UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | |
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | to |
| Commission File No. | |
| BLACKBOXSTOCKS INC. |
| (Exact name of registrant as specified in its charter) |
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
| ( |
| (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.
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).
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 ☐ |
| 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
The number of shares outstanding of the registrant’s Common Stock as of August 10, 2021 was
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| Item 1. |
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| Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 |
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| Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) |
3 |
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| Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2021 and 2020 (Unaudited) |
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| Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited) |
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| Notes to Financial Statements for the Three and Six Months Ended June 30, 2021 and 2020 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 |
| Item 3. |
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| Item 1A. |
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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
Balance Sheets
As of June 30, 2021 (Unaudited) and December 31, 2020
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Office, computer and related equipment, net of depreciation of and at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Right of use lease, net of amortization of $ and $ at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Total property and equipment | ||||||||
| Long term assets: | ||||||||
| Prepaid expenses | ||||||||
| Prepaid expenses, related party (Note 5) | ||||||||
| Total long term assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Unearned subscriptions | ||||||||
| Lease liability right of use, current | ||||||||
| Other liabilities | ||||||||
| Senior secured note payable, current | ||||||||
| Convertible notes payable, net of discount of $ and $ at June 30, 2021 and December 31, 2020, respectively (Note 6) | ||||||||
| Notes payable (Note 6) | ||||||||
| Notes payable, related party (Note 6) | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities: | ||||||||
| Senior secured note payable, long term, net of debt issuance costs of $ and $ at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Lease liability right of use, long term | ||||||||
| Total long term liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders' Deficit: | ||||||||
| Preferred stock, par value, shares authorized; shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Series A Convertible Preferred Stock, par value, shares authorized; issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Common stock, par value, shares authorized: and issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Common stock, subscribed | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | $ | ||||||
Statements of Operations
For the Three and Six Months Ended June 30, 2021 and 2020
(Unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Subscriptions | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Software development costs | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Advertising and marketing | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Interest expense | ||||||||||||||||
| Convertible note financing | ||||||||||||||||
| Gain on derivative liability | ( | ) | ( | ) | ||||||||||||
| Default expense | ||||||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income taxes | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of common | ||||||||||||||||
| shares outstanding - basic | ||||||||||||||||
| shares outstanding - fully diluted | ||||||||||||||||
| Net loss per share - basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income per share - fully diluted | $ | $ | ||||||||||||||
Statement of Stockholders’ Deficit
For the Six Months Ended June 30, 2020 and 2019
(Unaudited)
| Series A | Common | Additional | ||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of shares in settlement of expenses | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued for amendment of convertible notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of shares for cash | ||||||||||||||||||||||||||||||||||||||||
| Issuance of subscribed shares | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares in settlement of liabilities | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
Statements of Cash Flows
For the Six Months Ended June 30, 2021 and 2020
(Unaudited)
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of note discount | ||||||||
| Amortization of debt issuance costs | ||||||||
| Shares issued in settlement of financing costs | ||||||||
| Shares issued in settlement of services | ||||||||
| Expenses paid by lender | ||||||||
| Convertible note financing | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Convertible note default expense | ||||||||
| Right of use lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued interest | ( | ) | ||||||
| Accrued interest, related party | ||||||||
| Unearned subscriptions | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Common stock issued for cash | ||||||||
| Common stock subscribed | ( | ) | ||||||
| Proceeds from issuance of notes payable | ||||||||
| Proceeds from issuance of convertible notes payable | ||||||||
| Proceeds from Payroll Protection Program | ||||||||
| Principal payments on notes payable | ( | ) | ( | ) | ||||
| Principal payments on convertible notes payable | ( | ) | ||||||
| Principal payments on notes payable, related parties | ( | ) | ( | ) | ||||
| Cash advances from related parties | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning of year | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosures | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Repayment of note in exchange for note payable | $ | $ | ( | ) | ||||
| Common stock issued in settlement of accrued liabilities | $ | $ | ||||||
| Discount on notes payable | $ | $ | ||||||
| Repayment of note payable, related party in exchange for advances | $ | $ | ||||||
Notes to Financial Statements
For the Three and Six Months Ended June 30, 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 June 30, 2021, the Company had an accumulated deficit of $
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 six months ended June 30, 2021 there were several new accounting pronouncements issued by the FASB. Each of the 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.
