What changed in this filing

/stocks — the workspaceLOADING

Item 3. Legal Proceedings

2021-03-31 compared with 2020-04-16 · 260 added, 282 removed, 536 unchanged (50% of the section changed)

LEGAL PROCEEDINGS

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.

There are currently no 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.

MINE SAFETY DISCLOSURES.

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March 31, 2019

On April 9, 2020, the last closing bid price per share for our Common Stock reported by the OTC Pink was $2.21.

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.

On March 17, 2021, the last closing bid price per share for our Common Stock reported by the OTC Pink was $2.55.

Records of Securities Transfer Corporation, our transfer agent, indicate that as of March 17, 2021, we had 696 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 March 17, 2021, we had 8,579,877 shares of our Common Stock issued and outstanding.

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.

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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.

During the quarter ended December 31, 2020 the Company sold 6,411 shares of Common Stock and Warrants, exercisable for a period of 5 years, to purchase 3,206 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $12,501.

During the quarter ended December 31, 2020 the Company sold 155,505 shares of Common Stock to third parties for $303,235.

During the quarter ended December 31, 2020 the Company issued 51,283 shares of its Common Stock at a value of $1.95 to third parties in settlement of convertible promissory notes.

On December 7, 2020 the Company issued 23,000 shares of its Common Stock at a value of $1.95 to a third party in conjunction with a consulting services agreement.

On November 4, 2020 the Company issued 3,000 shares of its Common Stock at a value of $1.95 to a third party as forbearance previously granted on notes payable settled in 2019.

The securities described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act.

The Company reasonably believed that each of the purchasers of such securities had access to information concerning its operations and financial condition, were acquiring the securities for their own account and not with a view to the distribution thereof, and each investor qualified as an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

Furthermore, no "general solicitation" was made by the Company with respect to sale of any of the securities.

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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.

Not required.

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.

The following discussion and analysis of the results of financial condition and results of operations for the fiscal years ended December 31, 2020 and 2019 should be read in conjunction with our financial statements, and the notes to those 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.

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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.

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.

We are a financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of all levels.

Our web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the trading price of a stock or option.

Our Blackbox System continuously scans the NASDAQ, NYSE, CBOE, and other options markets, analyzing over 8,000 stocks and up to 1,000,000 options contracts multiple times per second.

We also provide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and ideas quickly and efficiently through a common network.

We recently introduced a live audio/video feature that allows our members to broadcast on their own channels to share trade strategies and market insight within the Blackbox community.

We launched our platform for domestic use and made it available to subscribers in September 2016.

Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through 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.

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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 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, 2020 and 2019, the Company had an accumulated deficit of $7,184,818 and $6,829,907, respectively, and for the years ended December 31, 2020 and 2019 the Company incurred net losses of $354,911 and $2,983,438, respectively.

In November 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022.

Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest, and certain outstanding trade payables in the amount of $133,880.

In addition, the Company granted the Lender a security interest in substantially all of its assets.

As a result of this financing and the cash flows from operations, the Company had a cash balance of $972,825 at December 31, 2020.

Management believes that this will be sufficient to fund its operations and service its debt for the next twelve months.

In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development.

There can be no assurance that the Company will be able to raise additional capital or on what terms.

The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

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”).

During the year ended December 31, 2020 and through March 31, 2021, 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.

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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.

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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

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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.

The performance obligation by the Company is in exchange for the monthly subscription fee, the subscriber is allowed access to the Blackbox System on the website for the calendar month.

Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.

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.

The Company planned the development of a future product, a complimentary platform to share its IP protocol with the current Blackbox System on a subscription basis.

The future product was not developed and launched.

The Company received advance payments from a new subscriber group in anticipation of the development of this future product and the amounts were deferred and in the first quarter 2021 the subscribers agreed to terminate those agreements.

As of December 31, 2020, 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.

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

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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

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Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Reclassification

Affiliate referral expenses totaling $121,227 for the year ended December 31, 2019 have been reclassed from cost of revenues to advertising and marketing expense on the statement of operations.

Also data feed expenses in the aggregate of $79,691 have been reclassed from software development costs as of December 31, 2019 to cost of revenue.

