BLACKBOXSTOCKS INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

0
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, 2021 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 10,000 stocks and over 1,500,000 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 have
also 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 Nasdaq Stock Market LLC (the "Nasdaq") 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.



Significant Accounting Policies



There have been no changes from the Summary of Significant Accounting Policies
described in our Annual Report on Form 10-K for the year ending December 31,
2021 filed with the Securities and Exchange Commission on March 31, 2022.



Cash and capital resources



At June 30, 2022, we had cash and marketable securities totaling $7,069,826 as
compared to cash and marketable securities totaling $10,442,379 at December 31,
2021. Our cash flows used in operations were ($2,038,532) for the six months
ended June 30, 2022 as compared to ($26,192) for the same period in the prior
year.



Net cash from investing activities for the six months ended June 30, 2022 was
$966,779 as compared to ($54,507) for the prior year period. The volume of
marketable securities purchases and sales for the current quarter was the result
of trading activity in a Company account that is used to research and test
specific trading techniques. The account used for those specific activities had
an account balance of approximately $100,000.



Net cash used in financing activities was ($1,019,638) for the six months ended
June 30, 2022 as compared to $265,636) for the prior year period. The purchase
of $945,449 of common stock pursuant to the Company's stock repurchase plan was
the primary component of the use of cash. The stock repurchase plan initially
authorized the repurchase of up to $2,500,000 of the Company's common stock and
expires on December 31, 2022.



                                       11

————————————————– ——————————

Contents



On November 9, 2021 the Company enter into an underwriting agreement pursuant to
which it sold 2,400,000 shares of its Common Stock at an offering price of $5.00
in an underwritten public offering upon which our shares became listed on the
NASDAQ Capital Market. Net proceeds to the Company after underwriting discounts
and offering expenses were approximately $10,510,000. We expect to use proceeds
from this offering to further develop our Blackbox System platform, expand our
product offerings, fund marketing efforts to grow our subscriber base, as well
as for general and administration expenses and other general corporate purposes.



We believe that the Company has sufficient capital resources to fund current
operations and debt service requirements for the twelve months following the
issuance of this report.



Results of Operations


Comparison of the three months ended June 30, 2022 and 2021



For the three months ended June 30, 2022 and 2021, our revenue was $1,399,315
and $1,463,606, respectively, a decrease of 4.4%. We believe 2022 revenues
continue to be negatively impacted macro-economic factors including poor overall
performance in the stock market, high inflation and negative gross domestic
product (GDP). The S&P 500 dropped by 20.6% during the six months of 2022. In
addition to the poor market performance, inflation of 9.1% as measured by the
consumer price index (CPI) and a decline in GDP of (0.9%) may have constricted
disposable cash of prospective subscribers. Although we believe that our
platform enables our subscribers to profit in both bull and bear markets, we
attribute some of our decline in revenues to a higher level of hesitancy
resulting from the poor macro-economic data. In order to combat this, we
implemented a promotional program offering our software for $5 for the first
month in March. This promotional offering was effective in increasing the
subscriber totals but only contributed minimal revenue per new user during the
end of March and early April. Average users for the three months ended June 30,
2022 was 6,181 as compared to 5,482 for the prior year period and 5,709 for the
first quarter ended March 31, 2022. Cost of revenues for the three months ended
June 30, 2022 and 2021 were $499,427 and $409,577, resulting in gross margins of
64% and 72%, 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.
Cost of goods sold increased by $89,850 for the quarter ended June 30 2022 as
compared to the prior year primarily as a result of a 46% increase in the cost
of our program moderators, higher costs associated with our new broadcast
enabled social media feature and data feeds. As noted above, our promotional
event resulted in increased user counts but limited revenue that offset the
costs which resulted in a lower gross margin percentage of 64%.



For the three months ended June 30, 2022, operating expenses were $2,068,654 as
compared to $1,171,551 for the same period in 2021, an increase of $897,103 or
77%. We experienced significantly higher expenditures in most of our expense
categories for the 2022 period. Selling, general and administrative expenses
increased from $615,727 for the three months ended June 30, 2021 to $1,191,474
for the three months ended June 30, 2022, an increase of 94%. The increase in
selling, general and administrative expenses of $575,747 was the largest dollar
value component of the operating expense increase. The primary components of the
increase were increases in salary, stock-based compensation and investor and
public relations. Advertising and marketing expenses increased by $179,156 or
44% from $347,188 in the three months ended June 30, 2021 to $526,344 in the
three months ended June 30, 2022. The June 30, 2022 period included general
advertising expense related to television advertising of approximately $153,057
which are more general in nature than the Company's historical direct marketing
campaigns. Software development costs also increased by $141,731 or 70% from
$203,255 in the three months ended June 30, 2021 to $344,986 for the three
months ended June 30, 2022. The increased software development costs were
primarily the result of increased personnel costs and were incurred for
improvements to our platform including our online social media component,
development of a native application which was released at the end of April and
new product development.

.



We expect to continue to incur increases in our operating costs for the
foreseeable future. Expense increases for digital advertising and marketing
activities, our primary advertising mechanism, should continue to increase with
sales but may also increase as a result of additional strategies including but
not limited to television advertising. Software development costs are also
expected to increase as we expand our development team and invest in new
products and features.



                                       12

————————————————– ——————————

Contents



Our loss from operations for the three months ended June 30, 2022 was $1,168,766
as compared to a loss from operations of $117,522 for the prior year period.
Lower sales and gross margin resulting from the $5 promotion in March of 2022
combined with higher operating expenses resulted in the loss from operations.
Non-operating expenses for the three months ended June 30, 2022 were $147,333 as
compared to $125,814 for the prior year period.



Comparison of the six months ended June 30, 2022 and 2021



For the six months ended June 30, 2022, we generated sales of $2,671,801 as
compared to sales of $2,953,274 for the same period in 2021. As noted above, we
believe that the macro-economic environment in 2022 has been detrimental to our
sales. Our average subscriber count for the first six months of 2022 increased
from 5,528 for the six months ended June 30, 2021 to 5,945, an increase of 7.5%.
Although the subscriber count was higher for the 2022 period, revenues were
lower due to lower average revenues per subscriber, primarily resulting from the
March promotion described above. Cost of sales for the six months ended June 30,
2022 were $1,079,389 as compared to $805,352 for the six months ended June 30,
2021. The increase of $274,037 was primarily due to $148,330 of increased costs
of our moderators/team traders, $98,250 of additional costs associated with the
online social media component of our platform and $4,036 in higher data feed
expenses.



For the six months ended June 30, 2022, our operating expenses were $3,782,332
as compared to $2,120,312 for the same period in 2021. Selling general and
administrative expenses increased to $2,416,197 for the six months ended June
30, 2022 as compared to $1,222,414 for the same period in 2021, an increase of
$1,193,783. The 2022 increase was driven primarily by higher personnel costs
which increased by $593,014. In addition, investor relations expense and stock
compensation were higher for the six months ended June 30, 2022. Advertising and
marketing expense increased to $825,140 for the six months ended June 30, 2022
as compared to $554,500 for the prior year period. The increase of $270,640 was
due primarily to the television advertising done in the second quarter as
discussed above. Software development costs increased from $333,693 for the six
months ended June 30, 2021 to $529,870 for the six months ended June 30, 2022.
The increased software development costs were primarily the result of increased
personnel costs and were incurred for improvements to our platform including our
online social media component, development of a native application which was
released at the end of April and new product development.



EBITDA (non-GAAP financial measure)



We report our financial results in accordance with accounting principles
generally accepted in the United States of America ("GAAP"). However, management
believes the presentation of certain non-GAAP financial measures provides useful
information to management and investors regarding financial and business trends
relating to the Company's financial condition and results of operations, and
that when GAAP financial measures are viewed in conjunction with the non-GAAP
financial measures, investors are provided with a more meaningful understanding
of the Company's ongoing operating performance. In addition, these non-GAAP
financial measures are among the primary indicators management uses as a basis
for evaluating performance. For all non-GAAP financial measures in this release,
we have provided corresponding GAAP financial measures for comparative purposes
in the report.



EBITDA is defined by us as net income (loss) before interest expense, income
tax, depreciation and amortization expense and certain non-cash. EBITDA is not a
measure of operating performance under GAAP and therefore should not be
considered in isolation nor construed as an alternative to operating profit, net
income (loss) or cash flows from operating, investing or financing activities,
each as determined in accordance with GAAP. Also, EBITDA should not be
considered as a measure of liquidity. Moreover, since EBITDA is not a
measurement determined in accordance with GAAP, and thus is susceptible to
varying interpretations and calculations, EBITDA, as presented, may not be
comparable to similarly titled measures presented by other companies.



                                       13

————————————————– ——————————

Contents

Reconciliation of net loss to EBITDA



                                             For the three months ended          For the six months ended
                                                      June 30,                           June 30,
                                                2022               2021             2022             2021

Net loss                                   $    (1,316,099 )    $ (243,336 )   $   (2,558,542 )   $ (230,781 )
interest                                            28,952          33,257             58,195         74,295
investment loss                                    105,067               -            283,799              -
depreciation and amortization                        5,850           5,381             11,125          9,705
amortization of debt discount                       13,314          92,557             26,628        184,096
stock compensation                                 126,179               -            248,212              -
EBITDA                                     $    (1,036,737 )    $ (112,141 )   $  ( 1,930,583 )   $   37,315





Off-balance sheet arrangements

Of the June 30, 2022we had no significant off-balance sheet arrangements.

© Edgar Online, source Previews

Share.

Comments are closed.