3. Stockholders’ Deficit
The Company has authorized
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
During the six months ended June 30, 2021 the Company exchanged a liability of $
During the six months ended June 30, 2021 the Company sold
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 to years from the date of the securities purchase agreement. The fair value cost at the date of issuance of these warrants was $
In conjunction with the issuance of convertible notes payable as described in Note 6, a warrant for the purchase of up to
| Number of Shares |
Exercise Price |
Weighted Average Remaining Life (in year) |
|||||||||||
| Warrants as of December 31, 2019 |
$ |
||||||||||||
| Issued during 2020 |
$ |
- | $ |
||||||||||
| Exercise during 2020 |
( |
) | $ |
||||||||||
| Warrants as of December 31, 2020 |
$ |
||||||||||||
| Warrants as of June 30, 2021 | $ |
||||||||||||
5. Related Party Transactions
G2 International, Inc. (“G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Mr. Kepler. As of June 30, 2021 and 2020 the Company had a prepaid balance of $
6. Debt
A summary of the Company’s debt at June 30, 2021 and December 31, 2020, by counterparty, is as follows:
| Loan Description |
6/30/2021 |
12/31/2020 |
||||||
| $1,000,000 12% Senior secured note due November 12 2022 |
$ | $ | ||||||
| $130,200 loan bearing interest at 1% per annum maturing May 1, 2022 issued under the Payroll Protection Program |
||||||||
| $108,000 related party note payable due November 30, 2020 |
||||||||
| $385,000 8% convertible note payable due July 2021 |
||||||||
| $165,000 8% convertible note payable due July 2021 |
||||||||
| Miscellaneous equipment loans |
||||||||
| Less unamortized discount and debt issuance costs |
( |
) | ( |
) | ||||
| Total notes payable |
$ | $ | ||||||
| Current portion of long-term debt |
||||||||
| Long-term portion |
$ | $ | ||||||
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 $
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 $
Notes Payable, related party
On December 6, 2018, Mr. Kepler, advanced $
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 $
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 $
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 provided for a minimum -month term and that Winspear would be compensated with the grant of
On February 22, 2021 the Company amended its lease with Teachers Insurance and Annuity Association of America (“TIAA”) to expand its space by approximately 847 square feet for a total of 2,685 square feet and extended the expiration date to September 30, 2025.
On April 14, 2021, the Company amended its lease with TIAA extending the lease expiration until September 30, 2028. The table below shows the future lease payment obligations.
| Year ended |
Amount |
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| 2021 |
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| 2022 |
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| 2023 |
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| 2024 |
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| 2025 |
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| 2026 and thereafter |
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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 July 9 and July 14, 2021 holders of
On August 11, 2021, the Company filed an information statement with the SEC disclosing that the Company had created the 2021 Blackboxstocks, Inc. Incentive Stock Plan (the “Plan”). The Plan provides for the grant of stock options and restricted stock grants to employees, directors and certain non-employee consultants. The Plan shall be administered by the Company’s board of directors or a committee thereof.
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 establish the Company as a profitable business. At June 30, 2021, we had an accumulated deficit of $ 7,415,599 and for the three and six months ended June 30, 2021, reported net losses of $243,336 and $230,781, respectively. By contrast, at December 30, 2020, the Company had an accumulated deficit of $7,184,818 and for the three and six months ended June 30, 2020, reported net income of $193,827 and $236,657, respectively.
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.
As a result of our debt financing and cash flows from operations, we had a cash balance of $626,490 at June 30, 2021. Management believes that this will be sufficient to fund our operations and service our debt requirements 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 June 30, 2021, we had a cash balance of $626,490 and a working capital deficit of $932,752 as compared to a cash balance of $972,825 and a working capital deficit of $990,738 at December 31, 2020. Our cash flows from operations were negative $26,192 for the six months ended June 30, 2021 as compared to a positive $87,680 for the prior year period. For the six months ended June 30, 2021, the net loss was largely offset by amortization of debt discount and debt issuance costs. During the same period, the Company incurred capital expenditures in the amount of $54,507 related primarily to the purchase of new servers. We do not expect this level of capital expenditures to continue for the next twelve months.
Net cash used from financing activities was $265,636 for the six months ended June 30, 2021. This consisted of $403,642 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $50,039 in principal payments remaining on its convertible notes payable which will be paid in the third quarter of 2021. Principal payments on our $1,000,000 senior debt begin in December of 2021 at $10,000 per month until its maturity in November 2022, which can be extended. As a result of retiring our convertible notes payable, the Company’s debt service requirements will be significantly lower for the next twelve months. We may also issue additional equity or debt in order to improve liquidity or finance growth or development initiatives although there can be no assurance that we will be able to do so or on what terms. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company.
We believe that the Company has sufficient capital resources to fund current operations and debt service requirements.
Results of Operations
Comparison of Three Months Ended June 30, 2021 and 2020
For the three months ended June 30, 2021 and 2020, our revenue was $1,463,606 and $808,848, respectively, an increase of 81%. The $654,758 increase in revenue resulted from growth in our subscriber base which was due to additional marketing and advertising expenditures and continued acceptance of our platform. Cost of revenues for the three months ended June 30, 2021 and 2020 were $409,578 and $242,158, resulting in gross margins of 72% and 70%, respectively. The primary components of cost of revenues include costs related to data and news feed expenses for exchange information which comprise the majority of the costs as well as the costs for program moderators. Costs for online program moderators increased 62% for the quarter ended June 30, 2021 as compared to the 2020 period and comprise the second largest portion of our cost of revenues. We do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.
For the three months ended June 30, 2021, operating expenses were $1,171,551 compared to $519,974 for the same period in 2020, an increase of $651,577 or 125%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $315,991 for the three months ended June 30, 2020 compared to $615,727 for the three months ended June 30, 2021, an increase of 95%. The increase in selling, general and administrative expenses of $299,736 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in referral expenses of $37,766; professional and outside consulting services of $68,673, general administrative expenses of $42,842, salary and payroll of $134,491 and financing expense of $13,315. Advertising and marketing expenses increased by $204,456 or 143% from $142,732 in the three months ended June 30, 2020 to $347,188 in the three months ended June 30, 2021. Software development costs also increased significantly by $145,341 or 251% from $57,914 in the three months ended June 30, 2020 as compared to $203,255 in same period in 2021. The increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development.
We expect to continue to incur increases in our operating costs for the foreseeable future. Expense increases for advertising and marketing activities should correlate most closely to sales growth, but as seen in the 2021 quarter, will not necessarily be directly correlated. Software development costs were relatively low in the quarter ended June 30, 2020 due to limited capital resources of the Company at that time. We anticipate that software development costs will remain relatively consistent with their current level through the balance of calendar 2021 and that any significant increases will be attributable to new product development.
Loss from operations for the three months ended June 30, 2021 was $117,523 as compared to income from operations of $46,717 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above. Non-operating expenses for the three months ended June 30, 2021 consisted of interest expense of $33,257 and amortization of debt discount of $92,556 resulting in a net loss for the period of $243,336. Non-operating expenses for the three months ended June 30, 2020 included interest expense of 61,265 and amortization of debt discount of $63,246. In addition, during the 2020 period we also incurred $282,693 of convertible debt expense and a gain on derivative liabilities of $554,315. These non-recurring items more than offset the interest expense and amortization of debt discount to result in net income for the period of $193,827. The amortization of debt discount will decline in the third quarter of 2021 and be eliminated with the retirement of the related debt resulting in net interest expense that should remain consistent at its current levels for the next year.
Comparison of Six Months Ended June 30, 2021 and 2020
For the six months ended June 30, 2021 and 2020, our revenue was $2,953,274 and $1,224,099, respectively, and increase of 141%. The $1,729,175 increase in revenue resulted from growth in our subscriber base which was due to additional marketing and advertising expenditures and continued acceptance of our platform throughout the year. Relative growth was stronger in the first quarter of 2021 than the second quarter as the first quarter of 2020 was when the Company’s aggressive growth began, as well as significant gains in the first quarter of 2021 which we believe were attributable to unusual market activity in stocks such as Gamestop and AMC which we believe drove short term subscriptions. Cost of revenues for the six months ended June 30, 2021 and 2020 were $805,232 and $412,510 resulting in gross margins of 73% and 66%, respectively. The higher margins in the 2021 period were the result of increased leverage of fixed costs including the fixed cost components of the data and news feed expenses for exchange information which comprise the majority of the costs. Costs for online program moderators increased 74% for the six months ended June 30, 2021 as compared to the 2020 period and comprised the second largest portion of our cost of revenues. As noted above, we do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.
For the six months ended June 30, 2021, we incurred operating expenses totaling $2,120,312 compared to $995,585 for the same period in 2020, an increase of $1,124,727 or 113%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $665,436 for the six months ended June 30, 2020 to $1,222,414 for the six months ended June 30, 2021, an increase of 84%. The increase in selling, general and administrative expenses of $556,978 was primarily due to increases in referral expenses of $126,404; professional and outside consulting services of $175,245; general administrative expenses of $94,076; salary and payroll of $225,983, which were partially offset by a decrease in financing expenses of $79,402. Advertising and marketing expenses increased by $323,424 or 140% from $231,076 in the six months ended June 30, 2020 to $554,500 in the six months ended June 30, 2021. Software development costs also significantly increased by $241,448 or 262% from $92,245 in the six months ended June 30, 2020 as compared to $333,693 in same period in 2021. As noted above, the increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development and were significantly higher in the second quarter of 2021 than in the first quarter.
For the six months ended June 30, 2021 we recorded income from operations of $27,610 as compared to a loss from operations of $183,996 for the six months ended June 30, 2020, an increase of $ 211,606. Gross margin for the six months ended June 30, 2021 of $2,147,922 was $1,336,333 or 165% higher than the same period in 2020, but was partially offset by $1,124,727 in higher operating expenses. Non-operating expenses for the six months ended June 30, 2021 consisted of interest expense of $74,295 and amortization of debt discount of $184,086 resulting in a net loss for the period of $230,781. Non-operating expenses for the six months ended June 30, 2020 included interest expense of $94,760 and amortization of debt discount of $114,853. In addition, the 2020 period also had $500,469 of convertible debt expense and a gain on derivative liabilities of $1,155,485. These non-recurring items more than offset the loss from operations as well as interest expense and amortization of debt discount to result in net income for the period of $236,657.
Off Balance Sheet Arrangements
As of June 30, 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 June 30, 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 June 30, 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 June 30, 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 two directors and executive officers dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officers and directors 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.
None.
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 June 16, 2021 we issued 11,000 shares of Common Stock valued at $1.95 per share, to Winspear Investments, LLC, in exchange for services.
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 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.
None.
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 |
Inline Interactive data files pursuant to Rule 405 of Regulation S-T* |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
| * |
Filed herewith. |
| ** |
Furnished herewith |
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.
| August 16, 2021 |
BLACKBOXSTOCKS INC. |
|
| By: |
/s/ Gust Kepler |
|
| Gust Kepler |
||
| President, Chief Executive Officer and Secretary (Principal Executive Officer and Principal Financial and Accounting Officer) |
||
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 |
Inline Interactive data files pursuant to Rule 405 of Regulation S-T* |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
| * |
Filed herewith. |
| ** |
Furnished herewith |