The accompanying
notes are an integral part of these financial statements.
The accompanying
notes are an integral part of these financial statements.
The accompanying
notes are an integral part of these financial statements.
The accompanying
notes are an integral part of these financial statements.
Notes to Financial Statements
For the Three and Six Months Ended June 30,
2019 and 2018
1. Organization
Blackboxstocks Inc. (the “Company”)
was incorporated on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect
the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan
of Reorganization confirmed by the United States Bankruptcy Court for the Northern District of Texas for reorganization under Chapter
11 of the United States Bankruptcy Code.
On December 1, 2015, the Company entered into
a Share Exchange Agreement (“Exchange Agreement”), by and among the Company, Tiger Trade Technologies, Inc. (“Tiger
Trade”), a Texas corporation and the stockholders of Tiger Trade. As a result of the Exchange Agreement transaction, the
Tiger Trade stockholders acquired approximately 88.64% of the issued and outstanding capital stock of the Company, and Tiger Trade
became a wholly owned subsidiary of the Company.
On February
8, 2016, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Tiger Trade, providing
for the merger of Tiger Trade with and into the Company. At the effective time of the merger (February 9, 2016), the shares of
Tiger Trade capital stock outstanding immediately before the effective time were canceled, retired and the Tiger Trade corporate
entity ceased to exist.
The Company filed a Certificate of Amendment
to its Articles of Incorporation effective as of March 9, 2016, changing the name of the Company to Blackboxstocks Inc.
The Company is in the business of developing
and marketing web and mobile based analytical software tools as a subscription based software as a service (the “Blackbox
System”) to serve as a tool for day traders and swing traders on various securities exchanges and markets, including the
OTC Markets Group, Inc. (“OTC”), the New York Stock Exchange, the NYSE MKT, LLC (formerly the American Stock Exchange),
the NASDAQ markets, the Hong Kong Stock Exchange (“HKEX”), the Shanghai Stock Exchange (“SSE”) and the
Shenzhen Stock Exchange (“SZSE”).
The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”),
which contemplate continuation of the Company as a going concern, which is dependent upon the Company's ability to obtain sufficient
financing or establish itself as a profitable business. At June 30, 2019, the Company had an accumulated deficit of $4,494,751
and for the six months ended June 30, 2019 and 2018, the Company incurred net losses of $648,282 and $446,518, respectively. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with
respect to operations include the sustained and aggressive marketing of subscriptions for the Blackbox System both domestically
and abroad and raising additional capital through sales of equity or debt securities as may be necessary to pursue its business
plans and sustain operations until such time as the Company can achieve profitability. Management believes that aggressive marketing
combined with additional financing as necessary will result in improved operations and cash flow in 2019 and beyond. However, there
can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.
The financial statements do not include adjustments
relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company
be unable to continue in operation.
2. Summary of Significant Accounting Policies
The accompanying interim unaudited financial
statements and footnotes of Blackboxstocks Inc. have been
prepared in accordance with GAAP. The financial
statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such
adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies
normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules
and regulations. These financial statements should be read in conjunction with the audited financial statements and the notes thereto
included in the Company’s Annual Report. The accompanying unaudited financial statements reflect all normal recurring adjustments
necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not
necessarily indicative of the results for any subsequent quarter or the entire year ending December 31, 2019.
Basis
of
Presentation
- The accompanying financial statements were prepared in conformity with GAAP.
Use of Estimates
– The Company’s
financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and
liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity
with GAAP. Actual results could differ from those estimates.
Cash
- Cash includes all highly liquid
investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three
months or less.
Fair Value of Financial Instruments
- The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
820,
Fair Value Measurement
, defines fair value, establishes a framework for measuring fair value in accordance with GAAP,
and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon
quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed
models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s
creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently
over time.
Recently Issued Accounting Pronouncements
- During the six months ended June 30, 2019 and 2018, there were several new accounting pronouncements issued by the FASB.
Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption
of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU
2016-02, Leases. This is a comprehensive new leases standard that amends various aspects of existing guidance for leases and
requires additional disclosures about leasing arrangements. It requires all leases that have a term in excess of 12 months be
recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset value based on
the present value of future aggregate payments. Recognition of the costs of these leases on the income statement will be
dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue
to be recognized as a single operating expense on a straight-line basis over the term of the lease. Costs for a financing
lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This standard became effective beginning January 1, 2019 and was
adopted on our financial statements. The Company recorded the right-of-use asset for the lease in the amount of $160,073
and the related lease liability. The current liability for the lease is $44,664 and non-current of $96,796 as of June 30,
2019.
Property and Equipment
- The Company
is engaged in the development of its proprietary Blackbox System technology, an algorithm driven system, through a combination
of in-house system analysts and outside firms. The Company’s Blackbox System software for use in China was in development
and costs were expensed until the software reached technological feasibility in April 2017 and capitalized until May 15, 2017 when
the Blackbox
System for use in China was marketable.
The Company’s property and equipment
is being depreciated on the straight-line basis over an estimated useful life of three years.
Earnings or (Loss) Per Share
- Basic
earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number
of common stock shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities
by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities
or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period. Therefore,
because including shares issuable upon conversion of convertible securities and/or exercise of outstanding options and warrants
would have an anti-dilutive effect on the loss per share, only the basic earnings (loss) per share is reported in the accompanying
financial statements. At June 30, 2019 and 2018, the potential dilution would be 5,380,781 shares of common stock in the event
the issued and outstanding shares of Series A Convertible Preferred Stock or other potentially dilutive securities be exercised.
Share-Based Payment
- Under ASC Topic
718,
Compensation - Stock Compensation
, all share based payments to employees, including share option grants, are to be
recognized in the statement of operations based on their fair values. No share-based payments were issued for the six months ended
June 30, 2019 and 2018.
Revenue Recognition
-
On January
1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers” (ASC 606) and adoption of the new
standard had no impact on the Company’s statements of operations or balance sheets. Revenue is recognized from the sale of
subscriptions for the use of the Blackbox System web application, on a monthly or annual basis. Revenue generally is recognized
net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The
Company launched its Blackbox System web application and began generating subscription sales revenues during the quarter ended
September 30, 2016. Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a
current liability.
Other Liabilities
- The Company is planning
the development of a future product, a complimentary platform that will share similar IP protocol with the current Blackbox System
on a subscription basis. The future product has not yet launched. The Company has received advance payments from a new subscriber
group in anticipation of the development of this future product. These amounts are deferred until such time as the platform is
launched and the services earned. As of June 30, 2019, the Company has received $180,000 from this future subscriber group.
Software Development Costs
- Blackboxstocks
is engaged in the development of its proprietary Blackbox System technology, a proprietary algorithm driven system, through a combination
of in-house system analysts and outside contractors. Under the guidelines of ASC Topic 985, “Software”, the cost of
the Company’s Blackbox System was expensed during development and the Blackbox System software for use in the United States,
reached technical feasibility in August 2016, became marketable and was made available to subscribers beginning September 1, 2016.
The Blackbox System for use in China achieved technological feasibility and became marketable and available to subscribers during
the quarter ended June 30, 2017. Subsequent to that time, in accordance with ASC Topic 985 these costs were expensed. Costs incurred
during this period were capitalized and amortized.
Domain Name
- The Company acquired a
domain name for its exclusive use in anticipation of its rollout within the next three years. The cost was capitalized and due
to the uncertainty of our ability to successfully market this name, we elected to amortize the cost over a period of three years.
Prepaid Expenses
- Prepaid expenses
are current assets created when the Company makes payments or incurs an obligation for expenses identified for a future period.
These amounts are charged to expense as the services are provided.
