the yearperiod ended December 31, 2019 September 30, 2021, the Company advanced $1,500 to its VP/Directorestimated the fair value of Operationsthe options based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance; a risk-free interest rate of 1.30%, and expected volatility of 50% based on the balance remains outstanding, is unsecuredvolatility of comparable publicly traded entities, various exercise prices, and bears no interest.terms of 10 years.
On August 31, 2021, options to purchase up to 597,500 shares of common stock exercisable for a ten-year period were issued at an exercise price of $2.99. The fair value of these options at the issuance date was $1,076,340, which is being expensed as vesting occurs over the applicable service periods.
On September 11, 2021, options to purchase up to 15,000 shares of common stock exercisable for a ten-year period were issued at an exercise price of $4.96. The fair value of these options at the issuance date was $44,823, which is being expensed as vesting occurs over the applicable service periods. In addition, 6,048 shares of restricted common stock were granted on Spetember 11,2021 and vest monthly over twelve months. As of September 30, 2021, none of the restricted common stock shares have vested or been issued.
The following table presents the Company’s options as of September 30, 2021 and December 31, 2020:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (in years) | ||||||||||
Options as of December 31, 2020 | 0 | $ | 0 | - | ||||||||
Issued | 612,500 | $ | 3.04 | 10.00 | ||||||||
Exercised | 0 | $ | 0 | - | ||||||||
Options as of September 30, 2021 | 612,500 | $ | 3.04 | 9.92 | ||||||||
At September 30, 2021, options to purchase 222,085 shares were vested and options to purchase 390,415 shares remained unvested. The Company expects to incur expenses for the unvested options totaling $698,264 as they vest.
6.Related Party Transactions
G2 International, Inc. (“(“G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer Mr. Kepler. As of September 30, 2021 and Secretary of2020 the Company and the Company’s controlling stockholder. 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 campaignexpected to movebe used over the Company’s stocknext three to listing on a national exchange.six months.
6. 7.Debt
A summary of the Company’s debt at September 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 | ||||||||||||||||
9/30/2021 | 12/31/2020 | |||||||
$1,000,000 12% Senior secured note due November 12 2022 | $ | 1,000,000 | $ | 1,000,000 | ||||
$130,200 loan bearing interest at 1% per annum maturing May 1, 2022 issued under the Payroll Protection Program | 96,795 | 130,200 | ||||||
$108,000 related party note payable due November 30, 2020 | - | 859 | ||||||
$385,000 8% convertible note payable due July 2021 | 35,220 | 318,012 | ||||||
$165,000 8% convertible note payable due July 2021 | 0 | 133,405 | ||||||
Miscellaneous equipment loans | - | 1,405 | ||||||
| 1,132,015 | 1,583,881 | |||||||
Less unamortized discount and debt issuance costs | (59,911 | ) | (294,119 | ) | ||||
Total notes payable | $ | 1,072,104 | $ | 1,289,762 | ||||
Current portion of long-term debt | 142,015 | 399,614 | ||||||
Long-term portion | $ | 930,089 | $ | 890,148 | ||||
Notes Payable
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, During August 2021, the Company may apply forreceived partial loan forgiveness followingfrom the SBA guidelines and a portion or all ofreducing 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 repaymentbalance 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.$96,795.
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 nine months ended September 30, 2021 and year ended December 31, 2020the Company repaid $859 and $107,141, respectively, reducing the balance due as of September 30, 2021 to $0.
Convertible Notes Payable
On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party with a face value of $385,000, which included an original issue discount of 10% on the investment amount. On July 17, 2019, the Company issued another 8% Fixed Convertible Promissory Note with a face value of $165,000 which also included an original discount of 10% on the investment amount. The two notes contain substantially identical terms. The Company recorded the value of the notes conversion feature in the amount of $342,308 at inception. The Company defaulted on the notes and incurred default fees of $57,750 and $24,750 for the years ended December 31, 2019 and 2020, respectively which amounts were added to the principal balance.
On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the holders of 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 was amortized over the term of the Agreements.
During the nine months ended September 30, 2021, the Company repaid $133,405 of the principal on the July 17, 2019 note, reducing the balance due as of September 30, 2021 to $0. During the nine months ended September 30, 2021, the Company repaid $282,792 of the principal on the May 21, 2019 note, reducing the balance due as of September 30, 2021 to $35,220.
