BLACKBOXSTOCKS INC. - Quarter Report: 2021 March (Form 10-Q)

INTRODUCTORY COMMENT

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Blackboxstocks,” or the “Company” refers to Blackboxstocks Inc., a Nevada corporation.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-Q (the “Report”), we make forward-looking statements that involve substantial uncertainties and risks. When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect our future plans of operations, business strategy, operating results and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties described herein and actual results may differ materially from those included within the forward-looking statements. Additional factors are described in our other public reports and filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends and activities will occur and the projected information based on those assumptions. We do not know that all of our assumptions are accurate. If our assumptions are wrong about any events, trends and activities, then our estimates for future growth for our business may also be wrong. There can be no assurance that any of our estimates as to our business growth will be achieved.

The following discussion and analysis should be read in conjunction with our financial statements and the notes associated with them contained elsewhere in this Report. This discussion should not be construed to imply that the results discussed in this Report will necessarily continue into the future or that any conclusion reached in this Report will necessarily be indicative of actual operating results in the future. The discussion represents only the best assessment of management.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Blackboxstocks Inc.

Balance Sheets

As of March 31, 2021 (Unaudited) and December 31, 2020

Blackboxstocks Inc.

Statements of Operations

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

Blackboxstocks Inc.

Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 2021 (Unaudited) and the Year Ended December 31, 2020

Blackboxstocks Inc.

Statements of Cash Flows

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

Blackboxstocks Inc.

Notes to Financial Statements

For the Three Months Ended March 31, 2021 and 2020

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We urge you to read the following discussion in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2020 as well as with our condensed financial statements and the notes thereto included elsewhere herein.

Overview

Blackboxstocks, Inc. is a financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of all levels. Our web-based software (the “Blackbox System”) 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. We continuously scan the New York Stock Exchange (“NYSE”), NASDAQ, Chicago Board Options Exchange (the “CBOE”) and other options markets, analyzing over 8,000 stocks and over 1,000,000 options contracts multiple times per second. We provide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and ideas quickly and efficiently through a common network. We recently introduced a live audio/video feature that allows our members to broadcast on their own channels to share trading strategies and market insight within the Blackbox community. We employ a subscription based Software as a Service (“SaaS”) business model and maintain a growing base of users that spans 42 countries.

The Blackbox System is a unique and disruptive financial technology platform combining proprietary analytics and broadcast enabled social media to connect traders of all types worldwide on an intuitive, user-friendly system. The complexity of our backend analytics is neatly hidden from the end user by our simple and easy to navigate dashboard which includes real-time alerts, scanners, financial news, institutional grade charting and proprietary analytics.

We launched the Blackbox System web application for domestic use and made it available to subscribers in September 2016. Subscriptions for the use of the Blackbox System web application are sold on a monthly and/or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com.

Our principal office is located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240 and our telephone number is (972) 726-9203. Our Common Stock is quoted on the OTC Pink tier of the OTC Markets Group, Inc. (the “OTC Pink”) under the symbol “BLBX.” Our corporate website is located at http://www.blackboxstocks.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this Report on Form 10-Q.

Basis of Presentation of Financial Information

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern, which is dependent upon our ability to obtain sufficient financing or establish the Company as a profitable business. At March 31, 2021, we had an accumulated deficit of $7,172,263 and for the years  ended December 31, 2020 and 2019 the Company incurred net  losses  of $354,911 and $2,983,438, respectively.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In November 2020, we 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.

During the quarter ended March 31, 2021 we 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.

As a result of our debt and equity financing and cash flows from operations, we had a cash balance of $1,114,468 at March 31, 2021. Management believes that this will be sufficient to fund our operations and service our debt for the next twelve months. In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development. Nevertheless, there can be no assurance that we will be able to raise additional capital or on what terms.

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

Significant Accounting Policies

There have been no changes from the Summary of Significant Accounting Policies described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2021.

Liquidity and Capital Resources

At March 31, 2021, we had a cash balance of $1,114,468 and a working capital deficit of $678,125 as compared to a cash balance of $74,970 and a working capital deficit of $3,367,329 at March 31, 2020.

We believe that the Company has sufficient capital resources to fund current operations and debt service requirements.

Sale of Common Stock and Warrants

During the three months ended March 31, 2021, we received subscriptions for the purchase of 70,772 shares of Common Stock at a cash price of $1.95 per share for aggregate cash consideration of $138,006.

During the quarter ended March 31, 2021 the Company issued 92,308 shares of Common Stock in settlement of a liability in the amount of $180,000 relating to the purchase of a Simple Agreement for Future Tokens.

We may raise additional capital through the sale of our Common Stock or issuing debt. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company.

Results of Operations

Comparison of Three Months Ended March 31, 2021 and 2020

For the three months ended March 31, 2021 and 2020, our revenue totaled $1,489,668 and $415,251, respectively, an increase of 259% for which our respective costs of revenues totaled $ 395,775 and $170,352, an increase of 132%. The $1,074,417 increase in revenue resulted from an expanded subscription base for monthly revenues. Gross margin for the three months ended March 31, 2021 and 2020 were $1,093,893 and $244,899 respectively. Gross margin as a percentage of sales increased from 59.0% to 73.4% in the period ended March 31, 2021 as a result of the higher revenues and certain fixed cost of sales.

For the three months ended March 31, 2021, we had operating expenses totaling $948,761 compared to $475,612 for the same period in 2020, an increase of $473,149 or 99%. This change is primarily a result of an increase in selling, general and administrative expenses from $349,446 for the three months ended March 31, 2020 compared to $606,687 for the three months ended March 31, 2021. The increase in selling, general and administrative expenses of $257,241 was due to increases in referral expenses of $88,638; professional and outside consulting services of $106,571; rent expense of $7,967; general administrative expenses of $48,833; salary and related $91,492; and computer and internet expenses of $6,456 netted with a decrease in financing expenses of $92,716. Advertising and marketing expenses increased by $118,968 or 135% from $88,344 in the three months ended March 31, 2020 to $207,312 in the three months ended March 31, 2021. Software development costs also increased by $96,107 from $34,331 in the three months ended March 31, 2020 as compared to $130,438 in same period in 2021. We also recorded depreciation and amortization expense of $4,324 for the three months ended March 31, 2021 compared to $3,491 for the three months ended March 31, 2020. For the three months ended March 31, 2021 we recorded operating income of $145,132 as compared to an operating loss of $230,713 for the three months ended March 31, 2020.

For the three months ended March 31, 2021 we incurred interest expense of $41,038 and amortization of debt discount in the amount of $91,539.  The amortization of debt discount relates to our convertible preferred notes.  For the three months ended March 31, 2020, we incurred interest expense of $33,495, convertible note financing expense of $217,776 default expense of $24,750 and amortization of debt discount of $51,607.  The lower interest and financing expenses resulted from the Company repaying certain high interest debt during 2020 and its reliance on lower cost financing.  In addition the company recorded a gain on derivative liability in the amount of $601,170 during the three months ended March 31, 2020.  We recorded net income of $12,555 for the three months ended March 31, 2021 as a result of our significant increase in revenues and higher operating margins as compared to net income of $42,829 for the three months ended March 31, 2020.  The 2020 net income was due to the gain on derivative liability offsetting the operating loss of $230,713 and interest and other financing costs totaling $327,628.

Off Balance Sheet Arrangements

As of March 31, 2021, we did not have any material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Gust Kepler, our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 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, our principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of March 31, 2021 were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2021 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Management is aware that there is a lack of segregation of duties at the Company due to the fact that we only have one director and executive officer dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of our current cash flow situation, we do not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A.  Risk Factors

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 4, 2021 we sold 12,821 shares of Common Stock at $1.95 per share to a third party for $25,001.

On January 25, 2021 we sold 25,641 shares of Common Stock at $1.95 per share to a third party for $50,000.

On January 28, 2021 we converted previously received payments of $130,000 for the purchase of a Simple Agreement for Future Tokens into 66,667 shares of Common Stock.

On February 3, 2021 we entered into a subscription agreement to sell 5,129 shares of Common Stock at $1.95 per share to a third party for $10,002.

On February 3, 2021 we entered into a subscription agreement to sell 12,821 shares of Common Stock at $1.95 per share to a third party, for $25,001.

On February 8, 2021 we entered into a subscription agreement to sell 5,129 shares of Common Stock at $1.95 per share, to a third party, for $10,002.

On March 11, 2021 we sold 9,231 shares of Common Stock at $1.95 per share to a third party for $18,000.

On March 16, 2021 we converted previously received payments of $50,000 for the purchase of a Simple Agreement for Future Tokens into 25,641 shares of Common Stock.

The securities described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. We reasonably believed that each of the purchasers of such securities had access to information concerning its operations and financial condition, were acquiring the securities for their own account and not with a view to the distribution thereof, and each investor qualified as an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Furthermore, no "general solicitation" was made by the Company with respect to sale of any of the securities. At the time of their issuance, the securities described above were deemed to be restricted securities for purposes of the Securities Act and the documentation representing the securities bear legends and/or non-transfer provisions to that effect.

All of the our other sales of unregistered securities during the period covered by the Report have been previously reported as required in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and/or current reports on Form 8-K.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Othe Information

None.

Item 6. Exhibits

The following exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference as described below.

SIGNATURES

Pursuant to the requirements 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.

EXHIBIT INDEX