Marketing Costs
- The Company incurs
significant marketing expenses related to the development and expansion of its subscription base to potential users. During the
six months ended June 30, 2019 and 2018, the Company reported $138,750 and $54,387 for marketing costs, respectively.
Contingencies
- Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but
which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel
assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought.
If the assessment
of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements.
If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material
would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees,
in which case the guarantee would be disclosed.
3. Stockholders’
Deficit
The Company has authorized 10,000,000 shares
of preferred stock at $0.001 par value, 5,000,000 of which are designated as “Series A Convertible Preferred Stock”
at $0.001 par value and 100,000,000 authorized shares of common stock at $0.001 par value (“Common Stock”).
Shares of Series A Convertible Preferred Stock
do not accumulate dividends and are convertible into shares of Common Stock on a one-for-one basis. Additionally, each share entitles
the holder to 100 votes and, with respect to dividend and liquidation rights, the shares rank pari passu with the Company’s
Common Stock.
During the six months ended June 30, 2019,
the Company issued 30,833 shares of Common Stock at a cash price of $3.00 per share for a total of $92,500 and 3,333 shares of
Common Stock for an aggregate cash price of $6,500 for subscriptions received during the year ended December 31, 2018.
During the six months ended June 30, 2019 the
Company issued 3,334 shares of Common Stock for an aggregate cash price of $10,000.
On April 10, 2019 the Company sold 51,282 shares
of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 33,333 shares of Common Stock at an exercise price
of $1.95 per share, to a third party for aggregate consideration of $100,000. These shares are to be issued at a closing date to
be mutually determined by the Company and the subscribers.
On or about May 7, 2019 the Company sold 25,641
shares of Common Stock to a third party at a price of $1.95 per share, for aggregate consideration of $50,000. These shares are
to be issued at a closing date to be mutually determined by the Company and the subscribers.
On or about May 22, 2019 the Company sold 12,821
shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 6,410 shares of Common Stock at an exercise
price of $1.95 per share to a third party at a price of $0.65 per share, for aggregate consideration of $25,000. These shares are
to be issued at a closing date to be mutually determined by the Company and the subscribers.
On or about June 4, 2019 the Company sold 51,282
shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 25,641 shares of Common Stock at an exercise
price of $1.95 per share, to a third party for aggregate consideration of $100,000. These shares are to be issued at a closing
date to be mutually determined by the Company and the subscribers.
4. Stock Options and Warrants
Costs attributable to the issuance of stock
options and share purchase warrants are measured at fair value at the date of issuance and offset with a corresponding increase
in ‘Additional Paid in Capital’ at the time of issuance. The fair value cost is computed utilizing the Black-Scholes
model and assuming volatility based on U.S. Treasury yield rates for a similar period.
When the options or warrants are exercised,
the receipt of consideration is an increase in stockholders’ equity.
Concurrently with the securities purchase agreements
entered into as described in Note 3 above, warrants to purchase the Company’s Common Stock were issued to the subscribers.
Each warrant is exercisable for a period of five years from the date of the securities purchase agreement at an exercise price
of $1.95 per share. The fair value cost at the date of issuance of the warrants was $475,838. There was no warrant activity during
the six months ended June 30, 2018 and as of June 30, 2019, there are 196,155 warrants outstanding.
|
|
Number of Shares
|
|
Exercise Price
|
Warrants as of December 31, 2018
|
|
-
|
|
-
|
Issued during 2019
|
|
|
196,155
|
|
|
$
|
0.065
|
|
Warrants as of June 30, 2019
|
|
|
196,155
|
|
|
$
|
0.065
|
|
5. Related Party Transactions
During the six months ended June 30, 2019,
Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $42,642
to the Company and he was repaid $88,332. The balance remaining of $9,308 is owed to the Company, is unsecured and bears no interest.
During the six months ended June 30, 2019 the
Company advance $1,500 to its VP/Director of Operations and the balance remains outstanding, is unsecured and bears no interest.
During the six months ended June 30, 2019 and
2018, the Company engaged the services of Karma Black Box LLC (“Karma”), whose two stockholders became Company stockholders
as a result of the Exchange Agreement with Tiger Trade and its stockholders (Note 1), for application development services of the
Company’s Blackbox System technology. Karma began operating as EDM Operators (“EDM”) in the last quarter of 2018.
During the quarters six months ended June 30, 2019 and 2018, Karma/EDM was paid $9,000 and $27,000 for services, respectively.
During the six months ended June 30, 2019,
one of the stockholders of EDM advanced $25,000 to the Company. The balance of $25,000 remains outstanding as of June 30, 2019
is unsecured and bears no interest.
G2 International, Inc. (“G2”),
which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler, a Director, President,
Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder.
As of June 30, 2019 the Company has a prepaid balance of $36,700 for public relations and marketing services with G2/IPA. These
funds are reserved in anticipation of a future campaign to move the Company’s stock to listing on a national exchange.
6. Notes Payable
On April 2, 2019 an additional $19,000 was
advanced to be repaid in daily installments of $315.56, through
August 8, 2019. The related note discount of
$9,400 is being amortized over the term of the agreement for a total of $6,513 in interest expense as of June 30, 2019
On March 29, 2019 a third party advanced $38,755
to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments, currently $460, through
September 12, 2019. The related note discount of $16,445 is being amortized over the term of the agreement for a total of $9,256
in interest expense as of June 30, 2019.
On February 19, 2019 a third party advanced
$50,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on
May 20, 2019. This note and accrued interest of $2,000 was paid in full on June 17, 2019.
During the year ended December 31, 2018 third
parties advanced a total of $121,821 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily
installments, currently $450, through September 18, 2019. The related note discounts of $55,190 have been amortized over the term
of the agreements for a total of $18,385 in interest expense as of June 30, 2019.
On June 26, 2018 the Company entered into a
note payable with a third party for $8,309 for the purchase of office telecommunication equipment. The note bears interest at the
rate of 18% per annum for 36 installments and matures on May 22, 2021.
On August 8, 2018 a third party advanced $200,000
to the Company in exchange for a secured promissory note, bearing interest at the rate of 12% per annum with a maturity date of
November 20, 2018. The note is secured by a Security Agreement providing for a continuing lien and first priority security interest
in the assets of the Company and by a personal Guaranty Agreement with Gust Kepler, a Director, President, Chief Executive Officer,
Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. On December 6, 2018, Mr.
Kepler made a payment on the note in the amount of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. The principal
balance of $100,000 remains outstanding and is in default as of August 19, 2019, although the holder has made no demand for settlement
of the note.
7. Notes Payable, Related Party
On November 9, 2018, Gust C. Kepler, a Director,
President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $120,000 to the Company in exchange
for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on January 28, 2019. The note remains
unpaid as of August 19, 2019 and is in default; however, no demand for repayment has been made by the holder.
On December 6, 2018, Gust C. Kepler, a Director,
President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $108,000 to the Company for payment
to a third party note holder (Note 6) in exchange for an unsecured promissory note.
8. Convertible Notes Payable
On May 21, 2019, the Company issued a fixed
convertible promissory note payable to a third party for a total face value up to $550,000. The note specifies that the note holder
shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective
date. The note holder paid the first consideration of $350,000 was allowed thirty days to pay additional consideration, however
no further consideration was remitted within the thirty days. After 180 days from the effective date the Company shall provide
note holder with two weeks notice of its determination to pay its obligations and during this two weeks the note holder may exercise
any or all of its conversion rights at which time the note converts into shares of the Company’s common stock at a fixed
conversion price equal to $1.95 per share. If the note is not retired on or before the maturity date, the note holder may 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 note holder’s election to convert.
9. Commitments and Contingencies
The Company entered into a sublease agreement with G2 effective July 1, 2015 subject to the terms and conditions of the office lease between G2 and Teachers Insurance and Annuity Association of America for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. On August 28, 2017, the Company acquired and was assigned all right, title and interest in the lease from G2. On September 19, 2017 the Company amended the lease to expand its space by approximately 336 square feet for a total of 1,838 square feet and extended the expiration date to September 30, 2022. On January 1, 2019 the Company adopted ASC 842 requiring this lease to be recorded as an asset and corresponding liability on its balance sheet. The Company records rent expense associated with this lease on the straight-line basis in conjunction with the terms of the underlying lease. During the six months ended June 30, 2019 and 2018 we incurred $22,205 and $30,033, respectively, in office rental expense. Future minimum rental payments under ASC 842 for years ending December 31, are:
|
2019
|
$
|
28,032
|
|
|
2020
|
|
59,006
|
|
|
2021
|
|
61,803
|
|
|
2022
|
|
46,869
|
|
On June 18, 2018 the Company entered into a
letter agreement with IC Ventures, Inc. (“ICV”), pursuant to which the Company retained ICV to provide strategic advisory
services for marketing and financial matters relating to investment and acquisition issues which services commenced July 1, 2018.
The agreement provided for a twenty-month (24) month term and that ICV would be compensated monthly in Company common stock valued
at $20,000 with such compensation to be increased by $15,000 in cash for a twelve-month period during the term, payable in cash
beginning on the earlier of (i) the election by the Company or (ii) the sixth full month following the execution of the agreement.
The agreement also provided that ICV would be issued 920,000 shares of the Company’s common stock if listing on NASDAQ is
achieved during the term of the agreement and ICV shall be paid a closing fee of 1.5% of gross proceeds or a minimum of $500,000
if the Company should be acquired during the term of the agreement or within 12 months of the termination of the agreement. On
December 18, 2018 the Company terminated the agreement and as of August 19, 2019 has not issued the Company common stock valued
at an aggregate of $128,000, which on the date of termination of the ICV agreement was the equivalent of 13,827 shares.
The Company engaged software design consulting
services from a vendor for its Blackbox System which the Company found did not meet its standards and entered into negotiations
to dispute the services rendered. The entity providing these services sought satisfaction through a complaint with the state of
California for the disputed amount and a judgement in favor of the plaintiff/vendor was granted in the amount of $29,523. This
amount represents $24,920 for the disputed services, interest of $2,200 and legal costs of $2,433. The Company is optimistic that
a negotiated settlement of the judgement may be reached. The aggregate of the judgement of $29,523 is included in accounts payable
as of June 30, 2019.
On March 6, 2019 the Company entered into a
letter agreement with Boustead Securities (“Boustead”), pursuant to which the Company retained Boustead to provide
exclusive financial advisory services relating to corporate development, investment and acquisition issues. The agreement provides
for an engagement fee of $20,000 due upon execution of the agreement; $5,000 upon the closing of any pre-initial public offering
(“IPO”) financing and $25,000 upon the closing of the IPO. The Boustead agreement is subject to a period of due diligence
investigation, not yet completed. The agreement also provides for cash success fees should any business combination transactions
or debt financing be achieved. Additionally, Boustead will earn warrants for purchase of the Company’s common stock for each
debt financing transactions and success fees for any equity financing or initial public offering.
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.
10. Subsequent Events
The Company announced and approved a reverse
stock split to become effective on July 15, 2019 at a ratio of 1 for 3, whereby every 3 shares of common stock issued and outstanding
were automatically reclassified and
combined into one share of common stock (“Reverse
Stock Split”). The Reverse Stock Split has been reflected retroactively in these financial statements for all periods presented.
On July 17, 2019, the Company issued a fixed
convertible promissory note payable to a third party for $165,000. The note specifies that the note holder shall retain an original
issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective date. After 180 days
from the effective date the Company shall provide note holder with two weeks notes of its determination to pay its obligations
and during this two weeks the note holder may exercise any or all of its conversion rights at which time the note converts into
shares of the Company’s common stock at a conversion price equal to $1.95 per share.