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, 2020, the Company had a cash balance of $972,825 and a working capital deficit of $990,738 as compared to a cash balance of $21,172 and a working capital deficit of $3,525,306 at December 31, 2019.

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.

In addition, the Company incurred a net loss of $354,911 for the year ended December 31, 2020.

The Company generated cash flow from operations of $143,580 for the year ended December 31, 2020 as compared to cash used by operations of $710,992 in the prior year.

The Company believes that it has sufficient capital resources to fund its current operations and debt service requirements.

Loan Agreement

On November 12, 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note (the “FPV Note”) in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022.

Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest and certain outstanding trade payables in the amount of $133,880.

Sale of Common Stock and Warrants

During the year ended December 31, 2020, the Company received subscriptions for the purchase of 346,533 shares of Common Stock at a cash price of $1.95 per share for aggregate cash consideration of $407,982 In connection with certain of the sales, warrants to purchase up to 35,259 shares of the Company’s Common Stock at a cash price of $1.95 per share were issued to certain of the subscribers.

During the year ended December 31, 2020, the Company also issued an aggregate of 104,339 shares of Common Stock, for settlement of debt obligations and services rendered valued at $205,950.

Additional funding is expected to be generated as necessary 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.

We do not currently 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.

Results of Operations

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The Company’s revenue from subscriptions grew from $1,037,778 in the year ended December 31, 2019 to $3,340,983 in the year ended December 31, 2020, an increase of $2,303,205.

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.

Gross margin increased to $2,166,243 or 64.3% of revenues for the year ended December 31, 2020 as compared to gross margin of $367,497 or 34.6% of revenues for the prior year.

For the year ending December 31, 2020, the Company had operating expenses totaling $2,578,941 compared to $1,372,530 for the same period in 2019, an increase of $1,206,411.

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.

Operating expenses were 76.6% of revenues for the year ended December 31, 2020 as compared to 129.2% of revenues for the year ended December 31, 2019.

Selling general and administrative expenses increased by $724, 361 but decreased as a percentage of sales from 98.0% to 52.4% for the year ended December 31, 2020.

The increase was primarily due to higher consulting, salary and selling expenses.

Advertising and marketing expenses increased by $444,236 to $705,706 for the year ended December 31, 2020 but declined as a percentage of sales to 21.0% as compared to 24.6% for the prior year.

In addition, software development costs increased approximately $43,072.

Operating loss for the year ended December 31, 2020 declined by $592,335 to $412,698 as compared to the year ended December 31, 2019 due to substantially higher revenues and gross margin being partially offset by higher operating expenses.

Off Balance Sheet Arrangements

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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

Sole Director and Executive

Position(s) Held

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Name and Principal Position

All other Compensation (1)($)

Gust Kepler, Director, President, Chief Executive Officer,

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Sharrock is paid an annual salary of $73,000.

Kepler was paid a discretionary cash bonus of $11,120 in 2020.

Sharrock was also paid discretionary bonuses of $6,352 in 2020 and $500 in 2019.

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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.

Applicable percentages are based upon 8,579,877 shares of Common Stock and 5,000,000 shares of Preferred Stock outstanding as of March 17, 2021.

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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Beneficial Owner

Amount and Nature of Beneficial Owner

Officers and Directors (1 person)

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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.

As of January 1, 2020, the Company was owed $9,823 from Gust C.

Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company.

During the year ended December 31, 2020 Mr.

Kepler repaid $9,823.

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.

During the years ended December 31, 2020 and 2019, the Company engaged the services of EDM Operators (“EDM”), which is owned by Company stockholders Eric Pharis and David Kyle, for application development services of the Company’s Blackbox System technology.

During the years ended December 31, 2020 and 2019, EDM was paid $40,200 and $13,500 for services, respectively.

G2 International, Inc.

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(incorporated by reference to Exhibit 3.9 of the Company ’ s Annual Report on Form 10-K filed with the Commission on April 14, 2016).

