Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

2. Summary

Revenue Recognition. We operate under a software as a service (SaaS) model whereby we sell monthly and annual subscriptions allowing subscribers access to our platform. We recognize revenue over the subscription period (either monthly or annual) and record cash received but not yet earned as deferred revenue on our balance sheet. Additionally, the Company receives revenues from commissions and the sale of Significant Accounting Policies (continued)

Revenue Recognition - The Company recognizes revenuepromotional products which are presented as other revenues on the accompanying statements of operations. Commission revenues are recognized as they are earned and revenues from the sale of subscriptions forpromotional products are recognized upon shipment.

3. Marketable Securities

The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of the Blackbox System web application, when persuasive evidence of an arrangement exists, deliveryobservable inputs and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The Company launched its Blackbox System web application and began generating subscription sales revenues during the quarter ended September 30, 2016.

In addition, the Company earns revenue from the licensing of its Blackbox System application for use in China, whereby a licensee is authorized to sell subscriptions for and sublicenseminimize the use of a versionunobservable inputs when measuring fair value. The following three levels of the web application customized for analysis of data from certain Asian exchanges. A monthly licensing fee is chargedinputs may be used to the licensee which began effective June 1, 2017.measure fair value:

Software Development Costs - BlackboxstocksLevel 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is engaged in the development of its proprietary Blackbox System technology, an algorithm driven system, through a combination of in house system analystslittle, if any, market activity.

The Company’s marketable securities are highly liquid and outside contractors. Under the guidelines of Accounting Standards Codification (“ASC”) Topic 985 the cost ofare quoted on major exchanges and are therefore classified as Level 1 securities. The following table summarizes the Company’s Blackbox System was expensed during developmentassets that were measured and the Blackbox System software for use in the US, reached technical feasibility in August 2016, became marketable and was made available to subscribers beginning September 1, 2016. The Blackbox System for use in China achieved technical feasibility during the quarter and became marketable and available to subscribers effective May 15, 2017. In continued accordance with ASC Topic 985 these costs were expensed until technical feasibility was achieved, costs incurred until May 15, 2017 were capitalized and subsequently amortized.recognized at fair value as of March 31, 2022:

Prepaid Expenses - Prepaid expenses are current assets created when the Company makes payments or incurs an obligation for expenses identified for a future period.  The Company has prepaid for marketing and advertising services to be used over approximately the next twelve months and expensed a prorated amount during the quarter ended September 30, 2017. In addition, the Company entered into a consulting services agreement for investor relations advisory services for the period August 11, 2017 through February 10, 2018.

3.   Stockholders’

4. Stockholders’ Equity (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 and are convertible into shares of(“Series A Stock”) rank pari passu with the Company’s Common Stock on a one-for-one basis.with respect to dividend and liquidation rights. Additionally, each share entitles the holder to 100 votes and, with respect to dividend and liquidation rights, the shares rankpari passu with the Company’s Common Stock.

On December 1, 2015, the Company entered into an Exchange Agreement with Tiger Trade and its Stockholders (Note 1). Under the terms and conditions of the Exchange Agreement, the Company offered and sold Seventeen Million Nine Hundred Thousand (17,900,000) newly issued shares of Company Common Stock and Five Million (5,000,000) newly issued shares of Company Series A Convertible Preferred Stock in consideration for all the votes. During 2021, 1,730,002 previously issued and outstanding shares of Tiger Trade capital stock. The effect of the issuance was that Tiger Trade stockholders acquired approximately 85.91% of theSeries A Stock were converted into Common Stock. All currently issued and outstanding shares of the Series A Stock are held by Gust Kepler, the Company’s Chairman and Chief Executive Officer (“Mr. Kepler”). The Company Common Stock and 100%Mr. Kepler entered into Conversion Rights Agreement dated effective as of October 14, 2021, limiting the rights of the issued andholder(s) of our outstanding shares of Company Series A Convertible Preferred Stock. Tiger Trade becameStock to convert such shares into Common Stock on a wholly owned subsidiaryone-for one basis as provided for in the Certificate of Designation of the Company as a resultSeries A Stock (the “Designation Conversion Rights”). Pursuant to the terms of the ExchangeConversion Rights Agreement, transaction.the Designation Conversion Rights are limited and exercisable based upon the Company reaching the following market capitalization thresholds, measured on the last day of each calendar quarter:

The Agreement terminates when the last share of Series A Stock is either converted or the largest Market Capitalization Threshold is met.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

ForOn January 4, 2022, 86,387 shares of common stock were issued for the Three and Nine Months Ended September 30, 2017 and 2016cashless exercise of 120,000 warrants (Note 5).