8. Commitments and Contingencies
On August 11, 2020 the Company entered into a letter agreement with Winspear Investments, LLC (“Winspear”), an entity controlled by Robert Winspear, Winspear, Chief Financial Officer, Secretary and a director of the Company, pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters. The agreement provided for a minimum three-month term and that Winspear would be compensated with the grant of 20,000 shares of the Company’s common stock at inception and an additional 5,000 shares per month for the initial three months and an additional grant of 3,000 shares per month thereafter. The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ. As of September 30, 2021, 59,000 common shares have been issued and 9,000 shares remain payable to Winspear. On November 9, 2021, the Company was approved for listing on the NASDAQ Capital Market and the remaining 80,000 shares became payable to Winspear (see Note 9 Subsequent Events).
On February 22, 2021 the Company amended its lease 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 Ending December 31, | Amount | |||
2021 | $ | 22,291 | ||
2022 | 88,792 | |||
2023 | 87,934 | |||
2024 | 89,948 | |||
2025 | 9,112 | |||
Thereafter | 260,781 | |||
| $ | 558,858 | |||
The Company is not currently a defendant in any material litigation or any threatened litigation that could have a material effect on the Company’s financial statements.
9. Subsequent Events
On November 9, 2021 the Company entered into an underwriting agreement with Alexander Capital LP as representative for the underwriters named therein, pursuant to which the Company sold 2,400,000 shares of its Common Stock at an offering price of $5.00 in an underwritten public offering upon which its shares became listed on the NASDAQ Capital Market. Net proceeds to the Company after underwring discounts and offering expenses were approximately $10,610,000. The underwriting agreement grants the underwriter(s) an over-allotment option whereby they may purchase up to 360,000 additional shares of the Company’s Common Stock at $5.00 per share for a period of 45 days. The Company also granted the underwriter a warrant to purchase up to 6% of the total shares offered (144,000 shares) at a price equal to 125% of the oferring price for a period term of five years.The agreement also includes standard indemnification provisions between the Company and the Underwriter.
On November 1, 2021, the Company issued 204,444 shares of common stock undrer the cashless exercise provision of warrants exercisable for the purchase of 240,000 shares of Common Stock.
Item 2. Management’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.Nasdaq Stock Market LLC (the “OTC Pink”“Nasdaq”) 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's ability to establish itself as a profitable business. At September 30, 2020, the Company had an accumulated deficit of $6,665,961 and for the three and nine months ended September 30, 2020, reported a net loss of $72,710 and net income of $163,946, respectively. By contrast, at September 30, 2019, the Company had an accumulated deficit of $5,002,609 and for the three and nine months ended September 30, 2019, incurred net losses of $507,859 and $1,156,140, respectively. Management expects that the Company may need to raise additional capital to sustain operations until such time as the Company can achieve consistent profitability. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations on a consistent basis.
The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
Significant Accounting Policies
There have been no changes from the Summary of Significant Accounting Policies described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 16, 2020.March 31, 2021.
Liquidity and Capital Resources
At September 30, 2020, the Company2021, we had a cash balance of $165,477$420,400 and a working capital deficit of $1,869,126. Although the Company experienced substantial increases in revenues during 2020$903,351 as compared to 2019a cash balance of $972,825 and significantly lower losses from operations and net losses, there can be no assurance that such trends will continue. The company has current debt outstanding in the amounta working capital deficit of $1,098,411. As a result of its financial position, the Company may not be able to generate sufficient$990,738 at December 31, 2020. Our cash flows from operations to sustain its operations and 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 agentwere ($211,360) 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 this will be sufficientnine months ended September 30, 2021 as compared to fund its operations and service its debt$92,379 for the next twelve months. In addition, management may continue to raise additionalprior year period. For the nine months ended September 30, 2021, the net loss was largely offset by amortization of 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.
Sale of Common Stockdiscount and Warrants
debt issuance costs as well as stock based compensation. During the nine months ended SepemberSeptember 30, 2020,2021, the Company received subscriptions foralso incurred capital expenditures in the amount of $60,610 related primarily to the purchase of 69,232new servers. We do not expect this level of capital expenditures to continue for the next twelve months.
Net cash used in financing activities was $280,455 for the nine months ended September 30, 2021. This consisted of $418,461 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $35,220 in principal payments remaining on its convertible notes payable which are expected to be paid in the fourth quarter of 2021. Principal payments on our $1,000,000 senior debt begin in December 2021 at $10,000 per month until its maturity in November 2022, which can be extended. As a result of retiring our convertible notes payable, the Company’s debt service requirements will be significantly lower for the next twelve months.
On November 9, 2021 the Company enter into an underwriting ageeement pursuant to which it sold 2,400,000 shares of its Common Stock at a cashan offering price of $1.95 per share$5.00 in an underwritten public offering upon which our shares became listed on the NASDAQ Capital Market. Net proceeds to the Company after underwring discounts and offering expenses were approximately $11,610,000. We expect to use proceeds from this offering to further develop our Blackbox System platform, expand our product offerings, fund marketing efforts to grow our subscriber base, as well as for an aggregategeneral and administration expenses and other general corporate purposes.