Certificate of Amendment to Articles of Incorporation dated effective as of July 15, 2019

Certificate of Amendment to Articles of Incorporation dated effective as of July 15, 2019 (incorporated by reference to Exhibit 3.1 of the Company ’ s Current Report on Form 8-K filed with the Commission on July 15, 2019)

Bylaws of SMSA Ballinger Acquisition Corp.

(incorporated by reference to Exhibit 3.5 of the Company's Registration Statement on Form 10-12G filed with the Commission on November 27, 2013).

Description of Securities*

Description of Securities (incorporated by reference to Exhibit 4.1 of the Company ’ s Annual Report on Form 10-K filed with the Commission on April 16, 2020)

Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc.

dated May 21, 2019

dated May 21, 2019 (incorporated by reference to Exhibit 4.1 of the Company ’ s Current Report on Form 8-K filed with the Commission on May 28, 2019)

Form of Warrant for the Purchase Of Common Stock (incorporated by reference to Exhibit 4.2 of the Company ’ s Current Report on Form 8-K filed with the Commission on May 28, 2019)

Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc.

dated July 17, 2019

dated July 17, 2019 (incorporated by reference to Exhibit 4.1 of the Company ’ s Current Report on Form 8-K filed with the Commission on July 30, 2019)

Form of First Amendment to 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc.

Sublease Agreement between G2 International, Inc.

and Tiger Trade Technologies, Inc.

dated July 1, 2015 (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K filed with the Commission on April 14, 2016).

Assignment of Lease dated August 28, 2017 between G2 International, Inc.

and Blackboxstocks, Inc.

(incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K filed with the Commission on March 29, 2018).

(incorporated by reference to Exhibit 4.2 of the Company ’ s Current Report on Form 8-K filed with the Commission on July 30, 2019)

Second Amendment to Office Lease dated September 19, 2017 between Teachers Insurance and Annuity Association of America and Blackboxstocks, Inc.

(incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K filed with the Commission on March 29, 2018).

(incorporated by reference to Exhibit 10.14 of the Company ’ s Annual Report on Form 10-K filed with the Commission on April 17, 2018) .

Loan Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc.

(incorporated by reference to Exhibit 10.1 of the Company ’ s Quarterly Report on Form 10-Q filed with the Commission on November 16, 2020)

Securities Purchase Agreement dated April 10, 2019 (incorporated by reference to Exhibit 10.1 of the Company ’ s Current Report on Form 8-K filed with the Commission on May 28, 2019)

Securities Purchase Agreement dated May 3, 2019 (incorporated by reference to Exhibit 10.2 of the Company ’ s Current Report on Form 8-K filed with the Commission on May 28, 2019)

Securities Purchase Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.3 of the Company ’ s Current Report on Form 8-K filed with the Commission on May 28, 2019)

Note dated November 12, 2020 payable to Feenix Venture Partners Opportunity Fund II LP (incorporated by reference to Exhibit 10.2 of the Company ’ s Quarterly Report on Form 10-Q filed with the Commission on November 16, 2020)

Security Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc.

(incorporated by reference to Exhibit 10.3 of the Company ’ s Quarterly Report on Form 10-Q filed with the Commission on November 16, 2020)

Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

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* Filed herewith.

** Signifies a management agreement.

FORM 10-K SUMMARY

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.

April 15, 2020

March 31, 2021

BLACKBOXSTOCKS INC.

/s/ Gust Kepler

President, Chief Executive Officer and Secretary

(Principal Executive Officer and Principal Financial

and Accounting Officer)

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.

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President, Chief Executive Officer, Secretary and Director (Principal Executive Officer and Principal Financial and Accounting Officer)

April 15, 2020

March 31, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, 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

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We believe that our audits provide a reasonable basis for our opinion.

/ s/ Turner, Stone & Company, L .

/s/ Turner, Stone & Company, L.L.P.

Dallas, Texas

April 15, 2020

March 31, 2021

We have served as the Company’s auditor since 2015.