3.   Stockholders’ Equity (continued)On January 7, 2022, the Company’s Board of Directors authorized a stock repurchase plan for up to $2,500,000 of the Company’s common stock. The program will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized. As of March 28, 2022, the Company has repurchased 436,600 shares for an aggregate purchase price of $859,612.

5. Warrants to Purchase Common Stock

Tiger Trade was subsequently merged withThe following table presents the Company’s warrants as of March 31, 2022:

At March 31, 2022, warrants for the purchase of 357,783 shares were vested and intowarrants for the purchase of 80,553 shares remained unvested. The Company on February 9, 2016, atexpects to incur expenses for the unvested warrants totaling $308,176 as they vest.

6. Incentive Stock Plan

On August 4, 2021, our Board of Directors created and our stockholders approved the 2021 Blackboxstocks, Inc. Incentive Stock Plan (the “2021 Plan”) which time allbecame effective August 31, 2021. We have reserved 750,000 of theour outstanding shares of capitalour common stock of Tiger Trade outstanding immediately beforefor issuance under the effective date were canceled, retired and ceased to exist.

On February 10, 2016, the Company entered into a Stock Cancellation Agreement with Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, pursuant to which Mr. Kepler cancelled and forfeited 835,010 shares of the Company’s Common Stock.

During the year ended December 31, 2016, the Company issued a total of 3,310,000 shares of Common Stock at a cash price of $0.50 per share for a total of $1,655,000. However, the Company subsequently honored a request by one investor to rescind the purchase of 200,000 of such shares of Common Stock on October 28, 2016.

On September 28, 2017, the Company entered into a Stock Repurchase and Cancellation Agreement with Gust Kepler, a Director and the President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, pursuant to which the Company repurchased 110,000 shares of Common Stock of the Company in exchange for cancellation and forgiveness of debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $55,000.

4. Stock Options and Warrants

Costs attributable to the issuance of stock options and share purchase warrants 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.  When the options or warrants are exercised, the receipt of consideration is an increase in stockholders’ equity. There was no stock option or warrant activity during the nine months ended September 30, 2017 and 2016 and as of November 14, 2017, no options or warrants were outstanding.

5.  Related Party Transactions

During the nine months ended September 30, 2017, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company was advanced $95,705 by the Company and he repaid $70,000. On September 28, 2017, the Company entered into a Stock Repurchase and Cancellation Agreement (Note 3) with Mr. Gust Kepler, pursuant to which the Company repurchased 110,000 shares of Common Stock in exchange for cancellation and forgiveness of debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $55,000. On September 28, 2017, the Company also agreed to cancel and forgive debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $12,500 in exchange for Mr. Kepler’s transfer of 25,000 shares of Common Stock for the benefit of2021 Plan. The 2021 Plan allows the Company, under the termsdirection of the Board of Directors or a Services Agreement between the Companycommittee thereof, to make grants of stock options, restricted and PCG Advisory Group dated August 11, 2017. The remaining advance of $895 is unsecuredunrestricted stock and bears no interest.other stock-based awards to employees, including our executive officers, consultants and directors.

DuringIn addition, 6,048 shares of restricted common stock were granted on September 11, 2021 with 25% vesting at issuance and the six months ended June 30, 2017 and 2016, the Company (and its predecessor, Tiger Trade) engaged the servicesremaining shares vesting quarterly over nine months. As of Karma Black Box LLC (“Karma”), which became a Company stockholder as a resultMarch 31, 2022, 4,536 of the Exchange Agreement (Note 1restricted common stock shares have vested and 3), for application development services ofare included in common stock payable.

The following table presents the Company’s Blackbox System technology. Duringoptions as of March 31, 2022:

At March 31, 2022, options to purchase 235,003 shares were vested and options to purchase 417,497 shares remained unvested. The Company expects to incur expenses for the nine months ended September 30, 2017 and 2016, Karma was paid $85,500 and $10,500 for services, respectively.unvested options totaling $631,614 as they vest.

7. Related Party Transactions

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

5.  Related Party Transactions (continued)

G2 International, Inc. (“(“G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and SecretaryKepler. As of December 31, 2020, the Company and the Company’s controlling stockholder. In 2016 G2/IPA refunded $117,800 of prepayments for marketing services leavinghad a prepaid balance of $36,700 asfor public relations and marketing services with G2/IPA. These funds were utilized during the year ended December 31, 2021.

