BLACKBOXSTOCKS INC. - FORM 10-Q

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EX-32.2 - EXHIBIT 32.2 - BLACKBOXSTOCKS INC.	ex_249642.htm
EX-32.1 - EXHIBIT 32.1 - BLACKBOXSTOCKS INC.	ex_249641.htm
EX-31.2 - EXHIBIT 31.2 - BLACKBOXSTOCKS INC.	ex_249640.htm
EX-31.1 - EXHIBIT 31.1 - BLACKBOXSTOCKS INC.	ex_249639.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File No.

0-55108

BLACKBOXSTOCKS INC.

(Exact name of registrant as specified in its charter)

Nevada	45-3598066
(State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)

5430 LBJ Freeway, Suite 1485, Dallas, Texas	75240
(Address of principal executive offices)	(Zip Code)

(972) 726-9203

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s Common Stock as of May 12, 2021 was 8,579,877.

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TABLE OF CONTENTS

		Page
INTRODUCTORY COMMENT		1
CAUTION REGARDING FORWARD LOOKING STATEMENTS		1

PART I –FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020	2
	Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	3
	Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	4
	Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	5
	Notes to Financial Statements for the Three Months Ended March 31, 2021 and 2020	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13

PART II – OTHER INFORMATION		14
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	15

SIGNATURES		15

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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.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Blackboxstocks Inc.

Balance Sheets

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

	March 31,			December 31,
	2021			2020
Assets
Current assets:
Cash	$	1,114,468		$	972,825
Accounts receivable, net of allowance for doubtful accounts of $68,589 at March 31, 2021 and December 31, 2020, respectively		10,996			17,990
Inventory		18,016			17,661
Total current assets		1,143,480			1,008,476

Property and equipment:
Office, computer and related equipment, net of depreciation of $66,285 and $61,961 at March 31, 2021 and December 31, 2020, respectively		32,592			5,682
Right of use lease, net of amortization of $107,987 and $97,725 at March 31, 2021 and December 31, 2020, respectively		285,184			62,348
Total property and equipment		317,776			68,030

Long term assets:
Prepaid expenses		29,043			44,643
Prepaid expenses, related party (Note 5)		36,700			36,700
Total long term assets		65,743			81,343

Total Assets	$	1,526,999		$	1,157,849

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$	364,544		$	352,545
Accrued interest		8,037			10,425
Unearned subscriptions		1,094,993			1,016,157
Lease liability right of use, current		59,918			40,473
Other liabilities		-			180,000
Senior secured note payable, current		10,000			10,000
Convertible notes payable, net of discount of $102,727 and $194,267 at March 31, 2021 and December 31, 2020, respectively (Note 6)		152,481			257,150
Notes payable, at
Notes payable (Note 6)		130,773			131,605
Notes payable, related party (Note 6)		859			859
Total current liabilities		1,821,605			1,999,214

Long term liabilities:
Senior secured note payable, long term, net of debt issuance costs of $86,538 and $99,852 at March 31, 2021 and December 31, 2020, respectively		903,462			890,148
Lease liability right of use, long term		229,125			26,241
Total long term liabilities		1,132,587			916,389

Commitments and contingencies (Note 7)

Stockholders' Deficit:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		-			-
Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 5,000,000 issued and outstanding at March 31, 2021 and December 31, 2020, respectively		5,000			5,000
Common stock, $0.001 par value, 100,000,000 shares authorized: 8,579,877 and 8,410,386 issued and outstanding at March 31, 2021 and December 31, 2020, respectively		8,580			8,410
Common stock, subscribed		-			12,500
Additional paid in capital		5,731,490			5,401,154
Accumulated deficit		(7,172,263	)		(7,184,818	)
Total Stockholders' Deficit		(1,427,193	)		(1,757,754	)

Total Liabilities and Stockholders' Deficit	$	1,526,999		$	1,157,849

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Blackboxstocks Inc.