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Accounts receivable, net of allowance for doubtful accounts of $68,589 at December 31, 2020 and 2019, respectively

Advances receivable, related parties (Note 5)

Total current assets

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Domain name, net of amortization of $15,282 and $9,551 at December 31, 2020 and 2019, respectively

Software development, net of amortization of $9,000 and $7,312 at December 31, 2019 and 2018, respectively

Right of use lease, net of amortization of $51,009 at December 31, 2019

Right of use lease, net of amortization of $97,725 and $51,009 at December 31, 2020 and 2019, respectively

Total property and equipment

Long term assets:

Advances receivable, related parties (Note 5)

Prepaid expenses

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Accounts payable

Accrued expenses

Accrued interest

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Other liabilities

Advances payable, related party (Note 5)

Convertible notes payable, net of discount of $13,859 as of December 31, 2019 (Note 8)

Senior secured note payable, current

Convertible notes payable, net of discount of $194,267 and $13,859 at December 31, 2020 and 2019, respectively (Note 6)

Notes payable, net of note discount of $0 and $38,294 at December 31, 2020 and 2019, respectively (Note 6)

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Total current liabilities

Long term liabilities:

Senior secured note payable, long term, net of debt issuance costs of $99,852 at December 31, 2020

Lease liability right of use, long term

Total long term liabilities

Commitments and contingencies (Note 8)

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Other revenues

Merchandise sales

Total revenues

Cost of operations

Cost of revenues

Operating expenses:

Software development costs

General and administrative

Selling, general and administrative

Advertising and marketing

Depreciation and amortization

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Convertible note financing

Loss on derivative liability

Loss (gain) on derivative liability

Default expense

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Issuance of shares for cash

Common stock shares, subscribed

Balance at December 31, 2018

Issuance of shares for cash

Issuance of shares in settlement of accrued expenses

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Balance at December 31, 2019

Issuance of shares for cash, net of fees

Subscription of shares cancelled

Issuance of shares pursuant to convertible note payables

Issuance of shares in settlement of expenses

Issuance of shares in exchange for services

Convertible note forbearance extinguishment of derivative liability

Warrants issued for amendment of convertible notes payable

Balance at December 31, 2020

The accompanying footnotes are an integral part of these financial statements.

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Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization expense

Allowance for doubtful accounts

Amortization of note discount

Financing cost

Shares issued in settlement of financing costs

Shares issued in settlement of services

Expenses paid by lender

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Convertible note default expense

Financing cost

Right of use lease expense

Changes in operating assets and liabilities:

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Accounts payable

Accrued expenses

Accrued interest

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Unearned subscriptions

Other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities

Cash repayments from related parties

Purchases of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

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Common stock subscribed

Proceeds from notes payable

Proceeds from convertible notes payable

Repayment of notes payable

Proceeds from notes payable, related party

Advances from others

Proceeds from issuance of notes payable

Debt issuance costs

Proceeds from issuance of convertible notes payable

Proceeds from Payroll Protection Program Loan

Principal payments on notes payable

Principal payments on convertible notes payable

Principal payments on notes payable, related parties

Cash advances from related parties

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Net increase (decrease) in cash

Cash - beginning of period

Cash - end of period

Cash - beginning of year

Cash - end of year

Supplemental disclosures

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Non-cash investing and financing activities:

Financing costs on funding agreements

Debt discount on convertible notes payable

Repayment of note in exchange for note payable

Common stock issued in settlement of accrued expenses

Common stock issued in settlement of convertible notes payable

Lease, right of use and liability

Discount on notes payable

Discount on convertible notes payable

Common stock issued in settlement of accrued expenses

Debt discount on convertible notes payable

Financing costs on funding agreements

Repayment of note payable, related party in exchange for advances

Issuance of warrants for forbearance agreements

The accompanying footnotes are an integral part of these financial statements.

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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”).

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 Company changed its name to Blackboxstocks, Inc.

and began operating as a financial technology and social media platform in March 2016.

The platform offers real-time proprietary analytics and news for stock and options traders of all levels.

The Company believes its web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the price of a stock or option.

The software continuously scans the NASDAQ, New York Stock Exchange, CBOE, and other options markets, analyzing over 8,000 stocks and up to 1,000,000 options contracts multiple times per second.

The Company also provides users with a fully interactive social media platform that is integrated into our dashboard, enabling users to exchange information and ideas quickly and efficiently through a common network.

Recently, the Company also introduced a live audio/video feature that allows members to broadcast on their own channels to share trade strategies and market insight within the community.

The platform was initially made available to subscribers in September 2016.

Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through the Company website at http://www.blackboxstocks.com.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

The accompanying financial statements have been prepared in assumption of the continuation of the Company as a going concern, which is dependent upon the Company's ability to obtain sufficient financing or establish itself as a profitable business.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

As discussed in Note 6, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022.

In addition, the Company granted the Lender a security interest in substantially all of its assets.

As a result of this financing and the cash flows from operations, the Company had a cash balance of $972,825 at December 31, 2020.

Management believes that this will be sufficient to fund its operations and service its debt for the next twelve months.

In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development.

There can be no assurance that the Company will be able to raise additional capital or on what terms.

Use of Estimates .

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During the years ended December 31, 2020 and 2019 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.

Each of the other 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.

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.

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.

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Share-Based Payment .

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Revenue Recognition .

Revenue is recognized from the sale of subscriptions for the use of the Blackbox System web application, on a monthly or annual basis.

Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

The Company launched its Blackbox System web application and began generating subscription sales revenues during the quarter ended September 30, 2016.

The performance obligation by the Company is in exchange for the monthly subscription fee, the subscriber is allowed access to the Blackbox System on the website for the calendar month.

Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.

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.

The Company planned the development of a future product, a complimentary platform to share its IP protocol with the current Blackbox System on a subscription basis.

The future product was not developed and launched.

As of December 31, 2020, the Company has received $180,000 from this future subscriber group.

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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.

Subsequent to that time, in accordance with ASC Topic 985 these costs are expensed.

Prepaid Expenses .

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Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Reclassification .

Affiliate referral expenses totaling $121,227 for the year ended December 31, 2019 have been reclassed from cost of revenues to advertising and marketing expense on the statement of operations.

Also data feed expenses in the aggregate of $79,691 have been reclassed from software development costs as of December 31, 2019 to cost of revenue.

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.

Shares of Series A Convertible Preferred Stock do not accumulate dividends, have no liquidation preferences and are convertible into shares of Common Stock on a one-for-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.

STOCK OPTIONS AND WARRANTS

All shares are held by Gust C.

Kepler, Director, Chief Executive Officer, President and Chief Financial Officer (“Mr.

On January 28, 2020 the Company issued 50,000 shares of its Common Stock at a value of $2.00 to a third party in conjunction with the financing arrangement executed on January 27, 2020 (Note 6).

On July 6, 2020, warrants to purchase 115,385 shares of Common Stock, issued in conjunction with Amended Convertible Promissory Notes, as described in Note 6, were exercised at $0.01 per share for aggregate cash consideration of $1,154.

On August 28, 2020 the Company issued 3,334 shares of its Common Stock at a value of $1.95 per share to a third party in settlement of services provided for marketing and advertising.

During the year ended December 31, 2020 the Company issued 48,000 shares of its Common Stock at a value of $1.95 per share to a third party in conjunction with a consulting services agreement (Note 8).

During the year ended December 31, 2020 the Company sold 70,514 shares of Common Stock and Warrants, exercisable for a period of 5 years, to purchase 35,259 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $137,501.

During the year ended December 31, 2020 the Company sold 160,634 shares of Common Stock to third parties for $313,236 less equity placement fees of $21,349.

During the year ended December 31, 2020 holders of convertible promissory notes with an aggregate face value of $100,000 and a related derivative liability of $45,523, elected to convert the notes into 51,283 shares of the Company’s Common Stock.

On October 7, 2020 the Company repaid $35,060 to a third party to cancel a previous unexecuted subscription for 35,200 shares of Common Stock dated May 24, 2018, which shares were not issued.

WARRANTS TO PURCHASE COMMON STOCK

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.

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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

When the options or warrants are exercised, the receipt of consideration will be reported as an increase in stockholders’ equity.

Concurrently with the execution of certain securities purchase agreements, the Company issued warrants to purchase Common Stock.

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 (Note 3).

The fair value cost at the date of issuance of these warrants was $639,194.

In conjunction with the issuance of convertible notes payable as described in Note 6, a warrant for the purchase of up to 115,385 shares of common Stock exercisable for a one-year period was issued at an exercise price of $0.01 per share and another warrant for the purchase of up to 360,000 shares of Common Stock exercisable for a five-year period was issued at an exercise price of $1.00 per share.

During the year ended December 31, 2020, the warrants for the purchase of 115,385 shares of Common Stock were exercised at $0.01 and as of December 31, 2020, there are warrants for the purchase of up to 476,348 shares of Common Stock outstanding.

Exercise Price

Weighted Average

Remaining Life

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Warrants as of December 31, 2019

Issued during 2020

Exercised during 2020

Warrants as of December 31, 2020

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.

As of January 1, 2020, the Company was owed $9,823 from Gust C.

During the year ended December 31, 2020 Mr.

Kepler repaid the advance.

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.

During the years ended December 31, 2020 and 2019, the Company engaged the services of EDM Operators, (“EDM”), whose two stockholders are Company stockholders.

During the years ended December 31, 2020 and 2019, EDM was paid $40,200 and $13,500 for services, respectively.

G2 International, Inc.

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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.

As of December 31, 2020 and 2019, the Company had 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.

A summary of the Company’s debt at December 31, 2020 and December 31, 2019, by counterparty, is as follows:

Loan Description

$1,000,000 12% Senior secured note due November 12 2022

$200,000 Senior secured note bearing interest at 12% per annum due November 18, 2018 guaranteed by Mr.

$170,000 Quasi-factoring financing with daily payments of $292-1035 maturing June -August 18, 2020

$130,200 loan bearing interest at 1% per annum maturing May 1, 2022 issued under the Payroll Protection Program

$120,000 Related party note payable bearing interest at 12% per annum due May 1, 2024

$108,000 Related party note payable due November 30, 2020

$385,000 8% convertible note payable due July 2021

$165,000 8% convertible note payable due July 2021

Miscellaneous equipment loans

Less unamortized discount and debt issuance costs

Total notes payable

Current portion of long-term debt

Long-term portion

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.

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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.

This note was repaid on November 12, 2020.

On September 13, 2019 a third party advanced $90,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $490, through August 18, 2020.

The related note discount of $27,000 was amortized as interest expense over the term of the agreement.

In October 2019 third parties advanced $80,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $761 through June 2020.

Approximately $39,000 of this funding was settled with proceeds of the January 27, 2020 financing described in a later paragraph.

The related note discount of $31,600 was amortized as interest expense over the term of the agreement.

During the year ended December 31, 2020 the Company entered into quasi-factoring financing arrangements in the amounts of $35,000 and $207,000 that were repaid in daily installments.

The related discounts of $12,500 and $57,000 were amortized as interest expense over the term of the agreements and were fully repaid during the year ended December 31, 2020.

On May 1, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) the Company was awarded a loan of $130,200.

The loan carries an interest rate of 1% and matures on May 1, 2022.

The Company may apply for loan forgiveness following SBA guidelines and a portion or all of the loan may be forgiven.

On November 12, 2020, the Company executed a Loan Agreement with certain Lenders (“the Lenders”) and FVP Servicing LLC, as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022.

Simultaneously, with the execution of the Loan Agreement, the Company also entered into an agreement with an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations.

Kepler executed a guaranty in favor of FVP in connection with the loan.

Proceeds from the loan were used to repay the existing senior secured loan balance of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes.

In addition, the Company granted the Lender a security interest in substantially all of its assets.

Notes Payable, related party

On November 9, 2018, Gust C.

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.

On November 9, 2018, Mr.

Kepler, advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on January 28, 2019.

On November 17, 2020 the note and accrued interest of $29,680 was paid in full.

On December 6, 2018, Mr.

Kepler, advanced $108,000 to the Company for payment to a third party note holder in exchange for an unsecured promissory note.

During the year ended December 31, 2020, the Company repaid $107,141 in principal, reducing the balance due as of December 31, 2020 to $859.

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.

On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party with a face value of $385,000, which included an original issue discount of 10% on the investment amount.

On July 17, 2019, the Company issued another 8% Fixed Convertible Promissory Note with a face value of $165,000 which also included am original discount of 10% on the investment amount.

