Item 1A.
Risk Factors
An investment in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Report, including our financial statements and related notes, before deciding to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business or results of operations.
Risks Related to Ownership of Our Common Stock
We may not be able to satisfy listing requirements of Nasdaq or maintain a listing of our common stock on Nasdaq.
We are required to meet certain financial and liquidity criteria to maintain our Nasdaq listing. If we violate or fail to satisfy Nasdaq listing requirements, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock would significantly impair our ability to raise capital and the value of your investment.
Fluctuations in our quarterly revenues may cause the price of our common stock to decline.
Our operating results have varied significantly from quarter to quarter in the past, and we expect our operating results to vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Therefore, if revenues are below our expectations, this shortfall is likely to adversely and disproportionately affect our operating results. Accordingly, we may not attain positive operating margins in future quarters. Any of these factors could cause our operating results to be below the expectations of securities analysts and investors, which likely would negatively affect the price of our common stock.
We are a “ controlled company ” within the meaning of the Nasdaq rules and, as a result, qualify for, and may elect to rely on, exemptions from certain corporate governance requirements that provide protection to the stockholders of companies that are subject to such corporate governance requirements.
Gust C. Kepler, who serves as a director, President and Chief Executive Officer of the Company, beneficially owns more than 50% of the voting power for the election of members of our board of directors. As a result, we are and will continue to be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq rules. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain of Nasdaq’s corporate governance requirements.
As a controlled company, we may rely on certain exemptions from the Nasdaq standards that may enable us not to comply with certain Nasdaq corporate governance requirements. As a consequence, in the event that we elect to rely on certain exemptions from the Nasdaq standards provided to “controlled companies,” you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Capital Market.
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Risks Related to Our Business
We expect to invest in growing our business, which may cause our sales and marketing, research and development, and other expenses to increase and our margins to decline.
We believe that our revenue growth, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks, and difficulties described elsewhere in this “Risk Factors” section and the extent to which our various service offerings grow and contribute to our results of operations. We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. In addition, our customer base may not continue to grow or may decline due to a variety of possible risks, including increased competition, changes in the regulatory landscape, and the maturation of our business. Any of these factors could cause our revenue growth to decline and may adversely affect our margins and profitability. Failure to continue our revenue growth or margin improvement could have a material adverse effect on our business, financial condition, and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.
If we do not continue to attract new subscriber customers, or if existing customers do not renew their subscriptions, or renew on less favorable terms, it could have a material adverse effect on our business, financial condition, and results of operations.
In order to grow our business, we must continually attract new subscribing customers and reduce the level of non-renewals in our business. Our ability to do so depends in large part on the success of our sales and marketing efforts. We may not accurately predict future trends with respect to rates of customer renewals. Our subscribing customer base may decline or fluctuate due to a number of factors, including the prices of our subscriptions, the prices of services offered by our competitors and the efficacy and cost-effectiveness of our solutions. If we are unable to retain and increase sales of our Blackbox System platform to existing subscribing customers or attract new ones for any of the reasons above or for other reasons, our business, financial condition, and results of operations could be adversely affected.
In order to achieve profitability, we must increase revenue levels.
We need to increase current revenue levels by increasing paid subscriptions to our Blackbox System platform or develop additional revenue sources from new products, services or applications if we are to attain and maintain consistent profitability. If we are unable to achieve increased revenue levels, losses could continue for the near term and possibly longer, and we may not attain profitability or generate positive cash flow from operations in the future.
We intend to introduce new products and services. There can be no assurance that we will be able to introduce such products and services effectively or profitably.
We intend to expand our product and service offering including the introduction of products and services which employ and expand upon our current proprietary system and technology. These products and services are expected to include applications targeted for investors who are not day traders or swing traders and products designed for professional traders. We introduced certain products and services in 2024 and 2025 including educational products and expect to continue to introduce additional products and services in 2026 as well as spend significant capital on advertising and marketing of such products and services. If we are unable to generate significant revenue from these or other new products and services, we may incur significant operating losses.
We expect to face increasing competition in the market for our platform and services.
We face significant competition and we expect such competition to increase. Our industry and the markets we serve are evolving rapidly and becoming increasingly competitive. Larger and more established companies may focus on our markets and could directly compete with us. Smaller companies could also launch new platforms and services that compete with us and that could gain market acceptance quickly. We also expect our existing competitors in the markets to continue to focus on these areas. A number of these companies may have greater financial, technological, and other resources than we do and greater name recognition than us, which may enable them to compete more effectively. Specifically, we believe the following companies to be direct competitors: Trade Ideas, Flow Algo, Unusual Whales and Trade Alert. Companies with social media platforms dedicated to financial markets include Discord, Stock Twits and Wall Street Bets. Our competitors may announce new products, services, or enhancements that better address changing industry standards or the needs of our customers, such as mobile access. Any such increased competition could cause pricing pressure, loss of market share, or decreased customer engagement, any of which could adversely affect our business and operating results.
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If we are not able to maintain and enhance our reputation and brand recognition, our business, financial conditions and results of operations will be harmed.
We believe that maintaining and enhancing our reputation and brand recognition is critical to our relationships with existing subscribing customers and our ability to attract new subscribing customers. The promotion of our brand may require us to make substantial investments and we anticipate that, as our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur, and our results of operations could be harmed. In addition, any factor that diminishes our reputation or that of our management, including failing to meet the expectations of our customers, could make it substantially more difficult for us to attract new customers. Similarly, because our subscribing customers often act as references for us with prospective new customers, any existing customer that questions the quality of our work or that of our employees could impair our ability to secure additional new customers. If we do not successfully maintain and enhance our reputation and brand recognition with our customers, our business may not grow and we could lose these relationships, which would harm our business, financial condition, and results of operations.
The estimates of market opportunity and forecasts of market growth included in this report may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, or at all.
Market opportunity estimates and growth forecasts included in this report are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. The estimates and forecasts included in this report relating to size and expected growth of our target market may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth forecasts included in this report, our business may not grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.
We rely on software-as-a-service, or SaaS, technologies from third parties.
We rely on SaaS technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services, marketing services and data storage services. Some of our vendor agreements may be unilaterally terminated by the counterparty for convenience. If these services become unavailable due to contract cancellations, extended outages or interruptions, because they are no longer available on commercially reasonable terms or prices, or for any other reason, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing our offerings and supporting our consumers and partners could be impaired, and our ability to access or save data stored to the cloud may be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could harm our business, financial condition, and results of operations.
Any restrictions on our use of, or ability to license data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on our business, financial condition, and results of operations.
We depend upon licenses from third parties for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate. We expect that we may need to obtain additional licenses from third parties in the future in connection with the development of our solutions and services. In addition, we obtain a portion of the data that we use from various securities and option exchanges. We believe that we have all rights necessary to use the data that is incorporated into our solutions and services. However, we cannot assure you that our licenses for information will allow us to use that information for all potential or contemplated applications and solutions.
In the future, data providers could withdraw their data from us or restrict our usage for any reason, including if there is a competitive reason to do so, if legislation is passed restricting the use of the data, or if judicial interpretations are issued restricting use of the data that we currently use in our solutions and services. If a substantial number of data providers were to withdraw or restrict their data and if we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, our ability to provide solutions and services to our subscribing customers would be materially adversely impacted, which could have a material adverse effect on our business, financial condition, and results of operations.
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We also integrate into our proprietary applications and use third-party software to maintain and enhance, among other things, content generation and delivery, and to support our technology infrastructure. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology, and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. These technologies may not be available to us in the future on commercially reasonable terms or at all and could be difficult to replace once integrated into our own proprietary applications. Most of these licenses can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. Our inability to obtain, maintain, or comply with any of these licenses could delay development until equivalent technology can be identified, licensed, and integrated, which would harm our business, financial condition, and results of operations.
Most of our third-party licenses are non-exclusive and our competitors may obtain the right to use any of the technology covered by these licenses to compete directly with us. If our data suppliers choose to discontinue support of the licensed technology in the future, we might not be able to modify or adapt our own solutions.
We are dependent on a limited number of key executives and employees, the loss of which could negatively impact our business.
Our business is led by our CEO Gust Kepler and a small group of key employees. The loss of one or more of these executives could negatively impact our business.
Risks Related to Intellectual Property
We may not be able to halt the operations of entities that copy our intellectual property or that aggregate our data as well as data from other companies, including social networks, or copycat online services that may misappropriate our data. These activities could harm our brand and our business.
From time to time, third parties may try to access content or data from our networks through scraping, robots, or other means and use this content and data or combine this content and data with other content and data as part of their services. These activities could degrade our brand, negatively impact our platform and system performance and harm our business. We have employed contractual, technological or legal measures in an attempt to halt unauthorized activities, but these measures may not be successful. In addition, if our customers do not comply with our terms of service, they also may be able to abuse our tools, solutions, and services and provide access to our solutions and content to unauthorized users. We may not be able to detect any or all of these types of activities in a timely manner and, even if we could, technological and legal measures may be insufficient to stop these actions. In some cases, particularly in the case of online services operating from outside of the United States, our available legal remedies may not be adequate to protect our business against such activities. Regardless of whether we can successfully enforce our rights against these parties, any measures that we may take could require us to expend significant financial or other resources.
Third parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition, and results of operations.
Our commercial success depends on our ability to develop and commercialize our platform, products and services and use our proprietary technology without infringing the intellectual property or proprietary rights of third parties. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual property. We are not currently subject to any material claims from third parties asserting infringement of their intellectual property rights.
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Intellectual property disputes can be costly to defend and may cause our business, operating results, and financial condition to suffer. Whether merited or not, we have in the past and may in the future face allegations that we, our partners, our licensees, or parties indemnified by us have infringed or otherwise violated the patents, trademarks, copyrights, or other intellectual property rights of third parties. Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties. Some third parties may be able to sustain the costs of complex litigation more effectively than we can because they have substantially greater resources. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Moreover, any uncertainties resulting from the initiation and continuation of any legal proceedings could have a material adverse effect on our ability to raise the funds necessary to continue our operations. Assertions by third parties that we violate their intellectual property rights could therefore have a material adverse effect on our business, financial condition, and results of operations.
Failure to maintain, protect, or enforce our intellectual property rights could harm our business and results of operations.
We may pursue the registration of our domain names, trademarks, and service marks in the United States. We also strive to protect our intellectual property rights by relying on federal, state, and common law rights, as well as contractual restrictions. We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our technology or intellectual property rights. Those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. These contractual arrangements and the other steps we have taken to protect our intellectual property rights may not prevent the misappropriation or disclosure of our proprietary information nor deter independent development of similar technology or intellectual property by others.
Effective trade secret, patent, copyright, trademark and domain name protection is expensive to obtain, develop and maintain, both in terms of initial and ongoing registration or prosecution requirements and expenses and the costs of defending our rights. We have invested in and may, over time, increase our investment in protecting our intellectual property through patent filings that could be expensive and time-consuming. Our trademarks and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We have not yet applied for or obtained any issued patents that provide protection for our technology or products. Moreover, any issued patents we may obtain may not provide us with a competitive advantage and, as with any technology, competitors may be able to develop similar or superior technologies to our own, now or in the future. In addition, due to a recent U.S. Supreme Court case, it has become increasingly difficult to obtain and assert patents relating to software or business methods, as many such patents have been invalidated for being too abstract to constitute patent-eligible subject matter. We do not know whether this will affect our ability to obtain patents on our innovations, or successfully assert any patents we may pursue in litigation or pre-litigation campaigns.
Monitoring unauthorized use of the content on our platform, and our other intellectual property and technology, is difficult and costly. Our efforts to protect our proprietary rights and intellectual property may not have been and may not be adequate to prevent their misappropriation or misuse. Third parties, including our competitors, could be infringing, misappropriating, or otherwise violating our intellectual property rights. We may not be successful in stopping unauthorized use of our content or other intellectual property or technology. Further, we may not have been and may not be able to detect unauthorized use of our technology or intellectual property, or to take appropriate steps to enforce our intellectual property rights. Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our solutions and services. Our competitors may also independently develop similar technology. Effective patent, trademark, copyright and trade secret protection may not be available to us in every jurisdiction in which our solutions or technology are hosted or available. Further, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property rights could result in competitors offering solutions that incorporate our most technologically advanced features, which could reduce demand for our solutions.
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We may find it necessary or appropriate to initiate claims or litigation to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of intellectual property rights claimed by others. In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to stop the other party from using the technology at issue on grounds that our intellectual property rights do not cover the use or technology in question. Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights. Litigation is inherently uncertain and any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and results of operations. If we fail to maintain, protect, and enforce our intellectual property, our business and results of operations may be harmed.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of intellectual property protection. This could make it difficult for us to stop the infringement or misappropriation of our intellectual property rights. Proceedings to enforce our intellectual property in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We believe that our brand is critical to the success of our business, and we plan to utilize trademark registration and other means to protect it. Our business would be harmed if we were unable to protect our brand against infringement and its value was to decrease as a result.
We have registered our “Blackboxstocks” tradename and logo with the USPTO. We may apply for registration of additional product name or marks.
The registered or unregistered trademarks or trade names that we own or license may be challenged, infringed, circumvented, declared generic, lapsed, or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with customers and potential partners. In addition, third parties may in the future file for registration of trademarks similar or identical to our trademarks. If they succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to commercialize our technologies or solutions in certain relevant countries. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.
We rely heavily on trade secrets and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information, including our technology platform, and to maintain our competitive position. With respect to our technology platform, we consider trade secrets and know-how to be one of our primary sources of intellectual property. However, trade secrets and know-how can be difficult to protect. We seek to protect these trade secrets and other proprietary technology in part by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, outside contractors, consultants, advisors, and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses containing invention assignment, to grant us ownership of technologies that are developed through a relationship with employees or third parties. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information, including our technology and processes. Despite these efforts, no assurance can be given that the confidentiality agreements we enter into will be effective in controlling access to such proprietary information and trade secrets. The confidentiality agreements on which we rely to protect certain technologies may be breached, may not be adequate to protect our confidential information, trade secrets, and proprietary technologies and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, trade secrets, or proprietary technology. Further, these agreements do not prevent our competitors or others from independently developing the same or similar technologies and processes, which may allow them to provide a service similar or superior to ours, which could harm our competitive position.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, it could harm our competitive position, business, financial condition, results of operations, and prospects.
If we fail to comply with our obligations under license or technology agreements with third parties, we may be required to pay damages and we could lose license rights that are critical to our business.
We license certain intellectual property, including technologies and software from third parties, that is important to our business, and we may enter into future additional agreements that provide us with licenses to valuable intellectual property or technology. If we fail to comply with any of the obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from selling our solutions and services, or adversely impact our ability to commercialize future solutions and services. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed intellectual property are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. In addition, our rights to certain technologies are licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, the agreements under which we license intellectual property or technology from third parties are generally complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Any of the foregoing could harm our competitive position, business, financial condition, results of operations, and prospects.
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If we cannot license rights to use intellectual property on reasonable terms, we may not be able to commercialize new solutions or services in the future.
In the future, we may identify additional third-party intellectual property we may need to license in order to engage in our business, including to develop or commercialize new solutions or services. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources, and greater development or commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial royalties based on sales of our solutions and services. Such royalties are a component of the cost of our solutions or services and may affect the margins on our solutions and services. In addition, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property licensed to us. If we are unable to enter into the necessary licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if our licensors fail to abide by the terms of the licenses, if our licensors fail to prevent infringement by third parties, or if the licensed intellectual property rights are found to be invalid or unenforceable, our business, financial condition, results of operations, and prospects could be affected. If licenses to third-party intellectual property rights are, or become required for us, to engage in our business, the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. Moreover, we could encounter delays and other obstacles in our attempt to develop alternatives. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing solutions and services, which could harm our competitive position, business, financial condition, results of operations, and prospects.
General Risk Factors
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our securities will be influenced by the research and reports that securities or industry analysts publish about us or our business (or the absence of such research or reports). If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price could decline and such decline could be material.
We are an “ emerging growth company ” and our compliance with the reduced reporting and disclosure requirements applicable to “ emerging growth companies ” may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosures; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.
In addition, while we are an “emerging growth company,” we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies. As a result, our financial statements may not be comparable to companies that are not “emerging growth companies” or elect not to avail themselves of this provision.
We may remain an “emerging growth company” until as late as December 31, 2026, the fiscal year-end following the fifth anniversary of the completion of our initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (i) we have more than $1.07 billion in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year, or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.
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The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our common stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.
If we are unable to implement and maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports.
As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the date we are no longer an “emerging growth company” as defined in the JOBS Act. Accordingly, you will not be able to depend on any attestation concerning our internal control over financial reporting from our independent registered public accounting firm for the foreseeable future.
The process of designing and implementing internal controls over financial reporting is time consuming, costly, and complicated. If during the evaluation and testing process, we identify one or more material weaknesses in our internal control over financial reporting or determine that existing material weaknesses have not been remediated, our management will be unable to assert that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented, or reviewed. If we are unable to assert that our internal control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the valuation of our common stock could be adversely affected.
Compliance with public reporting requirements have and will continue to affect the Company ’ s financial resources.
The Company is subject to certain public reporting obligations as required by federal securities laws, regulations and agencies. The compliance with such reporting requirements will require the company to incur significant legal, accounting and other administrative expenses. The expenses the Company may incur will have a significant impact on the Company’s financial resources and may lead to a decrease in the value and price of our common stock.
We rely on network infrastructure and our ability to maintain and scale our business and maintain competitiveness. Any significant interruptions or delays in service on our apps or websites or any undetected errors or design faults could adversely affect our business, financial condition and results of operations.
We depend on the use of information technologies and systems and our reputation and ability to acquire, retain, and serve our customers are dependent upon the reliable performance of our apps and websites and the underlying network infrastructure. As our operations grow, we must continuously improve and upgrade our systems and infrastructure while maintaining or improving the reliability and integrity of our infrastructure. Our future success also depends on our ability to adapt our systems and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our solutions in response to competitive services and offerings. We expect the use of alternative platforms such as tablets and smartphones will continue to grow and the emergence of niche competitors who may be able to optimize offerings, services, or strategies for such platforms will require new investment in technology. New developments in other areas, such as cloud computing, have made it easier for competition to enter our markets due to lower up-front technology costs. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. There is also no guarantee that we will possess the financial resources or personnel, for the research, design, and development of new applications or services, or that we will be able to utilize these resources successfully and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of our competitors or future competitors will not result in our present or future applications and services becoming uncompetitive or obsolete. If we were unable to enhance our offerings and network capabilities to keep pace with rapid technological and regulatory change, or if new technologies emerge that are able to deliver competitive offerings at lower prices, more efficiently, more conveniently, or more securely than our platform offerings, our business, financial condition and results of operations could be adversely affected.
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Risks Related to the Proposed Merger
The Company will allocate time and resources to effecting the Merger and incur non-recurring costs related to the REalloys Merger.
The Company and its management have allocated and will continue to be required to allocate time and resources to effecting the completion of the pending Merger transaction with REalloys and related and incidental activities. There is a risk that the challenges associated with managing these various Merger initiatives may have a business impact and that consequently the underlying businesses will not perform in line with expectations. This could have an adverse effect on the reputation, business, financial condition or results of operations of the Company.
In addition, the Company has and expects to continue to incur a number of non-recurring costs associated with the Merger, including taxes, legal fees, advisor fees, filing fees, mailing expenses, and financial printing expenses. There can be no assurance that the actual costs will not exceed those estimated and the actual completion of the Merger may result in additional and unforeseen expenses. Many of these costs will be payable whether or not the Merger is completed. While it is expected that benefits of the Merger achieved by the Company will offset these transaction costs over time, this net benefit may not be achieved in the short-term or at all, particularly if the Merger are delayed or does not happen at all. These combined factors could adversely affect the business, results of operations or financial condition of the Company.
The calculation of the number of Blackboxstocks shares to be issued in the Merger may be adjusted if there is a change in REalloys share capital between the date of Merger Agreement and Closing.
The calculation of the number of Company shares to be issued in the Merger may be adjusted in the event that REalloys issues any share capital between the date of the Merger Agreement and Closing pursuant to the exchange ratio in the Merger Agreement. The parties may not be permitted to terminate the Merger Agreement because of changes in the exchange ratio.
The Merger may not be completed on the terms or timeline currently contemplated, or at all, as Blackboxstocks or REalloys may be unable to satisfy conditions or obtain the approvals required to complete the Merger or such approvals may contain material restrictions or conditions.
Completion of the Merger is subject to numerous conditions. Although the Company is diligently applying its efforts to take, or cause to be taken, all actions to do, or cause to be done, all things necessary, proper or advisable to consummate the Merger, there can be no assurance that these conditions will be fulfilled or that the Merger will be completed on the terms or timeline currently contemplated, or at all. We have and will continue to expend time and resources and incur expenses related to the Merger. Many of these expenses must be paid regardless of whether the Merger are consummated. Governmental agencies and/or the Nasdaq may not approve the Merger, may impose conditions to the approval of the Merger or require changes to the terms of the Merger. Any such conditions or changes could have the effect of delaying completion of the Merger, imposing costs on or limiting the revenues of the Company following the Merger or otherwise reducing the anticipated benefits of the Merger.
Completion of the Merger may trigger certain provisions in agreements to which the Company or its operating subsidiary is a party.
The completion of the Merger may trigger certain change in control, consent, assignment or other provisions in agreements to which the Company, our subsidiary Blackbox Operating, or REalloys is a party. In addition, the completion of the Merger may trigger certain technical provisions in agreements to which the Company, Blackbox Operating or REalloys is a party. If such parties are unable to assert that such provisions should not apply, or the parties are unable to comply with or negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, including potentially terminating such agreements or seeking monetary damages. Even if the Company, Blackbox Operating or REalloys is able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the Company.
Failure to complete the Merger could adversely affect the market price of our common stock as well as our business, financial condition and results of operations.
If the Merger is not completed for any reason, the price of our common stock may decline, and our business, financial condition and results of operations may be impacted to the extent that the market price of our common stock reflects positive market assumptions that the Merger will be completed and the related expected benefits will be realized; based on significant expenses, such as legal, advisory and financial services which generally must be paid regardless of whether the Merger is completed; based on potential disruption of our business and distraction of our workforce and management team and other contemplated transactions under the Merger Agreement.
The pendency of the Merger could have an adverse effect on the stock price of our common stock as well as our business, financial condition, results of operations or business prospects.
The pendency of the Merger could disrupt our businesses in negative ways. For example, customers and other third-party business partners may seek to terminate and/or renegotiate their relationships with the Company as a result of the Merger, whether pursuant to the terms of their existing agreements or otherwise. In addition, current and prospective employees may experience uncertainty regarding their future roles with the Company upon consummation of the Merger, which might adversely affect our ability to retain, recruit and motivate key personnel. Should they occur, any of these events could adversely affect the price of our common stock, or harm our financial condition, results of operations or business prospects.
We may have difficulty attracting, motivating and retaining executives and other employees in light of the Merger.
We may have difficulty attracting, motivating and retaining executives and other employees in light of the Merger. Uncertainty about the effect of the Merger on our employees may have an adverse effect. This uncertainty may impair our ability to attract, retain and motivate personnel until the Merger is completed.
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Litigation relating to the Merger, if any, could result in an injunction preventing the completion of the Merger and/or substantial costs to the Company.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements like the Merger Agreement. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Lawsuits that may be brought against us or our directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Merger. One of the conditions to the closing of the Merger is that no order preventing the consummation of the Contemplated Transactions shall have been issued by and governmental authority of competent jurisdiction and remain in effect and that there shall not be any law which has the effect of making the consummation of the Contemplated Transactions illegal. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, that injunction may delay or prevent the Merger from being completed within the expected time frame or at all, which may adversely affect our business, financial position and results of operations.
There is no assurance when or if the Merger will be completed. Any delay in completing the Merger may substantially reduce the potential benefits that Blackboxstocks expects to obtain from the Merger.
Completion of the Merger is subject to the satisfaction or waiver of a number of conditions, as set forth in the Merger Agreement, including the approval by Blackboxstocks’ stockholders, approval by Nasdaq of Blackboxstocks’ application for the initial listing of Blackboxstocks’ common stock to be issued in connection with the Merger, and other customary closing conditions. There can be no assurance that Blackboxstocks and REalloys will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or may not be completed within the expected timeframe, and Blackboxstocks may materially and adversely lose some or all of the potential benefits it expects to achieve as a result of the Merger and could result in additional transaction costs or other effects associated with uncertainty about the Merger.
Blackboxstocks and REalloys can agree at any time to terminate the Merger Agreement, even though Blackboxstocks’ stockholders and/or REalloys’ securityholders have already adopted the Merger Agreement and thereby approved the Merger and the other transactions contemplated by the Merger Agreement. Blackboxstocks and REalloys can also terminate the Merger Agreement under other specified circumstances.
In addition, if the Merger Agreement is terminated and our board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger. In such circumstances, our Board of Directors may elect to, among other things, divest all or a portion of Blackboxstocks’ business, or take the steps necessary to liquidate all of Blackboxstocks’ business and assets, and in either case, the consideration that Blackboxstocks receives may be less attractive than the consideration to be received by Blackboxstocks pursuant to the Merger Agreement.
The issuance of shares of Blackboxstocks common stock to REalloys stockholders in the Merger will substantially dilute the voting power of current Blackboxstocks stockholders. Having a minority share position will reduce the influence that current stockholders have on the management of Blackboxstocks.
Pursuant to the terms of the Merger Agreement, at the Effective Time, Blackboxstocks will issue (or reserve for future issuance) to REalloys stockholders as Merger Consideration: (i) approximately 46,312,574 shares of its common stock, using the assumed Exchange Ratio of 0.3694, (ii) approximately 5,000 shares of Series C Preferred Stock at a ratio of one share of REalloys Preferred Stock to one share of Series C Preferred Stock (which is subject to change depending on the number of outstanding securities of Blackboxstocks and REalloys at the effective time of the Merger), (iii) warrants to purchase up to an aggregate of approximately 4,486,423 shares of Blackboxstocks common stock based on an assumed price of $8.47 per share, the closing price of the Blackboxstocks common stock on Nasdaq on December 26, 2025, and (iv) an aggregate of approximately 355,962 shares of Blackboxstocks common stock as related to the REalloys SAFEs, based on an assumed price of $8.47 per share, the closing price of the Blackboxstocks common stock on Nasdaq on December 26, 2025, in each case after giving effect to the proposed reverse stock split contemplated by the Reverse Stock Split Proposal. As a result, upon completion of the Merger, the current Blackboxstocks stockholders and holders of certain outstanding options and warrants to purchase shares of Blackboxstocks common stock will hold approximately 4,519,055 pre-reverse stock split shares, which is currently expected to be approximately 7.9% of the fully diluted equity of the post-merger combined company (the “Combined Company”). Accordingly, the issuance of the shares of Blackboxstocks common stock to REalloys stockholders in the Merger will significantly reduce the ownership stake and relative voting power of each share of Blackboxstocks common stock held by current Blackboxstocks stockholders. Consequently, following the Merger, the ability of Blackboxstocks’ current stockholders to influence the management of Blackboxstocks will be substantially reduced.
For illustrative purposes, the conversion of REalloys’ Preferred Stock into Series C Preferred Stock, would entitle holders of the former REalloys Preferred stock to 500 votes per share of Series C Preferred Stock, to vote in all matters with holders of Blackboxstocks Common Stock. This illustrative example assumes the 5,000 issued and contingently issuable at December 26, 2025, REalloys Series X Preferred Stock were outstanding and converted to Series C Preferred Stock at a 1:1 ratio, as contemplated in the Merger, with an assumed aggregate Stated Value of $15,000,000 or $3,000 per share, and a hypothetical Nasdaq Minimum Price of Blackboxstocks of $6.00 immediately preceding the Merger. The number of votes attributable to the Series C Preferred Stock has an inverse relationship to Blackboxstocks’ minimum price immediately preceding the Merger completion. This example excludes the impacts of potential Make-Whole, dividends in arrears, and any other adjustments to Stated Value as contemplated by terms of the REalloys’ Series X Stock or the Series C Preferred Stock and does not represent an indication or estimate of the expected actual voting impact on completion of the merger.
The issuance, or expected issuance, of Blackboxstocks common stock and Series C Preferred Stock in connection with the Merger could decrease the market price of Blackboxstocks common stock.
In connection with the Merger and as part of the Merger Consideration, Blackboxstocks expects to issue shares of Blackboxstocks common stock and Series C Preferred Stock to REalloys stockholders. The anticipated issuance of Blackboxstocks common stock and Series C Preferred Stock in the Merger may result in fluctuations in the market price of Blackboxstocks common stock, including a stock price decrease. In addition, the perception in the market that the holders of a large number of shares of Blackboxstocks common stock may intend to sell shares could reduce the market price of Blackboxstocks common stock.
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CVR holders may not receive any payment on the CVRs, the CVRs may otherwise expire valueless, and the U.S. federal income tax treatment of CVRs in unclear.
Pursuant to the CVR Agreement and the Merger Agreement, holders of each share of Blackboxstocks common stock immediately prior to Closing, will receive a dividend of one contractual contingent value right entitling such holders to receive net proceeds received by Blackboxstocks from any transaction in which the Blackboxstocks or Blackbox Operating grants, sells, licenses or otherwise transfers some or all of the rights to any and all of the assets, rights, and properties owned, used, or useable by Blackbox Operating in connection with or related to the business as conducted by Blackbox Operating and all of the Blackboxstocks rights therein. The right of Blackboxstocks stockholders to receive any future payment on or to derive any value from the CVRs will be contingent solely upon the achievement of the events specified in the CVR Agreement within the time period specified in the CVR Agreement. If the payment triggering events are not achieved for any reason within the time period specified in the CVR Agreement, no payments will be made under the CVRs, and the CVRs will expire valueless.
Additionally, the U.S. federal income tax treatment of the CVRs is subject to substantial uncertainty. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments under, the CVRs, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that could potentially result in adverse U.S. federal income tax consequences to holders of the CVRs.
The intended benefits of the Merger may not be realized.
The Merger poses risks for Blackboxstocks’ ongoing operations, including, among others:
that senior management’s attention may be diverted from the management of Blackboxstocks’ current operations and development of its products;
costs and expenses associated with any undisclosed or potential liabilities; and
unforeseen difficulties may arise in integrating Blackboxstocks’ business in the Combined Company.
As a result of the foregoing, we may be unable to realize the full strategic and financial benefits currently anticipated from the Merger, and cannot assure that the Merger will be accretive to Blackboxstocks in the near term or at all. Furthermore, if we fail to realize the intended benefits of the Merger, the market price of the Combined Company’s common stock could decline to the extent that the market price reflects those benefits. Our stockholders will have experienced substantial dilution of their ownership interests in Blackboxstocks without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the Combined Company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.
Because the lack of a public market for REalloys common stock makes it difficult to evaluate the fairness of the Merger, REalloys stockholders may receive consideration in the Merger that is greater than or less than the fair market value of REalloys common stock.
The outstanding common stock of REalloys is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of REalloys common stock. Since the percentage of Blackboxstocks’ common stock and Series C Preferred Stock to be issued to REalloys stockholders was determined based on negotiations between the parties, it is possible that the value of the Blackboxstocks common stock and Series C Preferred Stock to be issued in connection with the Merger will be greater than the fair market value of REalloys shares. Alternatively, it is possible that the value of the shares of Blackboxstocks common stock and Series C Preferred Stock to be issued in connection with the Merger will be less than the fair market value of REalloys shares.
Directors and officers of Blackboxstocks and REalloys may have interests in the Merger that are different from, or in addition to, those of Blackboxstocks stockholders and REalloys stockholders generally that may influence them to support or approve the Merger.
The officers and directors of Blackboxstocks and REalloys may have interests in the Merger that are different from, or are in addition to, those of Blackboxstocks stockholders and REalloys stockholders generally. Effective upon the closing of the Merger, Leonard Sternheim and Robert Winspear are expected to be employed as executive officers by the Combined Company. It is expected that six of the current directors of REalloys, and one current director of Blackboxstocks will be appointed as directors of the Combined Company after the completion of the Merger and may receive cash and equity compensation in consideration for such service. Contingent upon closing of the Merger, Gust Kepler has agreed to sell Leonard Sternheim certain shares of Blackboxstocks Series A Preferred Stock that will effectively confer voting control of the Combined Company currently held by Mr. Kepler to Mr. Sternheim for nominal consideration. Upon the Merger, the vesting of outstanding equity awards held by Blackboxstocks’ directors and officers will accelerate, and certain Blackboxstocks officers may be entitled to certain severance benefits in connection with changes in their employment. In addition, the directors and executive officers of Blackboxstocks and REalloys also have certain rights to indemnification or to directors’ and officers’ liability insurance that will survive the completion of the Merger. These interests may have influenced the directors and executive officers of Blackboxstocks and REalloys to support or recommend the proposals presented to Blackboxstocks and REalloys stockholders.
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If the Merger is completed, REalloys executive officers and REalloys appointees to the Combined Company ’ s board of directors will have the ability to significantly influence the Combined Company ’ s management and business affairs, as well as matters submitted to the Combined Company ’ s board of directors or stockholders for approval, especially if they decide to act together with the current REalloys stockholders.
Upon completion of the Merger, the former REalloys stockholders will own approximately 92.7% of the Combined Company on a fully diluted basis, excluding the effects of adjustments based on Blackboxstocks’ net cash at closing. Contingent upon closing of the Merger, Gust Kepler has also agreed to sell Leonard Sternheim certain shares of Blackboxstocks Series A Preferred Stock that will effectively confer voting control of the Combined Company to Mr. Sternheim. If the Merger is completed, the Combined Company is expected to be led by REalloys’ executive officers. Furthermore, the Combined Company’s anticipated board of directors will consist of nine members, six of which will be appointed by REalloys and one of which will be appointed by Blackboxstocks, pursuant to the terms and conditions of the Merger Agreement and two which are expected to be appointed immediately following the Merger. As a result, such persons, if they choose to act together, will have the ability to significantly influence the Combined Company’s management and business affairs, as well as matters submitted to the Combined Company’s board of directors or stockholders for approval.
The pendency and close of the Merger could have an adverse effect on Blackboxstocks ’ or REalloys ’ business, financial condition, results of operations or business prospects.
The pendency and close of the Merger could disrupt Blackboxstocks’ and/or REalloys’ businesses in the following ways, among others:
Blackboxstocks’ and REalloys’ current and prospective employees could experience uncertainty about their future roles within the Combined Company, and this uncertainty might adversely affect Blackboxstocks’ or REalloys’ ability to retain, recruit and motivate key personnel;
the attention of Blackboxstocks’ or REalloys’ management may be directed towards the completion of the Merger and other transaction-related considerations and may be diverted from the day-to-day business operations of Blackboxstocks or REalloys, as applicable, and matters related to the Merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to Blackboxstocks or REalloys, as applicable;
customers, prospective customers, suppliers, collaborators and other third parties with business relationships with Blackboxstocks or REalloys may decide not to renew or may decide to seek to terminate, change or renegotiate their relationships with Blackboxstocks or REalloys as a result of the Merger, whether pursuant to the terms of their existing agreements with Blackboxstocks or REalloys; and
the market price of Blackboxstocks’ common stock may decline to the extent that the current market price reflects a market assumption that the proposed Merger will be completed
Should they occur, any of these matters could adversely affect the businesses of, or harm the financial condition, results of operations or business prospects of, Blackboxstocks or REalloys.
The Exchange Ratio is not adjustable based on the market price of Blackboxstocks ’ common stock, so the Merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed .
The Merger Agreement has set the Exchange Ratio formula for the REalloys common stock, and the Exchange Ratio is only adjustable upward or downward to reflect Blackboxstocks’ and REalloys’ equity capitalization as of immediately prior to the Effective Time and the excess cash Blackboxstocks has at the effective time of the Merger. Any changes in the market price of common stock before the completion of the Merger will not affect the number of shares REalloys securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger, the market price of Blackboxstocks common stock declines from the market price on the date of the Merger Agreement, then REalloys securityholders could receive Merger consideration with substantially lower value. Similarly, if before the completion of the Merger, the market price of Blackboxstocks common stock increases from the market price on the date of the Merger Agreement, then REalloys securityholders could receive Merger Consideration with substantially more value for their shares of REalloys common stock than the parties had negotiated for in the establishment of the Exchange Ratio.
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If the Merger does not qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, or is otherwise taxable to U.S. REalloys stockholders, then such holders may be required to pay U.S. federal income taxes.
For U.S. federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code. If the Internal Revenue Service (the “IRS”) or a court determines that the Merger should not be treated as a reorganization or a tax deferred contribution, a holder of REalloys stock or warrants would recognize taxable gain or loss upon the exchange of REalloys stock or warrants for Blackboxstocks common stock or warrants pursuant to the Merger Agreement.
Blackboxstocks is expected to incur substantial expenses related to the Merger with REalloys.
Blackboxstocks has incurred, and expects to continue to incur, substantial expenses in connection with the Merger, as well as operating as a public company. Blackboxstocks will incur significant fees and expenses relating to legal, accounting, financial advisory and other transaction fees and costs associated with the Merger. Actual transaction costs may substantially exceed Blackboxstocks’ estimates and may have an adverse effect on the Combined Company’s financial condition and operating results.
Failure to complete the Merger could negatively affect the value of Blackboxstocks common stock and the future business and financial results of both Blackboxstocks and REalloys.
If the Merger is not completed, the ongoing businesses of Blackboxstocks and REalloys could be adversely affected. Moreover, each of Blackboxstocks and REalloys will be subject to a variety of risks associated with the failure to complete the Merger, including without limitation the following:
diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the Merger;
reputational harm due to the adverse perception of any failure to successfully complete the Merger; and
having to pay certain costs relating to the Merger, such as legal, accounting, financial advisory, filing and printing fees.
If the Merger is not completed, the market price of Blackboxstocks common stock and the business and financial results of both Blackboxstocks (including the cessation of its operations) and REalloys could be materially affected.
The Merger is expected to result in a limitation on the Combined Company ’ s ability to utilize its net operating loss carryforward.
Under Section 382 of the Code, use of Blackboxstocks’ net operating loss carryforwards (“NOLs”) will be limited if Blackboxstocks experiences a cumulative change in ownership of greater than 50% in a moving three-year period. At December 31, 2025, Blackboxstocks had approximately $5.2 million of net operating loss carryforwards, which NOLs will begin to expire in 2035 and are available to offset taxable income or reduce taxes payable through 2041. Blackboxstocks will experience an ownership change as a result of the Merger and therefore its ability to utilize its NOLs and certain credit carryforwards remaining at the effective time of the Merger will be limited. The limitation will be determined by the fair market value of Blackboxstocks’ common stock outstanding prior to the ownership change, multiplied by the applicable federal rate. It is expected that the Merger will impose a limitation on Blackboxstocks’ NOLs. Limitations imposed on Blackboxstocks’ ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs
The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes or other causes.
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In general, either party can refuse to complete the Merger if there is a material adverse effect (as defined in the Merger Agreement) affecting the other party between March 10, 2025, the date of the Merger Agreement, and the closing of the Merger. However, some types of changes do not permit either party to refuse to complete the Merger, even if such changes would have a material adverse effect on Blackboxstocks or REalloys, as the case may be:
changes or events affecting the industries or industry sectors in which the parties operate generally;
changes or events generally affecting the U.S. or global economy or capital markets as a whole;
hurricane, flood, tornado, earthquake or other natural disaster, epidemic, plague, pandemic or other public health event or any other force majeure event; or
changes in GAAP or other applicable law or legal requirement.
If adverse changes occur but Blackboxstocks and REalloys must still complete the Merger, the market price of our common stock may suffer.
We may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention management and harm the Combined Company ’ s business, and insurance coverage may not be sufficient to cover all related costs and damages.
Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We may become involved in this type of litigation in connection with the Merger, and the Combined Company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of Blackboxstocks or the Combined Company.
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