Statements of Operations

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	March 31,
	2021		2020
Revenue:
Subscriptions	$	1,485,798	$	411,801
Other revenues		3,870		3,450
Total revenues		1,489,668		415,251

Cost of revenues		395,775		170,352

Gross margin		1,093,893		244,899

Operating expenses:
Software development costs		130,438		34,331
Selling, general and administrative		606,687		349,446
Advertising and marketing		207,312		88,344
Depreciation and amortization		4,324		3,491
Total operating expenses		948,761		475,612

Operating income (loss)		145,132		(230,713	)

Interest expense		41,038		33,495
Convertible note financing		-		217,776
Gain on derivative liability		-		(601,170	)
Default expense		-		24,750
Amortization of debt discount		91,539		51,607

Income before income taxes		12,555		42,829

Income taxes		-		-

Net income	$	12,555	$	42,829

Weighted average number of common
shares outstanding - basic		8,513,694		7,942,846
shares outstanding - fully diluted		14,134,194		13,555,627


Net loss per share - basic	$	0.00	$	0.01
Net income per share - fully diluted	$	0.00	$	0.00

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Blackboxstocks Inc.

Statement of Stockholders’ Deficit

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

													Common			Additional
	Series A Preferred Stock				Preferred Stock				Common Stock				Stock			Paid-in		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Subscribed			Capital		Deficit			Total

Balance at December 31, 2019		5,000,000	$	5,000		-		-		7,908,231	$	7,908	$	35,060		$	3,443,640	$	(6,829,907	)	$	(3,338,299	)

Issuance of shares in settlement of expenses		-		-		-		-		50,005		50		-			99,950		-			100,000

Net income		-		-		-		-		-		-		-			-		42,829			42,829

Balance at March 31, 2020		5,000,000	$	5,000		-		-		7,958,236	$	7,958	$	35,060		$	3,543,590	$	(6,787,078	)	$	(3,195,470	)


Balance at December 31, 2020		5,000,000	$	5,000		-		-		8,410,386	$	8,410	$	12,500		$	5,401,154	$	(7,184,818	)	$	(1,757,754	)

Issuance of shares for cash		-		-		-		-		70,772		71		-			137,935		-			138,006

Issuance of subscribed shares		-		-		-		-		6,411		6		(12,500	)		12,494		-			-

Issuance of shares in settlement of liabilities		-		-		-		-		92,308		93		-			179,907		-			180,000

Net income		-		-		-		-		-		-		-			-		12,555			12,555

Balance at March 31, 2021		5,000,000	$	5,000		-		-		8,579,877	$	8,580	$	-		$	5,731,490	$	(7,172,263	)	$	(1,427,193	)

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Blackboxstocks Inc.

Statements of Cash Flows

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	March 31,
	2021			2020
Cash flows from operating activities
Net income	$	12,555		$	42,829
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		4,324			3,491
Amortization of note discount		91,539			51,607
Amortization of debt issuance costs		13,314			-
Shares issued in settlement of financing costs		-			100,000
Expenses paid by lender		-			6,133
Convertible note financing		-			217,776
Change in fair value of derivative liability		-			(601,170	)
Convertible note default expense		-			24,750
Right of use lease expense		(506	)		-
Changes in operating assets and liabilities:
Accounts receivable		6,994			1,866
Inventory		(355	)		-
Prepaid expenses		15,600			-
Accounts payable		11,999			7,284
Accrued interest		(2,388	)		28,434
Accrued interest, related party		-			3,640
Unearned subscriptions		78,836			73,084
Net cash provided by (used in) operating activities		231,912			(40,276	)

Cash flows from investing activities
Purchases of property and equipment		(31,234	)		-
Net cash used in investing activities		(31,234	)		-

Cash flows from financing activities
Common stock issued for cash		150,506			-
Common stock subscribed		(12,500	)		-
Proceeds from issuance of notes payable		-			127,100
Proceeds from issuance of convertible notes payable		-			100,000
Principal payments on notes payable		(832	)		(110,980	)
Principal payments on convertible notes payable		(196,209	)		-
Principal payments on notes payable, related parties		-			(27,046	)
Cash advances from related parties		-			5,000
Net cash used in financing activities		(59,035	)		94,074

Net increase (decrease) in cash		141,643			53,798

Cash - beginning of year		972,825			21,172
Cash - end of year	$	1,114,468		$	74,970

Supplemental disclosures
Interest paid	$	43,425		$	-
Income taxes paid	$	-		$	-
Non-cash investing and financing activities:
Repayment of note in exchange for note payable	$	-		$	(39,370	)
Common stock issued in settlement of accrued liabilities	$	180,000		$	-
Discount on notes payable	$	-		$	69,500
Repayment of note payable, related party in exchange for advances	$	-		$	2,954

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Blackboxstocks Inc.

Notes to Financial Statements

For the Three Months Ended March 31, 2021 and 2020

1. Organization

Blackboxstocks Inc. was incorporated on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan of Reorganization confirmed by the United States Bankruptcy Court for the Northern District of Texas for reorganization under Chapter 11 of the United States Bankruptcy Code.

The Company changed its name to Blackboxstocks, Inc. and began operating as a financial technology and social media platform in March 2016. The platform offers real-time proprietary analytics and news for stock and options traders of all levels. The Company believes its web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the price of a stock or option. The software continuously scans the NASDAQ, New York Stock Exchange, CBOE, and other options markets, analyzing over 8,000 stocks and up to 1,000,000 options contracts multiple times per second. The Company also provides users with a fully interactive social media platform that is integrated into our dashboard, enabling users to exchange information and ideas quickly and efficiently through a common network. Recently, the Company also introduced a live audio/video feature that allows members to broadcast on their own channels to share trade strategies and market insight within the community. The platform was initially made available to subscribers in September 2016. Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through the Company website at http://www.blackboxstocks.com.

2. Summary of Significant Accounting Policies

The accompanying interim unaudited financial statements and footnotes of Blackboxstocks Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2021. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The accompanying financial statements have been prepared in assumption of the continuation of the Company as a going concern, which is dependent upon the Company's ability to obtain sufficient financing or establish itself as a profitable business. At March 31, 2021, the Company 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. As discussed in Note 6, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest, and certain outstanding trade payables in the amount of $133,880. In addition, the Company granted the Lender a security interest in substantially all of its assets. As a result of this financing and the cash flows from operations, the Company had a cash balance of $1,114,468 at March 31, 2021. Management believes that this will be sufficient to fund its operations and service its debt for the next twelve months. In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development. There can be no assurance that the Company will be able to raise additional capital or on what terms.

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

Use of Estimates - The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP. Actual results could differ from those estimates.

Cash - Cash includes all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.

Recently Issued Accounting Pronouncements - During the three months ended March 31, 2021 there were several new accounting pronouncements issued by the FASB. Each of the other pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

Earnings or (Loss) Per Share - Basic earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number of common stock shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period.

Revenue Recognition - Revenue is recognized from the sale of subscriptions for the use of the Blackbox System web application, on a monthly or annual basis. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The performance obligation by the Company is in exchange for the monthly subscription fee, the subscriber is allowed access to the Blackbox System on the website for the calendar month. Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.

Reclassification - Affiliate referral expenses totaling $ 37,496 as of March 31, 2020 have been reclassed from cost of operations to selling, general and administrative expenses on the statement of operations.

3. Stockholders’ Deficit

The Company has authorized 10,000,000 shares of preferred stock at $0.001 par value, 5,000,000 of which are designated as “Series A Convertible Preferred Stock” at $0.001 par value and 100,000,000 authorized shares of common stock at $0.001 par value (“Common Stock”).

Shares of Series A Convertible Preferred Stock do not accumulate dividends, have no liquidation preferences and are convertible into shares of Common Stock on a one-for-one basis. Additionally, each share entitles the holder to 100 votes and, with respect to dividend and liquidation rights, the shares rank pari passu with the Company’s Common Stock. All shares are held by Gust C. Kepler, Director, Chief Executive Officer, President and Chief Financial Officer (“Mr. Kepler”).

During the quarter ended March 31, 2021 the Company exchanged a liability of $180,000 for the purchase of a Simple Agreement for Future Tokens into 92,308 shares of Common Stock at $1.95 per share.

During the quarter ended March 31, 2021 the Company sold 70,772 shares of Common Stock to third parties for $138,006 and issued 6,411 shares of Common Stock previously subscribed for $12,500.

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4. Warrants to Purchase Common Stock

Costs attributable to the issuance of warrants to purchase common stock are measured at fair value at the date of issuance and offset with a corresponding increase in ‘Additional Paid in Capital’ at the time of issuance. The fair value cost is computed utilizing the Black-Scholes model and assuming volatility based on U.S. Treasury yield rates for a similar period. The cost of these warrants was not recognized in the financial statements because they were granted in connection with raising capital for the Company. When the options or warrants are exercised, the receipt of consideration will be reported as an increase in stockholders’ equity.

Concurrently with the execution of certain securities purchase agreements, the Company issued warrants to purchase Common Stock. Each warrant is exercisable for a period of five years from the date of the securities purchase agreement. The fair value cost at the date of issuance of these warrants was $639,194.

In conjunction with the issuance of convertible notes payable as described in Note 6, a warrant for the purchase of up to 115,385 shares of common Stock exercisable for a one-year period was issued at an exercise price of $0.01 per share and another warrant for the purchase of up to 360,000 shares of Common Stock exercisable for a five-year period was issued at an exercise price of $1.00 per share. During the year ended December 31, 2020, the warrants for the purchase of 115,385 shares of Common Stock were exercised at $0.01 and as of March 31, 2021, there are warrants for the purchase of up to 479,554 shares of Common Stock outstanding.

	Number of Shares			Exercise Price			Weighted Average Remaining Life (in year)
Warrants as of December 31, 2019		84,295			$1.95			4.53
Issued during 2020		-		$0.01	-	$1.95
Exercise during 2020		(115,385	)		$0.01

Warrants as of December 31, 2021		479,554			$0.97
Warrants as of March 31, 2021		479,554			$0.97			3.86

5. Related Party Transactions

During the year ended December 31, 2019 the Company advanced $1,500 to its VP/Director of Operations and the balance remains outstanding, is unsecured and bears no interest.

G2 International, Inc. (“G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Mr. Kepler. As of March 31, 2021 and 2020 the Company had a prepaid balance of $36,700 for public relations and marketing services with G2/IPA. These funds are reserved in anticipation of a future campaign to move the Company’s stock to listing on a national exchange.

6. Debt

A summary of the Company’s debt at March 31, 2021 and December 31, 2020, by counterparty, is as follows:

Loan Description	3/31/2021			12/31/2020

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

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

$108,000 Related party note payable due November 30, 2020		859			859

$385,000 8% convertible note payable due July 2021		179,772			318,012

$165,000 8% convertible note payable due July 2021		75,436			133,405
Miscellaneous equipment loans		573			1,405
		1,386,840			1,583,881
Less unamortized discount and debt issuance costs		(189,265	)		(294,119	)
Total notes payable	$	1,197,575		$	1,289,762
Current portion of long-term debt		294,113			399,614
Long-term portion	$	903,462		$	890,148

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Notes Payable

On May 1, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) the Company was awarded a loan of $130,200. The loan carries an interest rate of 1% and matures on May 1, 2022. The Company may apply for loan forgiveness following SBA guidelines and a portion or all of the loan may be forgiven.

On November 12, 2020, the Company executed a Loan Agreement with certain Lenders (“the Lenders”) and FVP Servicing LLC, as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company also entered into an agreement with an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Mr. Kepler executed a guaranty in favor of FVP in connection with the loan. Proceeds from the loan were used to repay the existing senior secured loan balance of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes. In addition, the Company granted the Lender a security interest in substantially all of its assets.

Notes Payable, related party

On December 6, 2018, Mr. Kepler, advanced $108,000 to the Company for payment to a third party note holder in exchange for an unsecured promissory note. During the year ended December 31, 2020 the Company repaid $107,141 in principal, reducing the balance due as of March 31, 2021 to $859.

Convertible Notes Payable

On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party with a face value of $385,000, which included an original issue discount of 10% on the investment amount. On July 17, 2019, the Company issued another 8% Fixed Convertible Promissory Note with a face value of $165,000 which also included am original discount of 10% on the investment amount. The two notes contain substantially identical terms. The Company recorded the value of the notes conversion feature in the amount of $342,308 at inception. The Company defaulted on the notes and incurred default fees of $57,750 and $24,750 for the years ended December 31, 2019 and 2020, respectively which amounts were added to the principal balance.

On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the holders of the 8% Fixed Convertible Promissory Notes agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreements stipulate the Company remit payment of all accrued interest and principal outstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full. Upon execution of these Agreements, effectively extinguishing the above-described notes, the Company recognized a cancellation of the derivative liability previously related to the conversion feature of $522,065. As additional consideration for the Agreements, the holders were issued warrants to purchase up to 360,000 shares of the Company’s Common Stock at a price of $1.00 per share, exercisable beginning January 10, 2021 and expiring on July 10, 2025. The fair value of the warrant at the date of issuance was $371,243, and was reflected in paid in capital and the related debt discount is being amortized over the term of the Agreements.

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7. Commitments and Contingencies

On August 11, 2020 the Company entered into a letter agreement with Winspear Investments, LLC (“Winspear”), pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters. The agreement provides for a minimum three-month term and that Winspear would be compensated with the grant of 20,000 shares of the Company’s common stock at inception and an additional 5,000 shares per month for the initial term. In the event Winspear continues to provide services, Winspear shall be compensated an additional grant of 3,000 shares per month for a total of twelve-months and such grants shall not exceed an aggregate issuance of 71,000 shares. The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ. The total shares issuable under the agreement shall not be less than a minimum of 35,000 and not exceed a maximum of 151,000 shares. As of March 31, 2021 48,000 common shares have been issued.

On February 22, 2021 the Company amended its lease with Teachers Insurance and Annuity Association of America to expand its space by approximately 847 square feet for a total of 2,685 square feet and extended the expiration date to September 30, 2025.

The Company is not currently a defendant in any material litigation or any threatened litigation that could have a material effect on the Company’s financial statements.

8. Subsequent Events

On April 14, 2021, the Company entered into an amendment for its office lease with Teachers Insurance and Annuity Association of America for its office space at 5430 LBJ Freeway, Dallas, Texas whereby it extended the lease expiration until September 30, 2028.

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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.

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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.

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.

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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.

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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.

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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.

Exhibit	Description
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350**
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350**
101.1	Interactive data files pursuant to Rule 405 of Regulation S-T*

*	Filed herewith.

**	Furnished herewith

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.

May 17, 2021	BLACKBOXSTOCKS INC.

	By:	/s/ Gust Kepler
		Gust Kepler
		President, Chief Executive Officer and Secretary (Principal Executive Officer and Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit	Description
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350**
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350**
101.1	Interactive data files pursuant to Rule 405 of Regulation S-T*

*	Filed herewith.

**	Furnished herewith

BLACKBOXSTOCKS INC. - FORM 10-Q - May 17, 2021

Attached files

BLACKBOXSTOCKS INC. Reports