The two notes contain substantially identical terms.

The Company recorded the value of the notes’ conversion feature in the amount of $342,308 at inception.

The Company defaulted on the notes and recorded default fees of $57,750 and $24,750 for the years ended December 31, 2019 and 2020, respectively, which amounts were added to the principal balance.

On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the holders of the 8% Fixed Convertible Promissory Notes agreeing to take no further action to avail themselves of the remedies of default defined in the Notes.

The Agreements stipulated that the Company remit payment of all accrued interest and principal outstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full.

Upon execution of these Agreements, effectively extinguishing the above-described notes, the Company recognized a cancellation of the derivative liability previously related to the conversion feature of $522,065.

As additional consideration for the Agreements, the holders were issued warrants to purchase up to 360,000 shares of the Company’s Common Stock at a price of $1.00 per share, exercisable beginning January 10, 2021 and expiring on July 10, 2025.

The fair value of the warrants at the date of issuance was $371,243, and was reflected in paid in capital and the related debt discount is being amortized over the term of the Agreements.

On March 23, 2020 third parties advanced $75,000 and $25,000 to the Company in exchange for Convertible Promissory Notes, bearing interest at 52% per annum to be paid monthly in arrears beginning April 30, 2020, secured by the Company’s assets, with rights to convert into the Company’s Common Stock at $0.60, and maturing on March 25, 2021.

On June 23, 2020 the Company amended the notes changing the provision for conversion into the Company’s Common Stock from $0.60 to $1.95.

Additional consideration for the amended and restated notes included the issuance of warrants for the purchase of up to 115,385 shares of common stock at a price of $0.01.

On July 6, 2020 the holders exercised their warrants.

On November 12, 2020 the holders of these notes elected to convert the obligations in the aggregate principal amount of $100,000 into 51,282 shares of Common Stock.

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:

During the year ended December 31, 2020, notes payable in the principal amount of $100,000 were issued as convertible debt and qualified as derivative liabilities and were retired.

As of December 31, 2019, the aggregate fair value of the outstanding derivative liability for notes issued during 2019 using the Black-Scholes option pricing model used the following key assumptions:

Risk-free interest rate

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Expected term (in years)

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 Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following three levels of inputs may be used to measure fair value:

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Change in Fair Value

Balance December 31, 2019

Balance at December 31, 2019

Change in Fair Value

Balance at December 31, 2020

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 August 28, 2017, the Company acquired and was assigned all right, title and interest in an office lease with Teachers Insurance and Annuity Association of America for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas.

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.

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Future minimum rental payments under the extended lease for years ending December 31, are:

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.

On August 11, 2020 the Company entered into a letter agreement with Winspear Investments, LLC (“Winspear”), pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters.

The agreement provides for a minimum three-month term and that Winspear would be compensated with the grant of 20,000 shares of the Company’s common stock at inception and an additional 5,000 shares per month for the initial term.

In the event Winspear continues to provide services, Winspear shall be compensated an additional grant of 3,000 shares per month for a total of twelve-months and such grants shall not exceed an aggregate issuance of 71,000 shares.

The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ.

The total shares issuable under the agreement shall not be less than a minimum of 35,000 and not exceed a maximum of 151,000 shares.

As of December 31.

2020 48,000 common shares have been issued.

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.

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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.

On August 8, 2020 the Company entered into a subscription agreement to sell 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 $25,001.

On January 4, 2021 the subscription agreement was amended to sell 6,411 shares of Common Stock and issue the Warrant to purchase 3,206 shares of Common Stock at the same exercise prices as the original agreement, for aggregate consideration of $12,500.

In January 2021 the Company entered into several subscription agreements to sell an aggregate of 43,591 shares of Common Stock at $1.95 per share, to third parties, for aggregate consideration of $85,002.

On January 28, 2021 the Company exchanged a liability of $130,000 for the purchase of a Simple Agreement for Future Tokens for 66,667 shares of Common Stock valued at $1.95 per share and on February 21, 2021 exchanged an additional $50,000 for 25,641 shares of Common Stock under a similar arrangement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings