REALLOYS INC. 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matter and Issuer Purchases of Equity Securities   Market Information   Our Common Stock, $0.001 par value began trading on the Nasdaq Capital Market on November 9, 2021 under the symbol “BLBX”.    Holders   Records of Securities Transfer Corporation, our transfer agent, indicate that as of March 28, 2022, we had 676 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 28, 2022, we had 13,185,659 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   2021 Equity Incentive Plan   On August 4, 2021, our Board of Directors and our stockholders approved the adoption of the 2021 Stock Incentive Plan (the “2021 Plan”) and it became effective August 31, 2021. We have reserved 750,000 of our outstanding shares of our common stock for issuance under the 2021 Plan. Participation in the 2021 Plan will continue until all of the benefits to which the participants are entitled have been paid in full. The following table sets forth our equity compensation 2021 plan information as of December 31, 2021.   Plan   Number of securities to be issued upon exercise of outstanding options and rights     Weighted- average exercise price of outstanding options and rights     Number of securities remaining available for issuance under equity compensation plans   2021 Stock Incentive Plan(1)     675,883       $3.07       74,117   Total     675,883       $3.07       74,117     (1) Excludes a restricted stock grant for 6,048 shares under the 2021 Plan. Because there is no exercise price associated with the restricted stock grants, such shares are not included in the weighted-average price calculation.   Recent Sales of Unregistered Securities   The Company’s 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.   23 Table of Contents   Use of Proceeds of Registered Securities   On November 15, 2021, we closed our initial public offering of 2,400,000 shares of common stock at an offering price of $5.00 per share. Alexander Capital, L.P. served as the managing underwriter. We received net proceeds of $10,519,914, after deducting underwriting discounts and commissions and offering expenses. All of the shares issued and sold in our initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No. 333-260065), which was declared effective by the SEC on November 9, 2021.   On January 7, 2022 the Company’s Board of Directors authorized a stock repurchase plan for up to $2,500,000 of the Company’s Common Stock. The program will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized. As of March 28, 2022, the Company has repurchased 430,171 shares of common stock for an aggregate purchase price of $837,520. This use of proceeds was not anticipated or disclosed in the Company’s prospectus.   Other than as described above, the proceeds of the public offering have been used as described in the prospectus to promote and market our Blackbox System platform and increase our subscriber base, and for general and administration expenses.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers   None.   Item 6. [Reserved]   Not required.   Item 7. 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, 2021 and 2020 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. 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   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 10,000 stocks and up to 1,500,000 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.   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 .   24 Table of Contents   Recently Issued Accounting Pronouncements   During the year ended December 31, 2021 and through March 31, 2022, 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.   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.   Software Development Costs   The Company accounts for software development costs pursuant to ASC Topic 985-Software, which requires that the costs incurred for planning, designing, coding and testing of software prior to technological feasibility be recorded as research and development expenses as incurred. Such costs include both internal development and engineering costs as well as development expenses contracted through third parties.   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.   25 Table of Contents   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.   Share-Based Payment   All share based payments to employees, directors and contractors, including grants of stock options, restricted shares or warrants, are recognized in the statement of operations based on their fair values at the time of grant in accordance with ASC Topic 718, Compensation - Stock Compensation. During the period ended December 31, 2021, the Company calculated the fair value of the options granted based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance; a risk-free interest rate of 1.30%, and expected volatility of 50% based on the volatility of comparable publicly traded entities, various exercise prices, and terms of 10 years. The fair value of options granted is expensed as vesting occurs over the applicable service periods.   Liquidity and Capital Resources   At December 31, 2021, the Company had a cash balance of $2,426,497 and marketable securities valued at $8,015,882, which equal a combined cash and securities total value of $10,442,379. The Company incurred negative cash flow from operations of $(672,845) for the year ended December 31, 2021 as compared to cash flow from operations of $143,580 in the prior year. Cash flows used in investing activities excluding marketable securities were $63,912 for the year ended December 31, 2021 and were related primarily to the purchase of server equipment and office furniture. We expect capital expenditures to remain at approximately the same level for 2022 in order to maintain our current operations. Cash flows from financing for the year ended December 31, 2021 was $10,194,239 and was driven primarily by the initial public offering that closed on November 15, 2021. We do not expect to raise significant debt or equity capital in order to fund our existing operations in the near future. The primary use of capital for financing activities will be to repay the Company’s senior secured loan of $990,000 during 2022. Principal payments of $10,000 are due monthly with the balance due on November 12, 2022.   As a result of it substantial cash and marketable securities holdings and modest expected uses of cash for operations, debt service and capital expenditures, 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. Principal payments of $10,000 per month started on December 12, 2021 with the balance due November 12, 2022.   Initial Public Offering   On November 15, 2021, the Company completed an initial public offering of 2,400,000 shares of common stock at a price of $5.00 per share in connection with our uplist to the Nasdaq exchange. After underwriting discounts and expenses, the company realized net proceeds from the offering of $10,519,914. Proceeds from the offering are expected to be used to promote and market our Blackbox System platform and increase our subscriber base and for general and administration expenses. In addition, we intend to develop and market additional products and services that employ or are complementary to our Blackbox System. We expect to release a new product utilizing the proprietary Blackbox System that target traditional investors that do not necessarily engage in day trading or swing trading. We believe that the market for this type of product is significant and we intend to devote significant resources to advertise and market this product. In addition, we anticipate hiring additional personnel to aid in the development and improvement of our existing and future products and services.   26 Table of Contents   Stock Repurchase Plan   On January 7, 2022, the Company’s Board of Directors authorized a stock repurchase plan for up to $2,500,000 of the Company’s common stock. The program will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized. As of March 28, 2022, the Company has repurchased 430,171 shares for an aggregate purchase price of $837,520. We do not expect the capital used in conjunction with the plan to impede our operations for the foreseeable future.   Results of Operations   Comparison of Years Ended December 31, 2021 and 2020   For the years ended December 31, 2021 and 2020, the Company’s revenue was $6,112,324 and $3,367,563, respectively. The increase of $2,744,761 or 81.5% was driven primarily by subscriber growth as the prices for the monthly and annual subscriptions of $99 and $959 have not changed except for occasional promotions which involve the offer discounts of approximately 20%. Gross margin for the year ended December 31, 2021 was $4,260,969 or 69.7% of revenues as compared to 2020 gross margin of $2,166,243 or 64.3% of revenues. The increase in the gross margin percentage from 2020 to 2021 was due to higher leverage of fixed costs related to the cost of operating our platform. The primary costs of operating our platform include data feeds of real time prices from exchanges, news feeds, personnel costs of our moderators as well as general system expenses. We anticipate future gross margin percentages to be consistent with the current level.   For the year ended December 31, 2021 our operating expenses increased to $6,538,808 as compared to $2,578,941 in 2020. This increase of $3,959,867 or 153.5% was due to substantial increases in our operating expenses in all categories. Software development expenses incurred the highest percentage increase of 582.3% for the year ended December 31, 2021 as compared to the previous year. The $548,651 increase in expense for 2021 resulted from increased costs from both higher levels of internal developer and engineering staff as well as outside contractors. Major projects that required substantial capital in 2021 including improvements to our social media component of the Blackbox platform as well as development of a new mobile application that encompasses substantially all of the features of our website. The improvements to the social media component of our platform were released in December of 2021, but we expect to continue to make upgrades to this feature through 2022. The new mobile application for IOS and Android devices which is expected to be released in April 2022 and future costs related to this application will be more modest for the short term. Other development projects that the Company intends to allocate resources to in 2022 include the release of a new mobile application aimed at the wider retail investment population and a crypto currency platform. We expect that our development expense will continue to increase in 2022 although the specific timing of those increases is uncertain. Our selling, general and administrative costs increased by $2,859,203 or 161.9% to $4,625,333 for the year ended December 31, 2021. The largest component of that increase was stock based compensation that totaled $1,353,020 in 2021 as compared to $100,100 in 2020. This increase was primarily due to compensation incurred with the issuance of equity-based incentives under the Blackboxstocks 2021 Equity Incentive Plan and a one-time expense of $400,000 incurred in connection with the issuance of 80,000 shares of common stock to a related party upon our listing on Nasdaq. Other significant increases in selling, general and administrative costs included personnel compensation which increased $770,861 for the year ended December 31, 2021 as well as higher investor and public relations costs. We expect these expenses to continue to grow in 2022 but at a lower rate than the increase from 2020 to 2021.   For the year ended December 31, 2021, other income (expense) was a net expense of $337,897 as compared to other net income of 57,787 for the year ended December 31, 2020. The primary components of the 2021 expense were interest expense of $135,492 and amortization of debt discount of $247,522. For the year ended December 31, 2020 other income (expense) included significant expenses relating to the Company’s convertible note financing that were offset by a gain on derivative liability of $1,155,718. We expect to incur interest expense in 2022 that is slightly lower than the 2021 amount.   27 Table of Contents   EBITDA (Non-GAAP Financial Measure)   We report our financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, management believes the presentation of certain non-GAAP financial measures provides useful information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with the non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company’s ongoing operating performance. In addition, these non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating performance. For all non-GAAP financial measures in this release, we have provided corresponding GAAP financial measures for comparative purposes in the report.   EBITDA is defined by us as net income (loss) before interest expense, income tax, depreciation and amortization expense and certain non-cash. EBITDA is not a measure of operating performance under GAAP and therefore should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Also, EBITDA should not be considered as a measure of liquidity. Moreover, since EBITDA is not a measurement determined in accordance with GAAP, and thus is susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to similarly titled measures presented by other companies.   Reconciliation of net loss to EBITDA       Year ended December 31,       2021     2020   Net loss   $ (2,615,736 )   $ (354,911 ) Adjustments:                 Interest expense     135,492       174,083   Depreciation and amortization expense     19,721       12,884   Convertible note financing     -       500,469   Gain on derivative liability     -       (1,155,718 ) Default expense     -       24,750   Amortization of debt discount     247,522       398,629   Gain on forgiveness of note payable     (33,405 )     -   Stock based compensation     1,353,020       100,100   Total Adjustments     1,722,350       55,197   EBITDA   $ (893,386 )   $ (299,714 )   Off Balance Sheet Arrangements   We do not have any off balance sheet arrangements.   Item 7A. 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.