We believe that the Company has sufficient capital resources to fund current operations and debt service requirements.
Results of Operations
Comparison of Three Months Ended September 30, 20202021 and 20192020
For the three months ended September 30, 2020 and 2019, the Company’s revenue totaled $1,100,329 and $296,332, respectively, for which our respective costs of operations totaled $288,213 and $159,216. The $803,997 increase in revenue resulted from growth in our user base which is primarily attributable to a consistent daily advertising spend during the period. The majority of the costs of operations are data feed expenses for exchange information totaling approximately $121,650 for the three months ended September 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, 2021 and 2020, our revenue was $1,471,814 and $1,100,329, respectively, an increase of 34%. The $371,485 increase in revenue resulted from growth in our subscriber base which we beleve resultred from additional marketing and advertising expenditures and continued subscriber acceptance and use of our platform. Cost of revenues for the Company hadthree months ended September 30, 2021 and 2020 were $469,601 and $288,213, resulting in gross margins of 68% and 74%, respectively. The primary components of cost of revenues include costs related to data and news feed expenses for exchange information which comprise the majority of the costs, as well as the costs for program moderators. Costs for online program moderators increased 44% for the quarter ended September 30, 2021 as compared to the 2020 period and comprise the second largest portion of our cost of revenues. We do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.
For the three months ended September 30, 2021, operating expenses totaling $726,632were $1,501,142 compared to $384,598$726,633 for the same period in 2019,2020, an increase of $342,034. This change is primarily a result$774,509 or 107%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $466,225 for the three months ended September 30, 2020 compared to $1,098,427 for the three months ended September 30, 2021, an increase of 136%. The increase in selling, general and administrative expenses of $175,511, from $290,713$632,202 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in referral expenses, professional and outside consulting services, and salary and stock based compensation. Stock based compensation expense was $433,544 for the three months ended SeptemberSpetember 30, 2019 compared to $466,224 for2021. Advertising and marketing expenses increased by $112,498 or 65% from $173,559 in 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 businessto $286,057 in the three months ended September 30, 2021. Software development expense of $92,439 and $1,022costs also increased by $28,193 or 34% from $83,705 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, 2020 as compared to $111,898 in same period in 2021. The increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development.
We expect to continue to incur increases in our operating costs for the foreseeable future. Expense increases for advertising and marketing activities should correlate most closely to sales growth, but as seen in the 2021 quarter, will not necessarily be directly correlated. Software development costs were relatively low in the quarter ended September 30, 2020 due to limited capital resources of the Company at that time. We anticipate that software development costs will remain relatively consistent with their current level through the balance of calendar 2021 and that any significant increases will be attributable to new product development.
Loss from operations for the three months ended September 30, 2020. Software development costs2021 was $498,929 as compared to income from operations of $85,483 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above with stock based compensation of $433,544 accounting for approximately 74% of the change. Non-operating expenses for the three months ended September 30, 2021 consisted of interest expense of $30,281 and amortization of debt discount of $10,171, as well as non-operating income of $33,405 from the gain on forgiveness of notes payable, resulting in a net loss for the period of $505,976. Non-operating expenses for the three months ended September 30, 2020 included interest expense of 33,469 and amortization of debt discount of $135,482. In addition, during the 2020 period we also increased by $56,565had a gain on derivative liabilities of 10,757. These non-recurring losses offset the gain from operations and result in net loss for the period of $72,711. The amortization of debt discount has declined in the third quarter of 2021 and will be eliminated with the retirement of the related debt resulting in net interest expense that should remain consistent at its current levels for the next year.
Comparison of Nine Months Ended September 30, 2021 and 2020
For the nine months ended September 30, 2021 and 2020, the our revenue was $4,425,088 and $2,324,428, respectively, an increase of 90%. The $2,100,660 increase in revenue resulted from growth in our subscriber base which we believe resulted from additional marketing and advertising expenditures and continued subscriber acceptance and use of our platform throughout the year. Relative growth was stronger in the first quarter of 2021 than the second quarter as a resultthe first quarter of platform enhancement2020 was when the Company’s aggressive growth began, as well as significant gains in the first quarter of 2021 which we believe may have been attributable to unusual market activity in stocks such as Gamestop and related data feed expense.AMC which we believe could have drove short term subscriptions. Cost of revenues for the nine months ended September 30, 2021 and 2020 were $1,274,953 and $700,723 resulting in gross margins of 71% and 70%, respectively. As noted above, we do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.
ComparisonFor the nine months ended September 30, 2021, we incurred operating expenses totaling $3,621,454 compared to $1,722,218 for the same period in 2020, an increase of Nine Months Ended $1,899,236 or 110%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $1,722,218 for the nine months ended September 30, 2020 to $3,621,454 for the nine months ended September 30, 2021, an increase of 105%. The primary components of the $1,189,180 increase were increases in referral expenses, professional and 2019outside consulting services, and salary and stock based compensation. Advertising and marketing expenses increased by $435,922 or 108% from $404,635 in the nine months ended September 30, 2020 to $840,557 in the nine months ended September 30, 2021. Software development costs also significantly increased by $269,641 or 153% from $175,950 in the nine months ended September 30, 2020 as compared to $445,591 in same period in 2021. As noted above, the increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development.
For the nine months ended September 30, 2020 and 2019, the Company’s revenue totaled $2,324,428 and $776,489, respectively, for which our respective costs2021 we recorded a loss from operations of operations totaled $700,723 and $438,168. The $1,547,939 increase in revenue resulted from growth in our user base which is primarily attributable$471,319 as compared to a consistent daily advertising spend during the period. The majorityloss from operations of the costs of operations are data feed expenses for exchange information totaling approximately $307,564$98,513 for the nine months ended September 30, 2020, and customer retention expenditures of $241,403. Other costs of operations included $92,314 for website maintenance and other costs of $59,442.
For the nine months ended September 30, 2020 the Company had operating expenses totaling $1,722,218 compared to $1,107,004 for the same period in 2019, an increase of $615,214. This change is primarily a result of an increase in selling, general and administrative$372,806 due to increased operating expenses. Non-operating expenses of $342,573, from $789,088 for the nine months ended September 30, 2019 compared to $1,131,6612021 consisted of interest expense of $104,576, amortization of debt discount of $194,267, and a gain on the foregiveness of a note payable of $33,405 resulting in a net loss for the period of $736,757. Non-operating expenses for the nine months ended September 30, 2020 as a result of increases of $86,497 for referral expenses, salary and related of $70,389, consulting and business developmentincluded interest expense of $156,125, investment$128,229, amortization of debt discount of $250,335, and financingdefault expense of $20,037, internet$24,750. In addition, during 2020, we incurred $500,469 of convertible debt expense and computera gain on derivative liabilities of $1,166,242. These non-recurring items more than offset the loss from operations as well as interest expense and amortization of $46,235 and other general and administrative expense of $18,429 netted with a decreasedebt discount to result in professional fees of $55,140. We also incurred increased advertising and marketing expenses of $203,336, from $201,299net income for the three months ended September 30, 2019 compared to $404,635 for the nine months ended September 30, 2020. Software development costs also increased by $73,461 as a resultperiod of the enhancements to the platform and the related increased data feed expense.$163,946.
Off Balance Sheet Arrangements
As of September 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 Robert Winspear, our principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of September 30, 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 September 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
ThereOn September 11, 2021 the Company appointed Robert Winspear as its Chief Financial Officer and Secretary. This appointment provides for additional segregation of duties as both of these offices were previously held by our Chief Executive Officer. In addition, the Company also appointed three new independent directors and created an audit committee, compensation committee and a nominating and governance committee. Part of Mr. Winspear’s responsibilities will be to design and implement improved internal controls. Except as provided above, there were no other changes in our internal controls over financial reporting during the quarter ended September 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 Company only has one director and executive officer dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of the Company’s current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.
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 toAugust 31, 2021, our Board of Directors granted stock options for the purchase 115,385of an aggregate of 597,500 shares of Commoncommon stock to certain employees and consultants and on September 11, 2021 granted options on an additional 15,000 shares to our independent directors under the terms of our 2021 Stock issued in conjunction with Amended Convertible Promissory Notes were exercised at $0.01 per share for aggregate cash consideration of $1,154.Incentive Plan.
On July 10, 2020September 11, 2021, we issued a warrant to Robert Winspear for the Company sold 25,641purchase of 100,000 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares ofour Common Stock at an exercise price of $1.95 per share, to third parties for aggregate considerationshare. The warrant vests ratably over 36 months and has a term 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.ten years.
The securities described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. 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.None.
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.Item 4. Mine Safety Disclosures
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.Not applicable.
None.
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.
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.
Item 4. Mine Safety Disclosures
Not applicable.
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.
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 (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November | BLACKBOXSTOCKS INC. | |
By: |
| |
Gust Kepler | ||
President, Chief Executive Officer and Secretary (Principal Executive Officer) | ||
By: | /s/ Robert Winspear | |
Robert Winspear | ||
Chief Financial Officer and and Accounting Officer) | ||
EXHIBIT INDEX
Exhibit | Description |
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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 (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith