Attached files
| file | filename |
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| EX-32.2 - EXHIBIT 32.2 - BLACKBOXSTOCKS INC. | ex_181047.htm |
| EX-32.1 - EXHIBIT 32.1 - BLACKBOXSTOCKS INC. | ex_181044.htm |
| EX-31.2 - EXHIBIT 31.2 - BLACKBOXSTOCKS INC. | ex_181043.htm |
| EX-31.1 - EXHIBIT 31.1 - BLACKBOXSTOCKS INC. | ex_181042.htm |
| EX-4.1 - EXHIBIT 4.1 - BLACKBOXSTOCKS INC. | ex_181046.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended |
December 31, 2019 |
or
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from |
to |
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Commission File No. |
0-55108 |
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BLACKBOXSTOCKS INC. |
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(Exact name of registrant as specified in its charter) |
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Nevada |
45-3598066 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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5430 LBJ Freeway, Suite 1485, Dallas, Texas |
75240 |
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(Address of principal executive offices) |
(Zip Code) |
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Registrant’s telephone number, including area code |
(972) 726-9203 |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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None |
N/A |
N/A |
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, par value $.001 |
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(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 aggregate market value of the voting and non-voting common equity held by non-affiliates (8,150,500) shares of common stock) as of June 30, 2019 was $53,793,300 (computed by reference to the price at which the common equity was last sold ($6.60) as of the last business day of the registrant's most recently completed second fiscal quarter). For purposes of the foregoing calculation only, directors, executive officers, and holders of 10% or more of the issuer’s common capital stock have been deemed affiliates.
The number of shares outstanding of the Registrant’s Common Stock as of April 15, 2020 was 7,958,236.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Throughout this Annual Report on Form 10-K (the "Report”), the terms “we,” “us,” “our,” “Blackboxstocks,” or the “Company” refers to Blackboxstocks Inc., a Nevada corporation.
When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within 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 the Company’s future plans of operations, business strategy, operating results and financial position. Such statements are not a guaranty of future performance and are subject to risks and uncertainties described herein and actual results may differ materially from those included within the forward-looking statements. Additional factors are described in the Company’s other public reports and filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances 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 events, trends and activities, then our estimates for future growth for our business may also be wrong. There can be no assurance that any 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.
Our Corporate History and Background
The Company was organized 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.
Reverse Acquisition of Tiger Trade
On December 1, 2015, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”), by and among the Company, Tiger Trade Technologies, Inc. (“Tiger Trade”), a Texas corporation and the stockholders of Tiger Trade. Under the terms and conditions of the Exchange Agreement, the Company offered and sold 17,900,000 newly issued shares of Company Common Stock, par value $0.001 ("Common Stock") and 5,000,000 newly issued shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Company Preferred Stock”) in consideration for all the issued and outstanding shares of Tiger Trade capital stock. The effect of the issuance was that, upon closing of the Exchange Agreement transaction, former Tiger Trade stockholders held approximately 85.91% of the issued and outstanding shares of Company Common Stock and 100% of the issued and outstanding shares of Company Preferred Stock.
As a condition precedent to consummation of the Exchange Agreement, Orsolya Peresztegi, the Company’s sole officer and director on the closing date of the transaction, effected the cancellation of 7,095,602 shares of Company Common Stock pursuant to a Cancellation Agreement effective as of the Exchange Agreement closing date. Under the terms of the Cancellation Agreement, Tiger Trade paid Ms. Peresztegi a cancellation fee of Two Hundred Forty-Five Thousand Dollars ($245,000).
As a result of the Exchange Agreement and Cancellation Agreement transactions described above, the Tiger Trade stockholders acquired as of the date the transaction closed, in the aggregate, approximately 88.64% of the issued and outstanding capital stock of the Company on a fully-diluted basis, and Tiger Trade became a wholly owned subsidiary of the Company. Under the Exchange Agreement, (1) Orsolya Peresztegi, the Company’s sole officer on the closing date, resigned as an officer of the Company and Gust Kepler was appointed as the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and (2) Mr. Kepler was appointed to serve as a director of the Company. Ms. Peresztegi subsequently resigned as a director of the Company effective January 4, 2016.
Merger of Tiger Trade into the Company
On February 8, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tiger Trade providing for the merger of Tiger Trade with and into the Company. At the effective time of the merger, the shares of Tiger Trade capital stock outstanding immediately before the effective time were canceled, retired and ceased to exist. The merger became effective February 9, 2016.
Name Change
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.
Overview of Business
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”) that serves as tool for stock and option traders to evaluate prospective investments on various securities exchanges and markets. Our proprietary Blackbox System technology is an algorithm driven system that works in real time, measuring market trends and data while utilizing a multitude of specific criteria, both live and historical. Our servers, located in close proximity to the NYSE, NASDAQ and OTC exchanges drive our proprietary algorithms at near light speed. Our Blackbox System platform employs predictive technology enhanced by artificial intelligence to find volatility and unusual market activity that can result in the rapid change in a stock’s price. The Blackbox System was initially designed to monitor and analyze over 13,000 stocks on the OTC Markets Group, Inc. (“OTC”), New York Stock Exchange (“NYSE”), the NYSE American (formerly the American Stock Exchange) and NASDAQ markets simultaneously as our servers receive live data feeds from such markets. We have also customized a separate Blackbox System platform (“Asian Blackbox System”) to analyze data from the Hong Kong Stock Exchange (“HKEX”), Shanghai Stock Exchange (“SSE”) and Shenzhen Stock Exchange (“SZSE”) for license and use primarily in Asia. We consider the Blackbox System technology to be among the most user-friendly of its kind.
The Blackbox System employs predictive technology enhanced by artificial intelligence to identify volatility and unusual market activity that may result in rapid change in the price of a stock. 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, scans, news and institutional grade analytics. Additionally, our users are provided a fully interactive chat and social media platform, integrated in our dashboard. This allows users to exchange information and ideas quickly and efficiently. We have also added a live audio-video feature which allows our subscribers the ability to broadcast and share trade strategies and market insight, on their own channels within the Blackbox community.
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 in our ultimate user-friendly system,
Development of the Blackbox System
Blackbox System was made available for use to subscribing customers in the United States in September 2016 and the Asian Blackbox System was made available for use by under a license arrangement to subscribers in May 2017.
In December 2017 we launched our first Options Flow Scanner as a new feature on our platform. Our Options Flow Scanner is designed to monitor and alert our users to unusual activity on the options exchange. We have created many proprietary options alerts and a proprietary options “heatmap” to allow our users to follow large options purchases in real-time. This has proven to be a very popular feature for our users. We are also currently developing a Dark Pool Scanner. The Dark Pool Scanner feature monitors, tracks and displays large blocks of stock that are often purchased in dark pools and not on the regular exchanges.
In addition to the above described proprietary scanners and features, we provide our users with a full set of internal social media functions within our dashboard. These features include chat rooms, direct messaging, follow/block capability, custom user profiles, and most importantly broadcast enabled audio channels. We believe that combining these social media features with our analytics, within a single dashboard provides a unique user experience allowing for the rapid exchange of information throughout our user community.
We are in the process of developing and anticipate adding many new features and functions to the Blackbox System, including but not limited to, native iOS and Android applications, a watchlist feature and enhanced filters for our Options Flow and Dark Pool Scanners. We also plan to upgrade our current “many to many” audio broadcast feature. Development of planned features and functions are expected to cost approximately $220,000 and will be dependent upon resources available from anticipated financing.
Marketing of the Blackbox System
The Company launched its Blackbox System web application for domestic use and made it available to subscribers in September 2016. Use of the Blackbox System is sold on a monthly or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com. We believe our Blackbox System subscriptions are priced competitively with similar web-based trading tools. Since launch, we have marketed our system to potential subscribers primarily via online and referral-based marketing. We utilize three channels for customer acquisition. We promote our subscriptions on social media, as well as encouraging customer referrals through an established customer referral program. We offer certain subscribers the right to promote the Blackbox System and receive referral fees for subscribers generated from such subscribers’ effort. Generally, we pay referring subscribers $25 for each subscription generated and $25 for each month the subscriber continues their subscription. We incurred $121,227 and $90,278 in customer referral expenditures in each of the years ended December 31, 2019 and 2018, respectively. These equal approximately 12% of our subscription sales revenues generated in both the years ended December 31, 2019 and 2018, respectively. We continue to expand the customer referral sales program as it has proven to be an extremely efficient form of advertising. We expanded our marketing efforts to include, online affiliate marketing, banner advertising, social media, and targeted email campaigns. Future plans are to utilize television and radio advertising. We have run multiple small digital ad campaigns targeting social media platforms such Facebook and Instagram. We also deployed marketing budgets on StockTwits. We continuously test alternative marketing on Google and other social media platforms. We intend to deploy a significant amount of marketing funds on these and other digital platforms including YouTube, Twitter and LinkedIn. Our test marketing has proven very effective and we believe we have the ability to scale our advertising efforts using these platforms. Our largest campaigns to date have been through StockTwits, Facebook and Google and we identified that these grew our subscriber base 17%.
The implementation in September of 2018 of the “Blackbox Bootcamp,” a comprehensive 3-hour educational course continues to increase user retention. We also offer other webinar courses that are scheduled and announced on our calendar and in email and direct messages via our platform to our users.
Intellectual Property
We rely on a combination of trademark and copyright laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our brand names, product coding and marks. As of the date of this report, the Company has not yet registered any trademarks, copyrights or other intellectual property associated with our business.
Government Regulation and Approvals
The Company offers its subscribing customers a trading tool and not a trading platform, broker dealer or exchange, and therefore does not expect to be subject to regulatory oversight by the SEC, FINRA or other financial regulatory agencies. We are not aware of any governmental regulations or approvals required for the marketing or use of our Blackbox System or the services provided.
Competition
We operate in a highly competitive environment. The principal resources necessary for the development of investment software tools and services and knowledgeable personnel to conduct all phases of development and marketing operations are limited. We must compete for such resources with startups, major financial services companies and midsize competitors. Many of these competitors have financial and other resources substantially greater than ours. Our current operating and financial resources are not adequate to preclude any significant disruption of our operations.
We consider our platform unique and do not consider any trading tools or trading analytics software direct competitors of our Company. There are many trading tools on the current market often referred to as “scanners”, that provide features, functions and analytics similar to those of the Blackbox System. There are also many social media platforms that cater to stock traders that serve as real-time informational sources. However, we believe that our Blackbox System is the only platform that has successfully merged a comprehensive analytics system or “scanner” and a social media platform within the same “dashboard” allowing users to view the same real-time data in parallel. Our Blackbox System creates a unique community for traders that can all share the same information and analyze this information on identical analytics in real-time. We also consider our system unique because our predictive algorithms automatically populate alerts for active stocks with high probability of short-term gains. In spite of these factors that differentiate us, we believe the following companies that could be considered competitors due to some like features and retail price point: Trade Ideas, Flow Algo, Trade Alert and Wall Street Jesus.
Employees
As of the date hereof, the Company has three full-time employees, including Gust Kepler who serves as our sole director and our President, Chief Executive Officer, Chief Financial Officer and Secretary, Jeff Sharrock, who serves as Vice President of Operations and an administrative employee.
Additional Information
We file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Securities and Exchange Commission (the “SEC”) on a regular basis, and disclose certain material events in current reports on Form 8-K. The public may read and copy any materials that we file with the SEC at the Public Reference Room at the SEC located at 100 F Street NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
We make available, free of charge on our website (http://www.blackboxstocks.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and any amendments to such reports) as soon as reasonably practical after such reports are filed. Information contained on or connected to our website is not incorporated by reference into this report and should not be considered part of this report or any other filing that we make with the SEC.
The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
We do not own any real estate or other physical properties. Our principal office is located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240 in office space previously leased by G2 International, Inc. (“G2”), a company controlled by Gust Kepler who serves as our sole director and our President, Chief Executive Officer, Chief Financial Officer and Secretary. Tiger Trade (our former subsidiary that was merged with and into the Company) entered a Sublease Agreement (the “Sublease”) with G2 International, Inc. effective July 1, 2015, subject to the terms and conditions of the Office Lease dated March 26, 2015 (the “Office Lease”) between G2 International, Inc. 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 we 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. During the years ended December 31, 2019 and 2018 we incurred $54,631 and $60,584, respectively, in office rental expense. Future minimum rental payments under the extended lease are $59,006 in 2020, $61,803 in 2021 and $46,869 in 2022.
On February 14, 2020, Creative Circle LLC, a creditor of the Company which provided employee staffing, filed a petition in the 162nd Judicial District Court in Dallas, Texas for satisfaction of services invoiced between the period of June and September 2019 in the aggregate amount of $45,030 for unpaid invoices.
There are currently no other material pending legal or governmental proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our Common Stock is quoted on the OTC Pink tier of the OTC Markets Group, Inc. (the “OTC Pink”) under the symbol “BLBX.” The following table shows the reported high and low closing bid prices per share for our Common Stock based on information provided by the OTC Pink. The over-the-counter market quotations set forth for our Common Stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
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Common Stock Bid Price |
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Financial Quarter Ended |
High ($) |
Low ($) |
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December 31, 2019 |
4.95 | 4.74 | ||||||
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September 30, 2019 |
6.60 | 2.50 | ||||||
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June 30, 2019 |
9.00 | 6.60 | ||||||
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March 31, 2019 |
14.97 | 3.00 | ||||||
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December 31, 2018 |
8.25 | 8.25 | ||||||
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September 30, 2018 |
33.00 | 7.80 | ||||||
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June 30, 2018 |
33.00 | 33.00 | ||||||
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March 31, 2018 |
33.00 | 7.95 | ||||||
On April 9, 2020, the last closing bid price per share for our Common Stock reported by the OTC Pink was $2.21.
Holders
Records of Securities Transfer Corporation, our transfer agent, indicate that as of April 8, 2020, we had 668 record holders of our Common Stock. The number of registered stockholders excludes any estimate by us of the number of beneficial owners of shares of Common Stock held in “street name.” As of April 9, 2020, we had 7,958,236 shares of our Common Stock issued and outstanding.
Dividends
We have not declared any dividends on our Common Stock and do not anticipate that we will declare or pay any dividends on our Common Stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions, restrictions in our organizational documents, and any other factors that our Board of Directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The Company has no equity compensation plans.
Recent Sales of Unregistered Securities
On November 26, 2019 the Company sold 25,000 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,500 shares of Common Stock at an exercise price of $1.95 per share, to a third party for aggregate consideration of $48,750.
The Common Stock and Warrants described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. The Company reasonably believed that the purchaser of such securities had access to information concerning its operations and financial condition, was acquiring the securities for its own account and not with a view to the distribution thereof, and was an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Furthermore, no "general solicitation" was made by the Company with respect to sale of any of the securities. At the time of their issuance, the securities described above were deemed to be restricted securities for purposes of the Securities Act and the documentation representing the securities bear legends and/or non-transfer provisions to that effect.
All of the Company’s other sales of unregistered securities during the period covered by the Report have been previously reported as required in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and/or current reports on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
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SELECTED FINANCIAL DATA |
The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of the results of financial condition and results of operations for the fiscal years ended December 31, 2019 and 2018 should be read in conjunction with our consolidated financial statements, and the notes to those consolidated financial statements that are included elsewhere in this Form 10-K.
Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
The Company is in the business of developing and marketing a real time analytical web-based software as a service platform (the “Blackbox System”) that serves as a tool for day traders and swing traders on various securities exchanges and markets. Our proprietary Blackbox System technology is an algorithm driven system that works in real time, measuring market trends and data while utilizing a multitude of specific criteria, both live and historical. Our Blackbox System platform employs predictive technology enhanced by artificial intelligence to find volatility and unusual market activity that can result in the rapid change in a stock’s price. The Blackbox System was initially designed to monitor and analyze over 13,000 stocks on the OTC Markets Group, Inc. (“OTC”), New York Stock Exchange (“NYSE”), the NYSE American (formerly the American Stock Exchange), and NASDAQ markets simultaneously as our servers receive live data feeds from such markets. We have also customized our Blackbox System to analyze data from the Hong Kong Stock Exchange (“HKEX”), Shanghai Stock Exchange (“SSE”) and Shenzhen Stock Exchange (“SZSE”) for license and use primarily in Asia.
We consider the Blackbox System technology to be among the most user-friendly of its kind.
The Company launched its Blackbox System web application for domestic use and made it available to subscribers in September 2016. Subscriptions for the use of the Blackbox System web application are sold on a monthly and/or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com.
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 under the symbol “BLBX.” Our corporate website is located at http://www.blackboxstocks.com.
Basis of Presentation of Financial Information
The accompanying consolidated 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 December 31, 2019, the Company had an accumulated deficit of $6,829,907 and for the years ended December 31, 2019 and 2018, the Company incurred net losses of $2,983,437 and $1,151,882, respectively. Management’s plans with respect to operations include the sustained and aggressive marketing of subscriptions for the Blackbox System 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 2020 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.
Recently Issued Accounting Pronouncements
During the year ended December 31, 2019 and through April 15, 2020, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“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.
All other new accounting pronouncements issued but not yet effective or adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.
Summary of Significant Accounting Policies
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 U.S. generally accepted accounting principles, 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.
Derivative Financial Instruments
FASB ASC Topic 820, Fair Value Measurement requires bifurcation of certain embedded derivative instruments, and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company’s notes payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative.
Recently Issued Accounting Pronouncements.
During the years ended December 31, 2019 and 2018, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“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 $46,124 and non-current of $66,715 as of December 31, 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 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.
Income Taxes
The Company will recognize deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Management evaluates the probability of the realization of its deferred income tax assets. Management determined that because the Company has not yet generated taxable income, it is unlikely that a tax benefit will be realized from these operating loss carry forwards. Accordingly, the deferred income tax asset is offset by a full valuation allowance.
In accordance with ASC Topic 740, Income Taxes, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
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 December 31, 2019 and 2018, the potential dilution would be 5,311,667 and 5,000,000 shares of common stock, respectively, in the event the issued and outstanding shares of Series A Convertible Preferred Stock or other potentially dilutive securities 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 years ended December 31, 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 December 31, 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 years ended December 31, 2019 and 2018, the Company reported $261,470 and $173,885 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.
Liquidity and Capital Resources
The Company launched its Blackbox System web application and made it available to subscribers in September 2016 and we have not yet attained a level of subscription sales revenue that would allow us to meet our current overhead. We do not contemplate attaining profitable operations prior to the end of 2020, nor is there any assurance that such an operating level can ever be achieved.
At December 31, 2019, the Company had a cash balance of $21,172 and a working capital deficit of $3,515,483 as compared to a cash balance of $28,001 and a working capital deficit of $1,324,635 at December 31, 2018. Such cash amount is not sufficient to fund our plans of operation. As such, we will need to raise additional funds to carry out our plans of operation and fund our ongoing operational expenses including the marketing of our Blackbox System platform and services. We expect that costs and expenses necessary to implement our planned marketing operations over the next 12 months will be between $1 Million to $2 Million. Additional funding is expected to be generated through equity financing from the sale of our Common Stock and/or debt. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company. We do not have any financing arranged and we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our Common Stock or debt to fund our plans of operation and ongoing operational expenses. In the absence of such financing, our business will likely fail. These factors raise substantial doubt about our ability to continue as a going concern and the accompanying financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.
Results of Operations
Comparison of Years Ended December 31, 2019 and 2018
For the years ending December 31, 2019 and 2018, the Company’s revenue totaled $1,062,573 and $692,803, respectively, for which its respective costs of revenues totaled $736,612 and $645,318. Revenues increased as a result of an expanded subscription base for monthly revenues. The Company’s revenue from subscriptions grew from $687,653 in the year ended December 31, 2018 to $1,037,778 in the year ended December 31, 2019, an increase of $350,125. Costs of operations increased as a result of the Company’s additional subscriber expenses. The costs of operations includes costs to provide the web application to subscribers, the majority of which is data feed expense for exchange information of approximately $343,030 and customer retention and referral expense of $334,350.
For the year ending December 31, 2019, the Company had operating expenses totaling $1,330,994 compared to $1,154,226 for the same period in 2018, an increase of $176,768. This change is primarily a result of an increase in general and administrative expenses of approximately $248,578 which reflects an increase of $87,585 in marketing expense; $69,911 in legal and professional expense; $90,991 in investment fundraising expense; $12,251 in salary and administrative expense; $37,710 of travel and related expense netted with a decrease in outside consulting expenses of $49,870. In addition, software development costs decreased approximately $67,594 due to stabilization of the development of the software application. The Company also recorded depreciation expense of $18,142 for the year ended December 31, 2019 compared to $22,514 for the year ended December 31, 2018.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
All financial statements required by this Item are presented beginning on Page F-1, and are incorporated herein by this reference.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
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CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Gust Kepler, our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2019, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of December 31, 2019 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.
Management's Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that:
|
● |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
|
● |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
|
● |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual financial statements, Gust Kepler, our principal executive officer and principal financial officer, has assessed the effectiveness of internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework, and SEC guidance on conducting such assessments. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation and qualified by the “Limitations on Effectiveness of Controls” set forth in this Item 9A below, management has determined that as of December 31, 2019, our internal controls over financial reporting were not effective and there are material weaknesses in our internal control over financial reporting.
The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein non-accelerated filers are exempt from Sarbanes-Oxley internal control audit requirements.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2019 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 significant deficiency 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.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following individuals currently serve as the sole director and executive officers of our Company. All directors of our Company hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. The executive officers of our Company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.
|
Sole Director and Executive Officers |
Age |
Date of Appointment |
Position(s) Held |
|
Gust Kepler |
55 |
December 1, 2015 |
Director, President, Chief Executive Officer, Chief Financial Officer and Secretary |
|
Jeff Sharrock |
55 |
January 1, 2016 |
Vice President of Operations |
Gust Kepler was appointed to serve as a director and our President, Chief Executive Officer, Chief Financial Officer and Secretary on December 1, 2015. Mr. Kepler also serves as the President of G2 International, Inc. (“G2”). G2 is a consulting firm with expertise in investment banking founded by Mr. Kepler in 2002. G2’s primary focus is taking private companies public and providing advice regarding capitalization, strategic planning and investor relations. Prior to founding G2, Mr. Kepler founded Parallax Entertainment, Inc. (“Parallax”) in 1996. Parallax was an independent record label, online promotional vehicle and e-commerce solution for musicians on the Internet. Mr. Kepler managed all aspects of the label including A&R, production, marketing and distribution. In 2000, Mr. Kepler successfully completed a direct public offering for the company and Parallax subsequently became a publicly traded company on the OTC Bulletin Board. Mr. Kepler was also the cofounder of Glance Toys, Ltd. (“Glance Toys”) which was formed in 1990. Glance Toys designed, manufactured and marketed products classified in junior sporting goods category. Products included foam balls, flying discs and beach products, some of which received patents. Glance Toy’s products were sold nationally in prominent chains such as Wal-Mart, Target, Toys R Us, 7-Eleven, and numerous other well-known retailers.
Jeff Sharrock was appointed to serve as our Vice President of Operations on January 1, 2016. Mr. Sharrock oversees accounting, communications and IT solutions for the Company. He is also in charge of financial analysis, budgeting, compliance and corporate governance for Blackboxstocks.com. Prior to joining Blackboxstocks, Mr. Sharrock served as the Director of Operations for G2 International, Inc. G2 is an investment banking consulting firm specializing in taking private companies public and providing those companies with advice regarding capitalization, strategic planning and investor relations. Mr. Sharrock oversaw all aspects of daily operations and was heavily involved in the accounting and regulatory aspects of the company. He also served as the main point of contact for large G2 clients.
Involvement in Certain Legal Proceedings
Neither our sole director nor any executive officer has not been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has he been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.
Code of Ethics for Financial Executives
The Company has not yet adopted a Financial Code of Ethics applicable to our directors, officers and employees due to the fact that the Company only has one person (Gust Kepler) currently serving as a director and two persons (Gust Kepler and Jeff Sharrock) serving as executive officers. The Board of Directors plans to adopt a Code of Ethics as it deems appropriate, when and if it adds additional directors, officers and employees.
Board Committees and Financial Expert
The Company does not currently maintain separate audit, nominating or compensation committees. When necessary, the entire Board of Directors performs the tasks that would be required of those committees. Furthermore, we do not have a qualified financial expert serving on the Board of Directors at this time, because we have not been able to hire a qualified candidate and we have inadequate financial resources at this time to hire such an expert.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation for the last two fiscal years awarded to, earned by or paid our chief executive officer and our only other compensated executive officer serving during the last completed fiscal year (collectively, the "Named Executives"):
Summary Compensation Table
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Name and Principal Position
|
Year
|
Salary
|
All other Compensation (1)($) |
Total ($)
|
|||||||||
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Gust Kepler, Director, President, Chief Executive Officer, |
2019 |
$ | 12,000 | $ | -- | $ | 12,000 | ||||||
| Chief Financial Officer and Secretary | 2018 | $ | 12,000 | $ | -- | $ | 12,000 | ||||||
|
Jeff Sharrock, Vice President of Operations |
2019 |
$ | 73,008 | $ | 500 | $ | 73,508 | ||||||
| 2018 | $ | 69,364 | $ | 3,000 | $ | 72,364 | |||||||
|
(1) |
Other than the remuneration discussed above, we have no retirement, pension, profit sharing, stock option or similar program for the benefit of the officers, directors or employees of the Company. |
|
(2) |
Reflects cash bonus payment. |
Narrative Disclosure to Summary Compensation Table
We paid salaries to both of Named Executives in 2019 and 2018. Mr. Kepler is paid an annual salary of $12,000 and Mr. Sharrock is paid an annual salary of $73,008. Mr. Sharrock was also paid discretionary bonuses of $500 in 2019 and $3,000 in 2018. All compensation was paid in cash pursuant to standard Company payroll practices. We do not have arrangements with any of our employees, including the Named Executives, to pay or provide any non-cash compensation.
The Company has not entered into any other employment agreement or consulting agreement with any officer or director of the Company providing for compensation and all serve at the discretion of our Board of Directors.
Outstanding Equity Awards
The Company has no equity compensation plans.
Compensation of Directors
The Company does not pay compensation to its directors for their service at this time. Furthermore, the Company has no present formal plan for compensating our directors for their service in their capacity as such.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth certain information as of the date hereof with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our Common Stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Applicable percentages are based upon 7,958,236 shares of Common Stock and 5,000,000 shares of Preferred Stock outstanding as of April 8, 2020. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240.
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Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Owner |
Percent of Class |
||||||
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Common Stock |
|||||||||
|
As a Group |
Officers and Directors (1 person) |
2,331,668 | 29 | % | |||||
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As Individuals |
Gust Kepler |
2,331,668 | 29 | % | |||||
|
David Kyle |
833,334 | 10 | % | ||||||
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Eric Pharis 2 Lake Forest Court Trophy Club, Texas 76262 |
833,334 | 10 | % | ||||||
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Stephen Chiang 8 Kitchener Link City Square Residences #21-14 Singapore 207226 |
1,000,000 | 13 | % | ||||||
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Series A Preferred Stock |
|||||||||
|
As a Group |
Officers and Directors (1 person) |
5,000,000 | 100 | % | |||||
|
As Individuals |
Gust Kepler |
5,000,000 | 100 | % | |||||
There are no arrangements, known to the Company, the operation of which would result in a change in control of the Company.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Transactions with Related Persons
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 December 31, 2019 and is in default; however, no demand for repayment has been made by the holder. Accrued interest due is $16,680 as of December 31, 2019.
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 in exchange for an unsecured promissory note.
During the year ended December 31, 2019, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $109,342 to the Company. As of January 1, 2019 the Company owed Mr. Kepler $36,382 and the Company repaid $155,547 resulting in an overpayment balance of $9,823 at December 31, 2019.
During the year ended December 31, 2019 the Company advanced $1,500 to its VP/Director of Operations and the balance remains outstanding, is unsecured and bears no interest.
During the years ended December 31, 2019 and 2018, the Company engaged the services of Karma Black Box LLC (“Karma”), which is owned by Company stockholders Eric Pharis and David Kyle, for application development services of the Company’s Blackbox System technology. Karma changed its name to EDM Operators (“EDM”) in the last quarter of 2018. During the years ended December 31, 2019 and 2018, Karma/EDM was paid $13,500 and $45,000 for services, respectively.
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 December 31, 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.
Director Independence
Our Board of Directors is currently composed of one member who does not qualify as an independent director in accordance with the published listing requirements of the NASDAQ Global Market.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company does not currently maintain a separate audit committee. When necessary, the entire Board of Directors performs the tasks that would be required of an audit committee. Our Board of Director’s policy is to pre-approve all audit, audit related and permissible non-audit fees and services provided by our independent registered public accounting firm. Our Board of Directors pre-approved all of the fees described below. Our Board of Directors also reviews any factors that could impact the independence of our independent registered public accounting firm in conducting the audit and receives certain representations from our independent registered public accounting firm towards that end.
On December 18, 2015, the Company executed a letter agreement engaging Turner, Stone & Company, L.L.P. (“Turner Stone”) as our independent registered accounting firm and Turner Stone rendered professional services for the audit of our annual financial statements for the years ended December 31, 2019 and 2018 contained in this Report.
Audit Fees
The aggregate fees billed by Turner Stone for professional services rendered for the audit of our annual financial statements for 2018 and 2019 and the reviews of the financial statements included in our Forms 10-Q and 8-K, or services normally provided by the accountant in connection with statutory and regulatory filings for those fiscal years were $36,160 and $37,095, respectively.
Audit-Related Fees
No fees or expenses were billed by Turner Stone in fiscal years 2018 or 2019 for professional services rendered, other than the fees disclosed above under the caption “Audit Fees” for assurance and related services relating to performance of the audit or review of our financial statements.
Tax Fees
The aggregate fees billed by Turner Stone in fiscal years 2018 or 2019 for professional services rendered for tax compliance, tax advice or tax planning were $10,000 and $2,325, respectively
All Other Fees
We incurred no other fees or expenses for the 2018 or 2019 fiscal years for any other products or professional services rendered by Turner Stone other than as described above.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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(a) |
Financial Statements |
The following documents are filed as part of this Annual Report on Form 10-K beginning on the pages referenced below:
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(b) |
Exhibits |
The following exhibits are filed with this Annual Report on Form 10-K or are incorporated by reference as described below.
|
Exhibit |
Description |
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2.1 |
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3.1 |
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3.2 |
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3.3 |
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| 3.4 | Certificate of Amendment to Articles of Incorporation dated effective as of July 15, 2019 |
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3.5 |
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4.1 |
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| 4.2 | Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. dated May 21, 2019 |
| 4.3 | Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. dated July 17, 2019 |
| 4.4 | Form of First Amendment to 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. |
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10.1 |
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10.2 |
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10.3 |
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31.1 |
Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* |
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31.2 |
Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* |
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32.1 |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.* |
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32.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.* |
|
101.1 |
Interactive data files pursuant to Rule 405 of Regulation S-T* |
* Filed herewith.
** Signifies a management agreement.
None.
Pursuant to the requirements of Section 13 or 15(d) 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.
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Date: April 15, 2020 |
BLACKBOXSTOCKS INC. |
|
|
|
By: |
/s/ Gust Kepler |
|
Gust Kepler |
||
|
President, Chief Executive Officer and Secretary (Principal Executive Officer and Principal Financial and Accounting Officer) |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
SIGNATURE |
TITLE |
DATE |
||
| /s/ Gust Kepler | ||||
|
Gust Kepler |
President, Chief Executive Officer, Secretary and Director (Principal Executive Officer and Principal Financial and Accounting Officer) |
April 15, 2020 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders’ and Sole Director of Blackboxstocks Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Blackboxstocks Inc. (the “Company”) as of December 31, 2019 and 2018 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, has a significant accumulated deficit and will need additional financing to establish itself as a profitable business. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
April 15, 2020
We have served as the Company’s auditor since 2015.
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Balance Sheets |
||
|
December 31, 2019 and 2018 |
|
December 31, |
||||||||
|
2019 |
2018 |
|||||||
|
Assets |
||||||||
|
Current assets: |
||||||||
|
Cash |
$ | 21,172 | $ | 28,001 | ||||
|
Accounts receivable, net of allowance for doubtful accounts of $68,589 at December 31, 2019 and 2018, respectively |
5,745 | 3,719 | ||||||
|
Advances receivable, related parties (Note 5) |
9,823 | - | ||||||
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Total current assets |
36,740 | 31,720 | ||||||
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Property and equipment: |
||||||||
|
Office, computer and related equipment, net of depreciation of $39,526 and $28,802 at December 31, 2019 and 2018, respectively |
9,626 | 18,763 | ||||||
|
Domain name, net of amortization of $9,551 and $3,821 at December 31, 2019 and 2018, respectively |
7,641 | 13,371 | ||||||
|
Software development, net of amortization of $9,000 and $7,312 at December 31, 2019 and 2018, respectively |
- | 1,688 | ||||||
|
Right of use lease, net of amortization of $51,009 at December 31, 2019 |
109,064 | - | ||||||
|
Total property and equipment |
126,331 | 33,822 | ||||||
|
Long term assets: |
||||||||
|
Prepaid expenses |
80,868 | 107,646 | ||||||
|
Prepaid expenses, related party (Note 5) |
36,700 | 36,700 | ||||||
|
Total long term assets |
117,568 | 144,346 | ||||||
|
Total Assets |
$ | 280,639 | $ | 209,888 | ||||
|
Liabilities and Stockholders' Deficit |
||||||||
|
Current liabilities: |
||||||||
|
Accounts payable |
$ | 632,287 | $ | 525,136 | ||||
|
Accrued expenses |
- | 128,000 | ||||||
|
Accrued interest |
42,566 | 834 | ||||||
|
Accrued interest, related party |
16,680 | 2,080 | ||||||
|
Unearned subscriptions |
189,007 | 90,034 | ||||||
|
Lease liability right of use, current |
46,124 | - | ||||||
|
Other liabilities |
180,000 | 180,000 | ||||||
|
Advances payable, related party (Note 5) |
- | 36,382 | ||||||
|
Convertible notes payable, net of discount of $13,859 as of December 31, 2019 (Note 8) |
593,891 | - | ||||||
|
Notes payable, net of note discount of $38,294 and $25,435 at December 31, 2019 and 2018, respectively (Note 6) |
218,138 | 165,889 | ||||||
|
Notes payable, related party (Note 7) |
228,000 | 228,000 | ||||||
|
Derivative liability |
1,405,530 | - | ||||||
|
Total current liabilities |
3,552,223 | 1,356,355 | ||||||
|
Lease liability right of use, long term |
66,715 | - | ||||||
|
Commitments and contingencies (Note 10) |
||||||||
|
Stockholders' Deficit: |
||||||||
|
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2019 and 2018, respectively |
- | - | ||||||
|
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 5,000,000 issued and outstanding at December 31, 2019 and 2018, respectively |
5,000 | 5,000 | ||||||
|
Common stock, $0.001 par value, 100,000,000 shares authorized: 7,908,231 and 7,678,047 issued and outstanding at December 31, 2019 and 2018, respectively |
7,908 | 7,678 | ||||||
|
Common stock, subscribed |
35,060 | 144,060 | ||||||
|
Additional paid in capital |
3,443,640 | 2,543,264 | ||||||
|
Accumulated deficit |
(6,829,907 | ) | (3,846,469 | ) | ||||
|
Total Stockholders' Deficit |
(3,338,299 | ) | (1,146,467 | ) | ||||
|
Total Liabilities and Stockholders' Deficit |
$ | 280,639 | $ | 209,888 | ||||
The accompanying footnotes are an integral part of these financial statements.
|
Statements of Operations |
||
|
For the years ended December 31, 2019 and 2018 |
|
December 31, |
||||||||
|
2019 |
2018 |
|||||||
|
Revenue: |
||||||||
|
Subscriptions |
$ | 1,037,778 | $ | 687,653 | ||||
|
Other revenues |
24,795 | 5,150 | ||||||
|
Total revenues |
1,062,573 | 692,803 | ||||||
|
Cost of operations |
736,612 | 645,318 | ||||||
|
Gross margin |
325,961 | 47,485 | ||||||
|
Expenses: |
||||||||
|
Software development costs |
130,840 | 198,434 | ||||||
|
General and administrative |
1,182,012 | 933,278 | ||||||
|
Depreciation and amortization |
18,142 | 22,514 | ||||||
|
Total operating expenses |
1,330,994 | 1,154,226 | ||||||
|
Operating loss |
(1,005,033 | ) | (1,106,741 | ) | ||||
|
Interest expense |
65,090 | 45,141 | ||||||
|
Convertible note financing |
1,240,347 | - | ||||||
|
Loss on derivative liability |
83,766 | - | ||||||
|
Default expense |
57,750 | - | ||||||
|
Amortization of debt discount |
531,452 | - | ||||||
|
Loss before income taxes |
(2,983,438 | ) | (1,151,882 | ) | ||||
|
Income taxes |
- | - | ||||||
|
Net loss |
$ | (2,983,438 | ) | $ | (1,151,882 | ) | ||
|
Weighted average number of common shares outstanding - basic |
7,749,695 | 7,669,178 | ||||||
|
Net loss per share - basic |
$ | (0.38 | ) | $ | (0.15 | ) | ||
The accompanying footnotes are an integral part of these financial statements.
|
Statement of Stockholders' Deficit |
||||||||||
|
For the years ended December 31, 2019 and 2018 |
|
Common |
Additional |
|||||||||||||||||||||||||||||||||||||||
|
Series A Preferred Stock |
Preferred Stock |
Common Stock |
Stock |
Paid-in |
Accumulated |
|||||||||||||||||||||||||||||||||||
|
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Subscribed |
Capital |
Deficit |
Total |
|||||||||||||||||||||||||||||||
|
Balance at December 31, 2017 |
5,000,000 | $ | 5,000 | - | $ | - | 7,667,047 | $ | 7,667 | $ | - | $ | 2,510,275 | $ | (2,694,587 | ) | $ | (171,645 | ) | |||||||||||||||||||||
|
Issuance of shares for cash |
- | - | - | - | 11,000 | 11 | - | 32,989 | - | 33,000 | ||||||||||||||||||||||||||||||
|
Common stock shares, subscribed |
- | - | - | - | - | - | 144,060 | - | - | 144,060 | ||||||||||||||||||||||||||||||
|
Net loss |
- | - | - | - | - | - | - | - | (1,151,882 | ) | (1,151,882 | ) | ||||||||||||||||||||||||||||
|
Balance at December 31, 2018 |
5,000,000 | $ | 5,000 | - | - | 7,678,047 | $ | 7,678 | $ | 144,060 | $ | 2,543,264 | $ | (3,846,469 | ) | $ | (1,146,467 | ) | ||||||||||||||||||||||
|
Issuance of shares for cash |
- | - | - | - | 216,354 | 216 | (109,000 | ) | 430,081 | - | 321,297 | |||||||||||||||||||||||||||||
|
Issuance of shares in settlement of accrued expenses |
- | - | - | - | 13,830 | 14 | - | 127,986 | - | 128,000 | ||||||||||||||||||||||||||||||
|
Imputed discount on convertible notes payable (Note 8) |
- | - | - | - | - | - | - | 342,309 | - | 342,309 | ||||||||||||||||||||||||||||||
|
Net loss |
- | - | - | - | - | - | - | - | (2,983,438 | ) | (2,983,438 | ) | ||||||||||||||||||||||||||||
|
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 | ) | ||||||||||||||||||||||
The accompanying footnotes are an integral part of these financial statements.
|
Statements of Cash Flows |
|||||||||
|
For the years ended December 31, 2019 and 2018 |
|
2019 |
2018 |
|||||||
|
Cash flows from operating activities |
||||||||
|
Net loss |
$ | (2,983,438 | ) | $ | (1,151,882 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
|
Depreciation and amortization expense |
18,142 | 22,514 | ||||||
|
Allowance for doubtful accounts |
- | 68,589 | ||||||
|
Amortization of note discount |
531,452 | 29,756 | ||||||
|
Financing cost |
26,396 | - | ||||||
|
Expenses paid by lender |
27,385 | - | ||||||
|
Convertible note financing |
1,240,347 | - | ||||||
|
Change in fair value of derivative liability |
83,766 | - | ||||||
|
Convertible note default expense |
57,750 | |||||||
|
Changes in operating assets and liabilities: |
||||||||
|
Accounts receivable |
(2,026 | ) | (67,197 | ) | ||||
|
Prepaid expenses |
26,778 | 95,332 | ||||||
|
Accounts payable |
107,151 | 157,028 | ||||||
|
Accrued expenses |
- | 128,000 | ||||||
|
Accrued interest |
41,732 | 834 | ||||||
|
Accrued interest, related party |
14,600 | 2,080 | ||||||
|
Unearned subscriptions |
98,973 | 62,673 | ||||||
|
Other liabilities |
- | 180,000 | ||||||
|
Net cash used in operating activities |
(710,992 | ) | (472,273 | ) | ||||
|
Cash flows from investing activities |
||||||||
|
Purchases of property and equipment |
(1,587 | ) | (28,993 | ) | ||||
|
Net cash used in investing activities |
(1,587 | ) | (28,993 | ) | ||||
|
Cash flows from financing activities |
||||||||
|
Common stock issued for cash |
321,297 | 33,000 | ||||||
|
Common stock subscribed |
- | 144,060 | ||||||
|
Proceeds from notes payable |
251,455 | 330,130 | ||||||
|
Proceeds from convertible notes payable |
473,725 | - | ||||||
|
Repayment of notes payable |
(294,522 | ) | (193,997 | ) | ||||
|
Proceeds from notes payable, related party |
- | 228,000 | ||||||
|
Advances from others |
- | - | ||||||
|
Cash advances from related parties |
109,342 | 126,000 | ||||||
|
Cash repayments to related parties |
(155,547 | ) | (146,081 | ) | ||||
|
Net cash provided by financing activities |
705,750 | 521,112 | ||||||
|
Net increase (decrease) in cash |
(6,829 | ) | 19,846 | |||||
|
Cash - beginning of period |
28,001 | 8,155 | ||||||
|
Cash - end of period |
$ | 21,172 | $ | 28,001 | ||||
|
Supplemental disclosures |
||||||||
| Interest paid | $ | 2,000 | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
|
Non-cash investing and financing activities: |
||||||||
| Financing costs on funding agreements | $ | 84,445 | $ | - | ||||
| Debt discount on convertible notes payable | $ | 131,417 | $ | - | ||||
|
Lease, right of use and liability |
$ | 160,073 | $ | - | ||||
|
Discount on convertible notes payable |
$ | 342,309 | $ | - | ||||
|
Common stock issued in settlement of accrued expenses |
$ | 128,000 | $ | - | ||||
The accompanying footnotes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 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 American (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 December 31, 2019, the Company had an accumulated deficit of $6,829,907 and for the years ended December 31, 2019 and 2018, the Company incurred net losses of $2,983,438 and $1,151,882, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with respect to operations include the sustained and aggressive marketing of subscriptions for the Blackbox System both domestically and abroad and raising additional capital through sales of equity or debt securities as may be necessary to pursue its business plans and sustain operations until such time as the Company can achieve profitability. Management believes that aggressive marketing combined with additional financing as necessary will result in improved operations and cash flow. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.
The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“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.
Derivative Financial Instruments. FASB ASC Topic 820, Fair Value Measurement requires bifurcation of certain embedded derivative instruments, and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company’s notes payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative.
Recently Issued Accounting Pronouncements.
During the years ended December 31, 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 $46,124 and non-current of $66,715 as of December 31, 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.
Income Taxes. The Company will recognize deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Management evaluates the probability of the realization of its deferred income tax assets. Management determined that because the Company has not yet generated taxable income, it is unlikely that a tax benefit will be realized from these operating loss carry forwards. Accordingly, the deferred income tax asset is offset by a full valuation allowance.
In accordance with ASC Topic 740, Income Taxes, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
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 December 31, 2019 and 2018, the potential dilution would be 5,311,667 and 5,000,000 shares of common stock, respectively, in the event the issued and outstanding shares of Series A Convertible Preferred Stock or other potentially dilutive securities 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 years ended December 31, 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 December 31, 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.
Marketing Costs. The Company incurs significant marketing expenses related to the development and expansion of its subscription base to potential users. During the years ended December 31, 2019 and 2018, the Company reported $261,470 and $173,885 for marketing costs, respectively.
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.
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.
The Company announced and approved a reverse stock split effective 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.
During the year ended December 31, 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 year ended December 31, 2019 the Company issued 3,334 shares of Common Stock for an aggregate cash price of $10,000 for subscriptions received during the year ended December 31, 2018.
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.
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.
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 for aggregate consideration of $25,000.
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.
On August 29, 2019 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 a third party for aggregate consideration of $25,000.
On November 27, 2019 the Company sold 25,000 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,500 of shares of Common Stock at an exercise price of $1.95 per share, to a third party for aggregate consideration of $48,750.
4. STOCK OPTIONS AND WARRANTS
Costs attributable to the issuance of stock options and share purchase warrants are measured at fair value at the date of issuance and offset with a corresponding increase in ‘Additional Paid in Capital’ at the time of issuance. The fair value cost is computed utilizing the Black-Scholes model and assuming volatility based on U.S. Treasury yield rates for a similar period. The cost of these warrants was not recognized in the financial statements because they were granted in connection with raising capital for the Company.
When the options or warrants are exercised, the receipt of consideration is an increase in stockholders’ equity.
Concurrently with certain of the securities purchase agreements entered into as described in Note 3 above, warrants to purchase the Company’s Common Stock were issued to the subscribers. Each warrant is exercisable for a period of five years from the date of the securities purchase agreement at an exercise price of $1.95 per share. The fair value cost at the date of issuance of the warrants was $560,935. There was no warrant activity during the years ended December 31, 2018 and as of December 31, 2019, there are 84,295 warrants 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 | |||||||
5. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2019, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $109,342 to the Company. As of January 1, 2019 the Company owed Mr. Kepler $36,382 and the Company repaid $155,547 resulting in an overpayment balance of $9,823 at December 31, 2019.
During the year ended December 31, 2019 the Company advanced $1,500 to its VP/Director of Operations and the balance remains outstanding, is unsecured and bears no interest.
During the years ended December 31, 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 years ended December 31, 2019 and 2018, Karma/EDM was paid $13,500 and $45,000 for services, respectively.
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 both December 31, 2019 and 2018, 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
In October 2019 third parties advanced $80,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $761 through May 2020. The related note discount of $31,600 is being amortized over the term of the agreements for a total of $11,570 in interest expenses as of December 31, 2019.
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 is being amortized over the term of the agreement for a total of $8,735 in interest expense as of December 31, 2019.
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 was amortized over the term of the agreement for a total of $9,400 in interest expense as of December 31, 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 was amortized over the term of the agreement for a total of $16,445 in interest expense as of December 31, 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 of $450 and were paid as of September 18, 2019. The related note discounts of $55,190 was amortized over the term of the agreements for a total of $55,190 in interest expense as of December 31, 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 December 31, 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 December 31, 2019 and is in default; however, no demand for repayment has been made by the holder. Accrued interest due on the note is $16,680 as of December 31, 2019.
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 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 note holder 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 note holder may convert a portion or all the outstanding principle into shares of the Company’s common stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95 per share or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the note holder’s election to convert. As of December 31, 2019 the note is in default and the Company recorded a redemption fee of $57,750. The note included a beneficial conversion feature recorded at inception of $207,308 and the conversion into the Company’s common stock resulted in the recognition of a derivative liability in the amount of $983,870 as of December 31, 2019.
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 note holder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective date. If the Company prepays the note within 90 days, the Company must pay a cash redemption premium of 110%; if such prepayment is made between the 91st day and the 180th day, then such redemption premium is 115%. Until maturity, the note holder may convert all or a portion of the outstanding principal into shares of Common Stock 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 may convert a portion or all the outstanding principle into shares of the Company’s common stock at a variable conversion price which equals the lower of the fixed conversion price or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the note holder’s election to convert. The note included a beneficial conversion feature recorded at inception of $135,000. This note is currently in default and the Company has recognized a derivative liability in the amount of $421,660 as of December 31, 2019.
9. DERIVATIVE LIABILITIES
During the year ended December 31, 2019, notes payable aggregating an initial $550,000 were issued as convertible debt or became convertible and qualified as a derivative liability under FASB ASC 820. As of December 31, 2019 the aggregate fair value of the outstanding derivative liability using the Black-Scholes option pricing model used the following key assumptions:
| Volatility | 356.33 | % | ||
| Risk-free interest rate | 1.52 | % | ||
| Expected dividends | - | |||
| Expected term (in years) | .5 |
The Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:
Level 1 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 December 31, 2019:
|
Level 1 |
Level 2 |
Level 3 |
||||||||||
|
Balance January 1, 2019 |
$ | - | $ | - | $ | - | ||||||
|
Additions |
- | - | 1,321,764 | |||||||||
|
Change in fair value |
- | - | 83,766 | |||||||||
|
Balance December 31, 2019 |
$ | - | $ | - | $ | 1,405,530 | ||||||
10. 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 years ended December 31, 2019 and 2018 we incurred $54,631 and $60,584, respectively, in office rental expense. Future minimum rental payments under the extended lease for years ending December 31, are:
|
2020 |
59,004 | |||
|
2021 |
61,800 | |||
|
2022 |
46,863 |
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 during the quarter ended September 30, 2019 issued 13,830 shares of common stock in settlement of the $128,000 due to ICV.
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 $2,403. 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 December 31, 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 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.
11. INCOME TAXES
The Company has established deferred tax assets and liabilities for the recognition of future deductions or taxable amounts and operating loss carry forwards. Deferred federal income tax expense or benefit is recognized as a result of the change in the deferred tax asset or liability during the year using the currently enacted tax laws and rates that apply to the period in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amounts that will more likely than not be realized.
During the years ended December 31, 2019 and 2018, a reconciliation of income tax expense at the statutory rate of 21 % to income tax expense at the Company’s effective tax rate is as follows:
| 2019 | 2018 | |||||||
|
Income tax benefit at statutory rate |
$ | 627,000 | $ | 242,000 | ||||
|
Permanent differences |
(21,000 | ) | ( 3,000 | ) | ||||
|
Change in valuation allowance |
(606,000 | ) | (239,000 | ) | ||||
|
Provision for federal income taxes |
$ | - | $ | - | ||||
At December 31, 2019, the Company had approximately $5,242,731, of unused net operating loss carry forwards. Unused net operating loss carry forwards may provide future tax benefits, although there can be no assurance that these net operating losses will be realized in the future. The tax benefits of these loss carryforward have been fully offset by a valuation allowance. These losses may be used to offset future taxable income and, if not fully utilized, expire in the year 2038.
12. SUBSEQUENT EVENTS
On January 27, 2020 a third party advanced $150,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $1,035, through November 3, 2020. The related note discount of $57,000 will be amortized over the term of the agreement. A portion of the proceeds of this financing settled the balance of approximately $39,000 of previous funding from the third party with an original due date of May 28, 2020.
The Company issued 50,000 shares of its common stock at a value of $1.95 on January 27, 2020 to a third party in conjunction with the financing arrangement on January 27, 2020.
On February 13, 2020, a creditor of the Company, which provided employee staffing, filed a petition in the State of Texas for satisfaction of services invoiced between the period of June and September 2019 in the aggregate amount of $45,030 for the unpaid invoices, included on accounts payable as of December 31, 2019. The Company has entered into negotiations with the attorney for the creditor and arrangements are being made to establish repayment in instalments to be determined.
On March 13, 2020 a third party advanced $25,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $291.67, through August 31, 2020. The related note discount of $12,500 will be amortized over the term of the agreement.
On March 23, 2020 third parties advanced $75,000 and $25,000 to the Company in exchange for interest bearing Convertible Promissory Notes, bearing interest at 52% per annum, secured by the Company’s assets, with provisions to be converted into the Company’s common stock at $0.60, and will mature on March 25, 2021.