8. Debt

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. During August 9, 2017, we entered into a License Agreement (the “BBTR License”) with EIGH8T TECHNOLOGIES INC. (also known as Black Box Traders and referred to herein as “BBTR”), a British Virgin Island registered company, for 2021, the development, customization and license to use and sublicense a versionCompany received partial loan forgiveness from the SBA reducing the principal balance of the Blackbox System (known as the “BBTR System”) with data from the HKEX, SSE and SZSE. Stephen Chiang, an individual citizen of Singapore who holds 3,000,000 of Company Common Stock (approximately 13% of the issued and outstanding Common Stock), is a principal of BBTR. Under note to $96,795. During December 2021, the terms of the BBTR License note were amended to carry and interest rate of 1% and mature on May 4, 2025. As of March 31, 2022 and December 31, 2021, the Company has received $400,000unpaid balances of licensing revenue as of September 30, 2017.the note totaled $89,710 and $96,795, respectively.

6.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. As of March 31, 2022 and December 31, 2021, the unpaid balances of the note totaled $960,000 and $990,000, respectively.

On March 9, 2022 the Company and FVP amended the loan agreement to change the Debt Service Coverage Ratio measurement date from the quarter ended December 31, 2021 to the quarter ending September 30, 2022. The Company was in compliance with all debt covenants at March 31, 2022.

9. Commitments and Contingencies

TheDuring August 2017 the Company entered into a sublease agreement with G2 effective July 1, 2015 subject to the termsacquired and conditions of thewas assigned all right, title and interest in an office lease between G2 andwith Teachers Insurance and Annuity Association of America for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. The sublease agreement expires March 31, 2020. During the nine months ended September 30, 2017 and 2016 we incurred $35,072 and $33,742, respectively, in office rental expense.

On August 11, 2017, the Company entered into a six month consulting Services Agreement with PCG Advisory Group, providing for capital markets advisory and investor relations consulting services in exchange for cash payments totaling $32,000 and stock compensationamended the lease to expand its space by approximately 336 square feet for a total of 75,000 common shares, restricted under Rule 1441,838 square feet and extended the expiration date to be issued during the six months of the agreement. On September 28, 2017, the30, 2022. The Company also agreed to cancel and forgive debt obligations owed by Gust C. Kepler to the Company for advancesrecords rent expense associated with this lease on a straight-line basis in the aggregate amount of $12,500 in exchange for Mr. Kepler’s transfer of 25,000 shares of Common Stock for the benefit of the Company underconjunction with the terms of the Services Agreement.underlying lease. 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. During the three months ended March 31, 2022, the Company’s office rental expenses totaled approximately $22,300.

The table below shows the future lease payment obligations:

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.

ITEMItem 2.Management’s 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, 2016,2021 as well as with our condensed financial statements and the notes thereto included elsewhere herein.

Overview

The CompanyBlackboxstocks, Inc. is in the businessa financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of developing and marketing a real time analytical web basedall levels. Our web-based software as a service platform (the “Blackbox System”) that serves as a tool for day traders and swing traders on various securities exchanges and markets. Our proprietary Blackbox System technology is an algorithm driven system that works in real time, measuring market trends and data while utilizing a multitude of specific criteria, both live and historical. Our Blackbox System platform employs predictive technology“predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that canmay result in the rapid change in the price of a stock’s price. The Blackbox System was initially designed to monitor and analyze over 13,000 stocks onstock or option. We continuously scan the OTC Markets Group, Inc. (“OTC”), New York Stock Exchange (“NYSE”), the NYSE MKT, LLC (formerly the American Stock Exchange), and NASDAQ, markets simultaneously as our servers receive live data feeds from such markets. We have also customized our Blackbox System to analyze data from the Hong Kong StockChicago Board Options Exchange (“HKEX”), Shanghai Stock Exchange (“SSE”(the “CBOE”) and Shenzhen Stock Exchange (“SZSE”) for licenseother options markets, analyzing over 10,000 stocks and use primarily in Asia.over 1,500,000 options contracts multiple times per second. We considerprovide 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 System technology to be among the most user-friendlycommunity. We employ a subscription based Software as a Service (“SaaS”) business model and maintain a growing base of its kind.users that spans 42 countries.

The CompanyBlackbox 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 itsthe 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.

On August 9, 2017, we entered into a License Agreement (the “BBTR License”) with EIGH8T TECHNOLOGIES INC. (referred to in the agreementas “BBTR”), a British Virgin Island registered company, for the development, customization and license to use and sublicense a version of the Blackbox System (known as the “BBTR System”) solely for use in connection with data from the HKEX, SSE and SZSE. The BBTR System was made available to BBTR on a trial basis beginning May 15, 2017 and launched for use by BBTR customers beginning on June 1, 2017. Stephen Chiang, an individual citizen of Singapore who holds 3,000,000 of Company Common Stock (approximately 13% of the issued and outstanding Common Stock), is a principal of EIGH8T TECHNOLOGIES INC.

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.Nasdaq Stock Market LLC (the “OTC Pink”“Nasdaq”) under the symbol “BLBX.” Prior to March 9, 2016, our Common Stock was quoted under the symbol “SMQA.” 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 GAAP, which contemplate continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business. At September 30, 2017, the Company had an accumulated deficit of $2,192,303 and for the three and nine months ended September 30, 2017, incurred net losses of $215,189 and $759,459, respectively. Management expects that the Company may need to raise additional capital to sustain operations until such time as the Company can achieve profitability. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.

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.

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 April 12, 2017.March 31, 2022.

Liquidity and Capital Resources

The Company launched its Blackbox System web application for domestic use and made it available to subscribers in September 2016 and we have not yet attained a level of subscription sales revenue that would allow us to meet our current overhead. We do not contemplate attaining profitable operations prior to the end of the fourth quarter of 2017, nor is there any assurance that such an operating level can ever be achieved. Unless there is a significant change in cash requirements, the Company believes it has sufficient working capital to fund any operating deficiencies and future development costs until the end of 2018.

At September 30, 2017, the CompanyMarch 31, 2022, we had a cash balance of $163,913 and our working capital was $192,871marketable securities totaling $8,573,762 as compared to cash and marketable securities totaling $10,442,379 at December 31, 2021. Our cash flows from operations were ($793,188) for the three months ended March 31, 2022 as compared to $231,912 for the same period in the prior year.

Net cash used in investing activities for the three months ended March 31, 2022 was $85,094 as compared to 31,234 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 cashCompany account that is used to research and test specific trading techniques. The account used for those specific activities had an account balance of $28,867 and a working capital deficit of $160,006 at September 30, 2016.approximately $100,000.

Net cash used in financing activities was $896,697 for the three months ended March 31, 2022 as compared to $59,035 for the prior year period. The purchase of $859, 612 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.

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.

Results of Operations

Comparison of Three Months Ended September 30, 2017March 31, 2022 and 20162021

For the three months ended September 30, 2017 and 2016, the Company’s revenue totaled $384,279 and $19,540, respectively, for which our respective costs of revenues totaled $163,071 and $15,633. The increase in revenue and costs of operations are the result of the Company’s launch of our Blackbox System web application for subscription in September 2016. We also generated $300,000 in license fee revenues from the BBTR System which was made available on a trial basis in May 2017. The majority of the costs of operations are data feed expenses for exchange information totaling approximately $70,099 for the three months ended September 30, 2017. Other costs of operations included affiliate program referral, customer retention and media coordination payments of approximately $43,818 and website design and maintenance costs of approximately $46,777.

For the three months ended September 30, 2017,March 31, 2022 and 2021, our revenue was $1,272,486 and $1,489,668, respectively, a decrease of 14.6%. We believe 2022 revenues were negatively impacted by a confluence of macro-economic factors including poor overall performance in the Company hadstock market, soaring inflation and negative gross domestic product (GDP) growth during the first quarter of 2022. The S&P 500 dropped by 4.9% during the first quarter of 2022 as compared to a gain of 5.8% in the first quarter of 2021. In addition to the poor market performance, inflation of 7.5% as measured by the consumer price index (CPI) and a decline in GDP of (1.4%) 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. This promotional offering was the first of its kind in the Company’s history and was effective in increasing the subscriber totals but only contributed minimal revenue per user. Average users for the three months ended March 31, 2022 was 5,709 as compared to 5,575 for the prior year period and 5,749 for the quarter ended December 31, 2021.Total users of 7,400 as of March 31, 2022 included those new subscribers from the $5 promotion. Cost of revenues for the three months ended March 31, 2022 and 2021 were $579,962 and $395,775, resulting in gross margins of 54% and 73%, 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 $184,187 for the quarter ended March 31 2022 as compared to the prior year primarily as a result of a 74% increase in the cost of our program moderators, higher costs associated with our new broadcast enabled social media feature and news feeds. As noted above, our promotional event resulted in increased user counts but limited revenue that offset the costs which resulted in unusually low gross margin percentage of 54%.

For the three months ended March 31, 2022, operating expenses totaling $436,077were $1,713,678 as compared to $160,747$948,761 for the same period in 2016,2021, an increase of $275,330.$764,917 or 81%. We experienced significantly higher expenditures in most of our expense categories for the 2022 period. Selling, general and administrative expenses increased from $606,687 for the three months ended March 31, 2021 to $1,224,723 for the three months ended March 31, 2022, an increase of 102%. The increase in selling, general and administrative expenses of $618,036 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in salary and stock-based compensation, public investor relations. Advertising and marketing expenses increased by $91,484 or 44% from $207,312 in the three months ended March 31, 2021 to $298,796 in the three months ended March 31, 2022. Software development costs also increased by approximately $87,070$54,446 or 42% from $35,445$130,438 in the three months ended March 31, 2021 to $184,884 for the three months ended September 30, 2016 compared to $122,515 for the three months ended September 30, 2017.March 31, 2022. The increased software development costs were primarily attributableincurred 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 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 testing of the Blackbox System’sinvest in new software chatproducts and features. General and administrative expenses also increased approximately $186,062

Our loss from $124,013operations for the three months ended September 30, 2016March 31, 2022 was $1,021,154 as compared to $310,075income from operations of $145,132 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 September 30, 2017. The majorityMarch 31, 2022 were $221,289 as compared to $132,577 for the prior year period.

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 increaseCompany’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 a result of increased internet and telecomdefined by us as net income (loss) before interest expense, of $41,762, marketing and investor relations of $140,811, increased travel expense of $18,964 offset by a reduction in administrative expenses of $15,476. The Company also recordedincome tax, depreciation and amortization expense and certain non-cash. EBITDA is not a measure of $3,487 for the three months ended September 30, 2017 comparedoperating performance under GAAP and therefore should not be considered in isolation nor construed as an alternative to $1,289 for the three months ended September 30, 2016. 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.

ComparisonReconciliation of Nine Months Ended September 30, 2017 and 2016net income (loss) to EBITDA

For the nine months ended September 30, 2017 and 2016, the Company’s revenue totaled $708,837 and $19,540, respectively, for which our respective costs

Off Balance Sheet Arrangements

We doAs of March 31, 2022, we did not have any off balancematerial off-balance sheet arrangements.

ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures About Market Risk

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

ITEMItem 4.CONTROLS AND PROCEDURES Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Gust Kepler, our principal executive officer and Robert Winspear, our 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 September 30, 2017,March 31, 2022, 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, the Company'sour principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of September 30, 2017March 31, 2022, 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 endedSeptember 30, 2017 March 31, 2022 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 the Company only has 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 the Company’s current cash flow situation, the Company does 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

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

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEEDSItem 1.Legal Proceedings

None.

ITEMItem 1A.Risk Factors

Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in Part I, Item 1A, "Risk Factors” of our Annual Report on Form 10-K filed with the SEC on March 31, 2022 for the year ended December 31, 2021, as supplemented by the "Risk Factors" sections in our registration statement on Form S-1 filed with the SEC on October 5, 2021, as amended on November 5, 2021 and the information contained elsewhere in this Report. The risks and uncertainties described within our Form 10-K for the year ended December 31, 2021 and the registration statement, as amended, are not the only risks we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business or results of operations. 

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

Unregistered Sales of Securities

On January 4, 2022, 86,387 shares of common stock were issued for the cashless exercise of 120,000 warrant shares.

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.

There have been no other sales of unregistered securities during the period covered by the Report that have not 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.

Use of Proceeds of Registered Securities

On January 7, 2022 the Company’s Board of Directors authorized a stock repurchase plan for up to $2,500,000 of the Company’s Common Stock. The program will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized. As of March 31, 2022, the Company has repurchased 436,600 shares of common stock for an aggregate purchase price of $859,612. This use of proceeds was not anticipated or disclosed in the Company’s prospectus.

Other than as described above, the proceeds of the public offering have been used as described in the prospectus to promote and market our Blackbox System platform and increase our subscriber base, and for general and administration expenses.

Purchases of Equity Securities by Issuer

The following table sets forth information regarding purchases made under the Company’s stock repurchase plan for up to $2,500,000 of the Company’s Common Stock. The program was authorized and publicly announced on January 7, 2022 and will terminate on December 31, 2022 or when the $2,500,000 authorized has been fully utilized.