REALLOYS INC. 10-K

Item 9A. Controls and Procedures.   Evaluation of Disclosure Controls and Procedures   Gust Kepler, our principal executive officer and Robert Winspear, our principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2021, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of December 31, 2021 were effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.   Management's Annual Report on Internal Control Over Financial Reporting   Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that:     ● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;   ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and   ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   In connection with the preparation of our annual financial statements, our principal executive officer and principal financial officer have assessed the effectiveness of internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework, and SEC guidance on conducting such assessments. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation and qualified by the “Limitations on Effectiveness of Controls” set forth in this Item 9A below, management has determined that as of December 31, 2021, our internal controls over financial reporting were effective and there are no material weaknesses in our internal control over financial reporting.   Attestation Report of the Registered Public Accounting Firm   This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein non-accelerated filers are exempt from Sarbanes-Oxley internal control audit requirements.   29 Table of Contents   Changes in Internal Control Over Financial Reporting   On September 11, 2021 the Company appointed Robert Winspear as its Chief Financial Officer and Secretary. In addition to having a full-time financial executive as part of the management team, this appointment provided for additional segregation of duties as both of these offices were previously held by our Chief Executive Officer. The Company also appointed three new independent directors and created an audit committee, a compensation committee and a nominating and governance committee. There were no other changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2020 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.   Limitations on the Effectiveness of Controls   Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.   Item 9B. Other Information.   None.   Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.   Not Applicable.   30 Table of Contents   PART III   Item 10. Directors, Executive Officers and Corporate Governance.   Information required by this item will be set forth in our proxy statement for our 2022 Annual Meeting of Stockholders ("2022 Proxy Statement") or an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2021 and is incorporated herein by reference.   Item 11. Executive Compensation.   Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2021 and is incorporated herein by reference.   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2021 and is incorporated herein by reference.    Item 13. Certain Relationships and Related Transactions, and Director Independence.   Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2021 and is incorporated herein by reference.   Item 14. Principal Accounting Fees and Services.   Information required by this item will be set forth in our 2022 Proxy Statement or an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2021 and is incorporated herein by reference.    31 Table of Contents   PART IV   Item 15. Exhibits, Financial Statement Schedules.   (a)           Financial Statements   The following documents are filed as part of this l Report on Form 10-K beginning on the pages referenced below:     Page Report of Independent Registered Public Accounting Firm  (PCAOB ID # 76 ) F-1 Balance Sheets as of December 31, 2021 and 2020 F-2 Statements of Operations for the years ended December 31, 2021 and 2020 F-3 Statements of Stockholders’ Deficit for the years ended December 31, 2021 and 2020 F-4 Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-5 Notes to Financial Statements F-6 – F-15   (b)           Exhibits   The following exhibits are filed with this Report on Form 10-K or are incorporated by reference as described below.   Exhibit Description 2.1 Form of Share Exchange Agreement dated December 1, 2015, by and among SMSA Ballinger Acquisition Corp., Tiger Trade Technologies, Inc. and the stockholders of Tiger Trade (incorporated by reference to Exhibit 2.1 of the Company ’ s Information Statement on Form 8-K filed with the Commission on December 7, 2015). 3.1 Articles of Incorporation of SMSA Ballinger Acquisition Corp. (incorporated by reference to Exhibit 3.4 of the Company's Registration Statement on Form 10-12G filed with the Commission on August 5, 2014). 3.2 Certificate of Designation of Series A Preferred Stock dated December 1, 2015 (incorporated by reference to Exhibit 3.1 of the Company ’ s Information Statement on Form 8-K filed with the Commission on December 7, 2015). 3.3 Certificate of Amendment to Articles of Incorporation dated effective March 9, 2016. (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). 3.4 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) 3.5 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). 4.1 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) 4.2 Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. 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) 4.3 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) 4.4 Form of 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. 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) 4.5 Form of First Amendment to 8% Fixed Convertible Promissory Note of Blackboxstocks, Inc. (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)   32 Table of Contents   10.1 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 April 17, 2018). 10.2 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) 10.3 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) 10.4 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) 10.5 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) 10.6 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) 10.7 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) 10.8 Blackboxstocks, Inc. 2021 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Information Statement on Schedule 14C filed on August 11, 2021) 10.9 Amendment No. 1 to Loan Agreement dated March 9, 2022 between FPV Servicing LLC and Blackboxstocks, Inc.* 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* 32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350* 32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350* 101.1 Inline Interactive data files pursuant to Rule 405 of Regulation S-T* 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*   * Filed herewith.   Item 16. Form 10 – K Summary.   None.   33 Table of Contents   SIGNATURES   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.     Date: March 31, 2022 BLACKBOXSTOCKS INC.         By: /s/ Gust Kepler   Gust Kepler   President, Chief Executive Officer and Director   POWER OF ATTORNEY   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Gust Kepler and Robert Winspear, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to act on, sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy, and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.   Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities set forth opposite their names and on March 31, 2022.    Name   Title       /s/ Gust Kepler   President and Chief Executive Officer and Director Gust Kepler   (Principal Executive Officer)       /s/ Robert Winspear   Chief Financial Officer, Secretary and Director Robert Winspear   (Principal Accounting and Financial Officer)       /s/ Andrew Malloy   Director Andrew Malloy           /s/ Ray Balestri   Director Ray Balestri           /s/ Dalya Sulaiman   Director Dalya Sulaiman       34 Table of Contents     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Stockholders’ and Board of Directors of Blackboxstocks Inc.   Opinion on the Financial Statements   We have audited the accompanying balance sheets of Blackboxstocks Inc. (the “Company”) as of December 31, 2021 and 2020 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, 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.   Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   /s/ Turner, Stone & Company, L.L.P.   Dallas, Texas March 31, 2022   We have served as the Company’s auditor since 2015.     F-1 Table of Contents     Blackboxstocks Inc. Balance Sheets December 31, 2021 and 2020       December 31,       2021     2020                     Assets                 Current assets:                 Cash   $ 2,426,497     $ 972,825   Accounts receivable, net of allowance for doubtful accounts of $68,589 at December 31, 2021 and 2020, respectively     18,585       17,990   Inventory     13,567       17,661   Marketable securities     8,015,882       -   Prepaid expenses and other current assets     227,440       44,643   Prepaid expenses, related party (Note 7)     -       36,700   Total current assets     10,701,971       1,089,819                     Property and equipment:                 Office, computer and related equipment, net of depreciation of $81,682 and $61,961 at December 31, 2021 and 2020, respectively     49,873       5,682   Right of use lease, net of amortization of $ 150,829 and $ 97,725 at December 31, 2021 and 2020, respectively     398,270       62,348   Total property and equipment     448,143       68,030                     Total assets   $ 11,150,114     $ 1,157,849                     Liabilities and Stockholders' Equity (Deficit)                                   Current liabilities:                 Accounts payable   $ 585,615     $ 352,545   Accrued interest     6,544       10,425   Unearned subscriptions     1,302,036       1,016,157   Lease liability right of use, current     62,630       40,473   Other liabilities     -       180,000   Senior secured note payable, net of debt issuance costs of $ 46,597 and $ -0 - at December 31, 2021 and 2020, respectively (Note 8)     943,403       10,000   Convertible notes payable, net of discount of $- 0 - and $194,267 at December 31, 2021 and 2020, respectively (Note 8)     -       257,150   Note payable, current portion (Note 8)     28,448       131,605   Notes payable, related party (Note 8)     -       859   Total current liabilities     2,928,676       1,999,214                     Long term liabilities:                 Senior secured note payable, long term, net of debt issuance costs of $- 0 - and $ 99,852 at December 31, 2021 and 2020, respectively (Note 8)     -       890,148   Note payable (Note 8)     68,347       -   Lease liability right of use, long term     335,641       26,241   Total long term liabilities     403,988       916,389                     Commitments and contingencies (Note 9)                                       Stockholders' equity (deficit)                 Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2021 and 2020, respectively     -       -   Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 3,269,998 and 5,000,000 issued and outstanding at December 31, 2021 and 2020, respectively     3,270       5,000   Common stock, $0.001 par value, 100,000,000 shares authorized: 13,099,272 and 8,410,386 issued and outstanding at December 31, 2021 and 2020, respectively     13,099       8,410   Common stock subscribed     -       12,500   Common stock payable     15,000       -   Additional paid in capital     17,586,635       5,401,154   Accumulated deficit     ( 9,800,554 )     ( 7,184,818 ) Total stockholders' equity (deficit)     7,817,450       ( 1,757,754 )                   Total liabilities and stockholders' equity (deficit)   $ 11,150,114     $ 1,157,849     The accompanying footnotes are an integral part of these financial statements.   F-2 Table of Contents     Blackboxstocks Inc. Statements of Operations For the Years Ended December 31, 2021 and 2020       December 31,       2021     2020   Revenue:                 Subscriptions   $ 6,087,081     $ 3,340,983   Other revenues     25,243       26,580   Total revenues     6,112,324       3,367,563                     Cost of revenues     1,851,355       1,201,320                     Gross margin     4,260,969       2,166,243                     Operating expenses:                 Software development costs     642,872       94,221   Selling, general and administrative     4,625,333       1,766,130   Advertising and marketing     1,250,882       705,706   Depreciation and amortization     19,721       12,884   Total operating expenses     6,538,808       2,578,941                     Operating income (loss)     ( 2,277,839 )     ( 412,698 )                   Other (income) expense:                 Interest expense     135,492       174,083   Convertible note financing     -       500,469   Gain on derivative liability     -       ( 1,155,718 ) Default expense     -       24,750   Amortization of debt discount and issuance costs     247,522       398,629   Gain on forgiveness of note payable     ( 33,405 )     -   Investment income     ( 11,712 )     -   Total other (income) expense     337,897       ( 57,787 )                   Loss before income taxes     ( 2,615,736 )     ( 354,911 )                   Income Taxes     -       -                     Net loss     ( 2,615,736 )     ( 354,911 )                   Weighted average number of common shares outstanding - basic and diluted     9,644,973       8,074,164                     Net loss per share - basic and diluted   $ ( 0.27 )   $ ( 0.04 )   The accompanying footnotes are an integral part of these financial statements.   F-3 Table of Contents     Blackboxstocks Inc. Statement of Stockholders' Deficit For the Years Ended December 31, 2021 and 2020       Preferred Stock     Series A     Common Stock     Common Stock     Common Stock     Additional Paid in     Accumulated               Shares     Amount     Shares     Amount     Shares     Amount     Subscribed     Payable     Capital     Deficit     Total                                                                                             Balances, December 31, 2019     -     $ -       5,000,000     $ 5,000       7,908,231     $ 7,908     $ 35,060     $ -     $ 3,443,640     $ ( 6,829,907 )   $ ( 3,338,299 )                                                                                           Issuance of shares for cash, net of fees     -       -       -       -       346,533       347       -       -       430,195       -       430,542                                                                                             Subscription shares cancelled     -       -       -       -       -       -       ( 22,560 )     -       -       -       ( 22,560 )                                                                                           Issuance of shares pursuant to convertible note payables     -       -       -       -       51,283       51       -       -       145,472       -       145,523                                                                                             Issuance of shares in settlement of expenses     -       -       -       -       56,339       56       -       -       112,294       -       112,350                                                                                             Issuance of shares in exchange for services     -       -       -       -       48,000       48       -       -       93,552       -       93,600                                                                                             Convertible note forbearance extinguishment of derivative liability     -       -       -       -       -       -       -       -       522,065       -       522,065                                                                                             Warrants issued for amendment of convertible notes payable     -       -       -       -       -       -       -       -       653,936       -       653,936                                                                                             Net loss     -       -       -       -       -       -       -       -       -       ( 354,911 )     ( 354,911 )                                                                                           Balances, December 31, 2020     -     $ -       5,000,000     $ 5,000       8,410,386     $ 8,410     $ 12,500     $ -     $ 5,401,154     $ ( 7,184,818 )   $ ( 1,757,754 )                                                                                           Issuance of shares and warrants for cash, net of fees     -       -       -       -       2,470,772       2,471       -       -       10,655,449       -       10,657,920                                                                                             Issuance of subscribed shares     -       -       -       -       6,411       6       ( 12,500 )     -       12,494       -       -                                                                                             Issuance of shares in settlement of liabilities     -       -       -       -       92,308       93       -       -       179,907       -       180,000                                                                                             Issuance of shares for services     -       -       -       -       175,000       175       -       -       668,325       -       668,500                                                                                             Issuance of shares from conversion of Series A preferred shares     -       -       ( 1,730,002 )     ( 1,730 )     1,730,002       1,730       -       -       -       -       -                                                                                             Common stock payable for compensation     -       -       -       -       -       -       -       15,000       -       -       15,000                                                                                             Issuance of shares for cashless exercise of warrants     -       -       -       -       214,393       214       -       -       ( 214 )     -       -                                                                                             Issuance of warrants for compensation     -       -       -       -       -       -       -       -       165,431       -       165,431                                                                                             Issuance of options for compensation     -       -       -       -       -       -       -       -       504,089       -       504,089                                                                                             Other comprehensive income     -       -       -       -       -       -       -       -       -       -       -                                                                                             Net loss     -       -       -       -       -       -       -       -       -       ( 2,615,736 )     ( 2,615,736 )                                                                                           Balances, December 31, 2021     -     $ -       3,269,998     $ 3,270       13,099,272     $ 13,099     $ -     $ 15,000     $ 17,586,635     $ ( 9,800,554 )   $ 7,817,450     The accompanying footnotes are an integral part of these financial statements.   F-4 Table of Contents     Blackboxstocks Inc. Statements of Cash Flows For the Years Ended December 31, 2021 and 2020       December 31,       2021     2020   Cash flows from operating activities:                 Net loss   $ ( 2,615,736 )   $ ( 354,911 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities:           Depreciation and amortization expense     19,721       12,884   Amortization of note discount and issuance costs     247,522       398,629   Shares issued in settlement of financing costs     -       105,850   Shares issued in settlement of services     668,500       100,100   Stock based compensation     684,520       -   Expenses paid by lender     -       6,030   Convertible note financing     -       500,469   Change in fair value of derivative liability     -       ( 1,155,718 ) Convertible note default expense     -       24,750   Gain on forgiveness of note payable     ( 33,405 )     -   Right of use lease     ( 4,365 )     591   Investment income     ( 11,712 )     -   Changes in operating assets and liabilities:                 Accounts receivable     ( 595 )     ( 12,245 ) Inventory     4,094       ( 17,661 ) Prepaid expenses and other current assets     ( 182,797 )     36,225   Prepaid expenses, related party     36,700       -   Accounts payable     233,070       ( 279,742 ) Accrued interest     ( 3,881 )     ( 32,141 ) Accrued interest, related party     -       ( 16,680 ) Unearned subscriptions     285,879       827,150   Net cash provided by (used in) operating activities     ( 672,485 )     143,580                     Cash flows from investing activities:                 Purchase of property and equipment     ( 63,912 )     ( 1,299 ) Purchase of marketable securities     ( 8,004,170 )     -   Cash repayments from related parties     -       9,823   Net cash provided by (used in) investing activities     ( 8,068,082 )     8,524                     Cash flows from financing activities:                 Common stock and warrants issued for cash     10,657,920       430,542   Common stock subscribed     -       ( 22,560 ) Proceeds from issuance of notes payable     -       1,127,100   Debt issuance costs     -       ( 99,852 ) Proceeds from issuance of convertible notes payable     -       100,000   Proceeds from Payroll Protection Program Loan     -       130,200   Principal payments on senior secured note payable     ( 10,000 )     -   Principal payments on notes payable     ( 1,405 )     ( 457,657 ) Principal payments on convertible notes payable     ( 451,417 )     ( 181,083 ) Principal payments on notes payable, related parties     ( 859 )     ( 227,141 ) Net cash provided by financing activities     10,194,239       799,549                     Net increase in cash   $ 1,453,672     $ 951,653   Cash - beginning of year     972,825       21,172   Cash - end of year   $ 2,426,497     $ 972,825                     Supplemental disclosures:                 Interest paid   $ 139,373     $ 186,516   Income taxes paid   $ -     $ -                     Non-cash investing and financing activities:                 Repayment of note in exchange for note payable   $ -     $ 39,370   Common stock issued in settlement of accrued liabilities   $ 180,000     $ -   Common stock issued in settlement of convertible notes payable   $ -     $ 100,000   Discount on notes payable   $ -     $ 69,500   Repayment of note payable, related party in exchange for advances   $ -     $ 2,933   Issuance of warrants for forbearance agreements   $ -     $ 371,243     The accompanying footnotes are an integral part of these financial statements.   F-5 Table of Contents   Blackboxstocks Inc. Notes to Financial Statements For the Years Ended December 31, 2021 and 2020     1. Organization   Blackboxstocks Inc. (the “Company”) was incorporated on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan of Reorganization confirmed by the United States Bankruptcy Court for the Northern District of Texas for reorganization under Chapter 11 of the United States Bankruptcy Code.   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, Chicago Board Options Exchange (the “CBOE”), and other options markets, analyzing over 10,000 stocks and up to 1,500,000 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.   On November 10, 2021, the Company issued 2,400,000 shares of Common Stock in its initial public offering and concurrently was listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “BLBX”.     2. Summary of Significant Accounting Policies   Basis of Presentation . The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).   Use of Estimates . The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP. Actual results could differ from those estimates.   Cash and cash equivalents . Cash and cash equivalents include all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.   Investments in Marketable Securities . During the year ended December 31, 2021, the Company invested in marketable securities which primarily consist of investments in mutual funds that hold commercial and government debt securities. These investments are recorded at fair value based on quoted prices at the end of the Company’s reporting period. Any realized or unrealized gains or losses are recognized in the accompanying statements of operations.   Fair Value of Financial Instruments . The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.   F- 6 Table of Contents   Recently Issued Accounting Pronouncements . During the year ended December 31, 2021, there were several new accounting pronouncements issued by the FASB. 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.   Property and Equipment . The Company’s property and equipment is being depreciated on the straight-line basis over an estimated useful life of three years.   Income Taxes . The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.   Management evaluates the probability of the realization of its deferred income tax assets. Management determined that because the Company has not yet generated taxable income, it is unlikely that a tax benefit will be realized from these operating loss carry forwards. Accordingly, the deferred income tax asset is offset by a full valuation allowance.   In accordance with ASC Topic 740, Income Taxes, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.   Earnings or (Loss) Per Share. Basic earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number of common stock shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period. Therefore, because including shares issuable upon conversion of convertible securities and/or exercise of outstanding options and warrants would have an anti-dilutive effect on the loss per share, only the basic earnings (loss) per share is reported in the accompanying financial statements for period of loss.   The Company had total potential additional dilutive securities outstanding at December 31, 2021 and 2020, as follows.       2021     2020                     Series A Convertible Preferred Shares     3,269,998       5,000,000   Conversion rate     0.2       1.0   Common shares after conversion     654,000       5,000,000   Option shares     675,833       0   Warrant shares     558,336       479,554     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.   Revenue Recognition . We operate under a software as a service (SaaS) model whereby we sell monthly and annual subscriptions allowing subscribers access to our platform. We recognize revenue over the subscription period (either monthly or annual) and record cash received but not yet earned as deferred revenue on our balance sheet. Additionally, the Company receives revenues from commissions and the sale of promotional products which are presented as other revenues on the accompanying statements of operations. Commission revenues are recognized as they are earned and revenues from the sale of promotional products are recognized upon shipment.   F- 7 Table of Contents   Other Liabilities . 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 totaling $ 180,000 from a new subscriber group in anticipation of the development of this future product and the amounts were deferred. During the first quarter 2021 the subscribers agreed to terminate those agreements in exchange for common stock (Note 4 ).   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.   Prepaid Expenses . Prepaid expenses are current assets created when the Company makes payments or incurs an obligation for expenses identified for a future period. These amounts are charged to expense as the services are provided.     3. Marketable securities   The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:   Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;   Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and   Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.   The Company’s marketable securities are highly liquid and are quoted on major exchanges and are therefore classified as Level 1 securities. The following table summarizes the Company’s assets that were measured and recognized at fair value as of December 31, 2021:       Level 1     Level 2     Level 3     Total                                     Balance at January 1, 2021   $ -     $ -     $ -     $ -                                     Additions     8,004,170       -       -       8,004,170                                     Change in fair value     11,712       -       -       11,712                                     Balance at December 31, 2021   $ 8,015,882     $ -     $ -     $ 8,015,882       4. Stockholders ’ Equity (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”).   F- 8 Table of Contents   Shares of Series A Convertible Preferred Stock (“Series A Stock”) rank pari passu with the Company’s Common Stock with respect to dividend and liquidation rights. Additionally, each share entitles the holder to 100 votes. During 2021, 1,730,002 previously issued and outstanding shares of the Series A Stock were converted into Common Stock. All currently issued and outstanding shares of the Series A Stock are held by Gust Kepler, the Company’s Chairman and Chief Executive Officer (“Mr. Kepler”). The Company and Mr. Kepler entered into Conversion Rights Agreement dated effective as of October 14, 2021 limiting the rights of the holder(s) of our outstanding shares of Series A Stock to convert such shares into Common Stock on a one -for one basis as provided for in the Certificate of Designation of the Series A Stock (the “Designation Conversion Rights”). Pursuant to the terms of the Conversion Rights Agreement, the Designation Conversion Rights are limited and exercisable based upon the Company reaching the following market capitalization thresholds, measured on the last day of each calendar quarter:     ● If the Company’s market capitalization is less than $ 150,000,000 , the outstanding Series A Stock will be convertible into Common Stock on a 5 -for- 1 share basis;   ● If the Company’s market capitalization is equal to or greater than $ 150,000,000 but less than $200,000,000, the outstanding Series A Stock will be convertible into Common Stock on a 3.3 -for- 1 share basis;   ●  If the Company’s market capitalization is equal to or greater than $200,000,000 but less than $250,000,000, the outstanding Series A Stock will be convertible into Common Stock on a 2.5 -for- 1 share basis;   ● If the Company’s market capitalization is equal to or greater than $250,000,000 but less than $350,000,000 the outstanding Series A Stock will be convertible into Common Stock on a 1.75 -for- 1 share basis;   ● If the Company’s market capitalization is equal to or greater than $350,000,000 the outstanding Series A Stock will thereafter convertible into Common Stock pursuant to the Designation Conversion Rights (on a 1 -for- 1 share basis).   The Conversion Rights Agreement terminates when the last share of Series A Stock is either converted or the largest market capitalization threshold is met.   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 7 ).   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 Winspear Investments LLC in conjunction with a consulting services agreement (Note 9 ).   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.   During the year ended December 31, 2021, the Company sold 70,772 shares of common stock to third parties for $ 138,006 and issued 6,411 shares of common stock previously subscribed for $ 12,500 .   During the year ended December 31, 2021, the Company exchanged a liability of $ 180,000 for the purchase of a Simple Agreement for Future Tokens into 92,308 shares of common stock at $ 1.95 per share (Note 2 ).   F- 9 Table of Contents   During the year ended December 31, 2021, the Company issued 20,000 shares of common stock at $1.95 per share for services provided to the Company totaling $ 39,000 to Winspear Investments LLC (Note 9 ).   During the year ended December 31, 2021, the Company issued 80,000 shares of common stock at $ 5.00 per share for services provided to the Company totaling $ 400,000 to Winspear Investments LLC (Note 9 ).   During the year ended December 31, 2021, the Company issued 75,000 shares of common stock to a third party for services provided to the Company totaling $ 229,500 .   During the year ended December 31, 2021, the Company issued 214,393 shares of common stock to third parties for the cashless exercise of 249,949 warrants (Note 4 ).   On November 9, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P. as the representative of the underwriters named therein (the “Representative” and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”), relating to the issuance and sale by the Company to the Underwriters of an aggregate of 2,400,000 shares (the “Shares”) of the Company’s common stock, par value $ 0.001 per share, at a price to the public of $ 5.00 per share, less underwriting discounts and commissions. Pursuant to the Underwriting Agreement, the Underwriter was granted an option (the “Over-Allotment Option”) for a period of 45 days to purchase from the Company up to an additional 360,000 shares of Common Stock, at the same price per share, to cover over-allotments, if any. The Over-Allotment Option expired without being exercised during December 2021. The Company incurred $ 1,260,000 in underwriting discounts and commissions and incurred $ 220,086 in related expenses, resulting in net cash proceeds received totaling $ 10,519,914 .     5. Warrants to Purchase Common Stock   Costs attributable to the issuance of warrants to purchase common stock are measured at fair value at the date of issuance and offset with a corresponding increase in ‘Additional Paid in Capital’ at the time of issuance.   Until January 1, 2021, the fair value cost was computed utilizing the Black-Scholes model using the following inputs: the price of the Company’s common stock on the date of issuance, a risk-free interest rate based on applicable treasury rates, and expected volatility of the Company’s common stock of based on historical volatility, various exercise prices, and terms reflecting the term of the warrant issued.   Beginning January 1, 2021, the Company computes fair value cost using the Cox-Ross-Rubinstein binomial model. During the period ended December 31, 2021, the Company estimated the fair value of the warrants 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 up to 10 years.   Concurrently with the execution of certain securities purchase agreements during 2020, the Company issued warrants to purchase common stock. Each warrant is exercisable for a period of one to five years from the date of the securities purchase agreement. The fair value cost at the date of issuance of these warrants was $ 639,194 .   In conjunction with the issuance of convertible notes payable during 2020 as described in Note 7, 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 warrants 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.   On September 11, 2021, the Company issued Robert Winspear, Chief Financial Officer, Secretary and a director of the Company, a warrant to purchase up to 100,000 shares of common stock exercisable for a ten -year period at an exercise price of $ 1.95 . The warrant vests monthly over 36 months after the issuance date. The fair value of the warrant at the issuance date was $ 382,571 , which is being expensed as vesting occurs.   F- 10 Table of Contents   On September 11, 2021, the Company issued warrants to purchase up to a total of 32,129 shares of common stock exercisable for a ten -year period at an exercise price of $ 1.95 . The warrants vested on the issuance date. The fair value of these warrants at the issuance date was $ 122,916 , which was expensed at issuance.   On November 9, 2021, as part of the Underwriting Agreement (Note 3 ), the Company issued a warrant to purchase up to 144,000 shares of common stock exercisable for a five -year period at an exercise price of $ 6.25 per share.   The following table presents the Company’s warrants as of December 31, 2021 and 2020:       Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Life (in years)   Warrants as of December 31, 2019     84,295     $ 1.95       4.45   Issued     510,644     $ 0.84       5.00   Exercised     ( 115,385 )   $ 0.01       -   Warrants as of December 31, 2020     479,554     $ 1.24       4.34   Issued     328,731     $ 3.77       7.01   Exercised     ( 249,949 )   $ 1.04       3.77   Warrants as of December 31, 2021     558,336     $ 3.28       5.09     At December 31, 2021, warrants for the purchase of 469,450 shares of common stock were vested and warrants for the purchase of 88,886 shares of common stock remained unvested. The Company expects to incur expenses for the unvested warrants totaling $ 340,056 as they vest.     6. Incentive Stock Plan   On August 4, 2021, our Board of Directors created, and our stockholders approved, the 2021 Blackboxstocks, Inc. Incentive Stock Plan (the “2021 Plan”) which became effective August 31, 2021. We have reserved 750,000 of our outstanding shares of our common stock for issuance under the 2021 Plan. The 2021 Plan allows the Company, under the direction of the Board of Directors or a committee thereof, to make grants of stock options, restricted and unrestricted stock and other stock-based awards to employees, including our executive officers, consultants and directors.   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   In addition, 6,048 shares of restricted common stock were granted on September 11, 2021, with 25 % vesting at issuance and the remaining shares vesting quarterly over nine months. As of December 31, 2021, 3,024 of the restricted common stock shares have vested and are included in common stock payable.   The following table presents the Company’s options as of December 31, 2021 and 2020:       Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Life (in years)   Options as of December 31, 2020     -     $ -       -   Issued     682,500     $ 3.07       10.00   Forfeited     ( 6,667 )   $ 2.99       9.69   Exercised     -     $ -       -   Options as of December 31, 2021     675,833     $ 3.07       9.69     F- 11 Table of Contents   At December 31, 2021, options to purchase 228,891 shares of common stock were vested and options to purchase 453,609 shares of common stock remained unvested. The Company expects to incur expenses for the unvested options totaling $ 756,965 as they vest.     7. Related Party Transactions   As of January 1, 2020, the Company was owed $ 9,823 from Gust C. Kepler. During the year ended December 31, 2020 Mr. Kepler repaid the advance. During the year ended December 31, 2021, the Company advanced Mr. Kepler $ 189,477 of which $ 139,859 was repaid by Mr. Kepler and $ 50,618 was recorded as compensation expense.   During the year ended December 31, 2020, the Company engaged the services of EDM Operators, (“EDM”), whose two stockholders are Company stockholders. During the year ended December 31, 2020, EDM was paid $ 40,200 for services. One of the stockholders of EDM is Eric Pharis, who was appointed as our Chief Operating Officer on September 11, 2021.   G2 International, Inc. ( “G2” ), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler. As of December 31, 2020, the Company had a prepaid balance of $ 36,700 for public relations and marketing services with G2/IPA. These funds were utilized during the year ended December 31, 2021.   On August 11, 2020 we 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. Winspear is 100% owned by our Chief Financial Officer, Robert Winspear, and his wife. Pursuant to the letter agreement, the Company paid or accrued a total of 68,000 shares of common stock prior to the appointment of Mr. Winspear as a director and our Chief Financial Officer and Secretary, and paid Winspear an additional 80,000 shares of common stock as a result of the Company’s listing on Nasdaq.   During the years ended December 31 2020 and 2021 the Company paid Cyfeon Solutions Inc $ 65,000 and $ 183,062 , respectively, for services related to the development and management of the Company’s software platform. Cyfeon Solutions Inc is owned by Brandon Smith who was appointed as our Chief Technology Officer in December of 2021. There was an outstanding payable of $ 15,000 at December 31, 2021 to Cyfeon Solutions Inc.   The Company entered into Conversion Rights Agreement dated effective as of October 14, 2021 with Mr. Kepler. The Conversion Agreement limits the rights of the holder(s) of our outstanding shares of Series A Preferred Stock to convert such shares into Common Stock (see Note 4 ).     8. Debt   Notes Payable   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. During August 2021, the Company received partial loan forgiveness from the SBA reducing the principal balance of the note to $ 96,795 . During December 2021, the terms of the note were amended to carry an interest rate of 1% and mature on May 4, 2025.   On November 12, 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $ 1,000,000 bearing interest at 12 % per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company also entered into an agreement with an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Mr. Kepler executed a guaranty in favor of FVP in connection with the loan. Proceeds from the loan 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. As of December 31, 2021 and 2020, the unpaid balances of the note totaled $ 990,000 and $ 1,000,000 , respectively.   F- 12 Table of Contents   On March 9, 2022 the Company and FVP amended the Loan Agreement to change the Debt Service Coverage Ratio measurement date from the quarter ending December 31, 2021 to the quarter ending September 30, 2022, the effect of which was to cure what would otherwise have caused a breach of the Debt Service Coverage Ratio for the quarter ending December 31, 2021.   Notes Payable, related party   During December 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 years ended December 31, 2021 and 2020, the Company repaid $ 859 and $ 107,141 in principal, respectively, reducing the balances due as of December 31, 2021 and 2020 to $ 0 and $ 859 , respectively.   Convertible Notes Payable   During May 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. During July 2019 the Company issued another 8 % Fixed Convertible Promissory Note with a face value of $ 165,000 which also included an original discount of 10 % on the investment amount. The two notes contain substantially identical terms. The Company defaulted on the notes and incurred default fees of $ 24,750 for the year ended December 31, 2020, which was added to the principal balance.   During July 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 stipulate 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 was amortized over the term of the Agreements. The notes were fully repaid during the year ended December 31, 2021.   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.     9. Derivative Liabilities   The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:   Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;   Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and   Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.   F- 13 Table of Contents   The Company’s derivative liabilities were classified as Level 3 instruments. The following table summarizes the Company’s liabilities that were measured and recognized at fair value as of December 31, 2020:       Level 1     Level 2     Level 3   Balance at December 31, 2019   $ -     $ -     $ 1,405,530   Additions     -       -       317,776   Amendments     -       -       ( 224,066 ) Retirements     -       -       ( 567,588 ) Change in fair value     -       -       ( 931,652 ) Balance at December 31, 2020   $ -     $ -     $ -       10. Commitments and Contingencies   During August 2017 the Company acquired and was assigned all right, title and interest in an office lease with Teachers Insurance and Annuity Association of America (“TIAA”) for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. During September 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. During February 2021, the Company amended its lease with TIAA to expand its space by approximately 847 square feet for a total of 2,685 square feet and extended the expiration date to September 30, 2025. On April 14, 2021, the Company amended its lease with TIAA extending the lease expiration until September 30, 2028.   Operating lease agreements are required to be recognized on the balance sheet as right of use assets and corresponding lease liabilities under ASC 842, Leases. When measuring right of use assets and the corresponding liabilities, the Company discounted lease payments using an estimated incremental borrowing rate of 10 %. As a result of the February and April 2021 amendments, the Company recognized additional right of use assets and lease liabilities totaling $ 389,026 .   The Company records rent expense associated with this lease on a straight-line basis in conjunction with the terms of the underlying lease. During the years ended December 31, 2021 and 2020, the Company’s office rental expenses totaled approximately $ 77,400 and $ 59,600 , respectively.   The table below shows the future lease payment obligations:   Year Ending December 31,   Amount   2022   $ 88,786   2023     87,934   2024     89,948   2025     91,122   2026     93,136   Thereafter     167,645       $ 618,571     The Company is not currently a defendant in any material litigation or any threatened litigation that could have a material effect on the Company’s financial statements.     11. Income Taxes   The Company has established deferred tax assets and liabilities for the recognition of future deductions or taxable amounts and operating loss carry forwards. Deferred federal income tax expense or benefit is recognized as a result of the change in the deferred tax asset or liability during the year using the currently enacted tax laws and rates that apply to the period in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amounts that will more likely than not be realized.   During the years ended December 31, 2021 and 2020, a reconciliation of income tax expense at the statutory rate of 21 % to income tax expense at the Company’s effective tax rate is as follows:       2021     2020   Income tax benefit at statutory rate   $ 549,000     $ 75,000   Temporary differences     -       -   Permanent differences     ( 153,000 )     233,000   Valuation allowance     ( 396,000 )     ( 308,000 ) Provision for federal income taxes   $ -     $ -     F- 14 Table of Contents   At December 31, 2021, the Company had approximately $ 7,035,554 of unused net operating loss carry forwards. Unused net operating loss carry forwards may provide future tax benefits, although there can be no assurance that these net operating losses will be realized in the future. The tax benefits of these loss carryforward have been fully offset by a valuation allowance. These losses may be used to offset future taxable income and, if not fully utilized, begin to expire in the year 2038.     12. Subsequent Events   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 . This use of proceeds was not anticipated or disclosed in the Company’s prospectus.   On March 9, 2022 the Company and FVP amended the loan agreement to change the Debt Service Coverage Ratio measurement date from the quarter ending December 31, 2021 to the quarter ending September 30, 2022, the effect of which was to cure what would otherwise have caused a breach of the Debt Service Coverage Ratio for the quarter ending December 31, 2021.   F-15