The following discussion and analysis of the results of financial condition and
results of operations for the fiscal years ended December 31, 2019 and 2018
should be read in conjunction with our consolidated financial statements, and
the notes to those consolidated financial statements that are included elsewhere
in this Form 10-K.
Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. We use words such as
"anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect,"
"believe," "intend," "may," "will," "should," "could," and similar expressions
to identify forward-looking statements.
Overview
The Company is in the business of developing and marketing a real time
analytical 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 enhanced by
artificial intelligence to find volatility and unusual market activity that can
result in the rapid change in a stock's price. The Blackbox System was initially
designed to monitor and analyze over 13,000 stocks on the OTC Markets Group,
Inc. ("OTC"), New York Stock Exchange ("NYSE"), the NYSE American (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 Stock Exchange ("HKEX"), Shanghai
Stock Exchange ("SSE") and Shenzhen Stock Exchange ("SZSE") for license and use
primarily in Asia.
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We consider the Blackbox System technology to be among the most user-friendly of
its kind.
The Company launched its 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 under the symbol "BLBX." Our corporate website is located at
http://www.blackboxstocks.com.
Basis of Presentation of Financial Information
The accompanying consolidated 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 the Company's ability to obtain sufficient
financing or establish itself as a profitable business. At December 31, 2019,
the Company had an accumulated deficit of $6,829,907 and for the years ended
December 31, 2019 and 2018, the Company incurred net losses of $2,983,437 and
$1,151,882, respectively. Management's plans with respect to operations include
the sustained and aggressive marketing of subscriptions for the Blackbox System
and raising additional capital through sales of equity or debt securities as may
be necessary to pursue its business plans and sustain operations until such time
as the Company can achieve profitability. Management believes that aggressive
marketing combined with additional financing as necessary will result in
improved operations and cash flow in 2020 and beyond. 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.
Recently Issued Accounting Pronouncements
During the year ended December 31, 2019 and through April 15, 2020, there were
several new accounting pronouncements issued by the Financial Accounting
Standards Board ("FASB"). Each of these 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.
All other new accounting pronouncements issued but not yet effective or adopted
have been deemed not to be relevant to us, hence are not expected to have any
impact once adopted.
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Summary of Significant Accounting Policies
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.
Fair Value of Financial Instruments
The Financial Accounting Standards Board's ("FASB") Accounting Standards
Codification ("ASC") Topic 820, Fair Value Measurement, defines fair value,
establishes a framework for measuring fair value in accordance with U.S.
generally accepted accounting principles, and requires certain disclosures about
fair value measurements. In general, fair values of financial instruments are
based upon quoted market prices, where available. If such quoted market prices
are not available, fair value is based upon internally developed models that
primarily use, as inputs, observable market-based parameters. Valuation
adjustments may be made to ensure that financial instruments are recorded at
fair value. These adjustments may include amounts to reflect counterparty credit
quality and the customer's creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied consistently
over time.
Derivative Financial Instruments
FASB ASC Topic 820, Fair Value Measurement requires bifurcation of certain
embedded derivative instruments, and measurement at their fair value for
accounting purposes. A holder redemption feature embedded in the Company's notes
payable requires bifurcation from its host instrument and is accounted for as a
freestanding derivative.
Recently Issued Accounting Pronouncements.
During the years ended December 31, 2019 and 2018, there were several new
accounting pronouncements issued by the Financial Accounting Standards Board
("FASB"). Each of these 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.
In February 2016, the FASB issued ASU 2016-02, Leases. This is a comprehensive
new leases standard that amends various aspects of existing guidance for leases
and requires additional disclosures about leasing arrangements. It requires all
leases that have a term in excess of 12 months be recognized on the balance
sheet with the liability for lease payments and the corresponding right-of-use
asset value based on the present value of future aggregate payments. Recognition
of the costs of these leases on the income statement will be dependent upon
their classification as either an operating or a financing lease. Costs of an
operating lease will continue to be recognized as a single operating expense on
a straight-line basis over the term of the lease. Costs for a financing lease
will be disaggregated and recognized as both an operating expense (for the
amortization of the right-of-use asset) and interest expense (for interest on
the lease liability). This standard became effective beginning January 1, 2019
and was adopted on our financial statements. The Company recorded the
right-of-use asset for the lease in the amount of $160,073 and the related lease
liability. The current liability for the lease is $46,124 and non-current of
$66,715 as of December 31, 2019.
Property and Equipment
The Company is engaged in the development of its proprietary Blackbox System
technology, an algorithm driven system, through a combination of in-house system
analysts and outside firms. The Company's Blackbox System software for use in
China was in development and costs expensed until the software reached
technological feasibility in April 2017 and capitalized until May 15, 2017 when
the Blackbox System for use in China was marketable.
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The Company's property and equipment is being depreciated on the straight-line
basis over an estimated useful life of three years.
Income Taxes
The Company will recognize deferred tax assets and liabilities based on
differences between the financial reporting and tax basis of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Management evaluates the probability of the realization of its deferred income
tax assets. Management determined that because the Company has not yet generated
taxable income, it is unlikely that a tax benefit will be realized from these
operating loss carry forwards. Accordingly, the deferred income tax asset is
offset by a full valuation allowance.
In accordance with ASC Topic 740, Income Taxes, the Company recognizes the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be capable of withstanding examination by the taxing
authorities based on the technical merits of the position. These standards
prescribe a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.
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. Therefore,
because including shares issuable upon conversion of convertible securities
and/or exercise of outstanding options and warrants would have an anti-dilutive
effect on the loss per share, only the basic earnings (loss) per share is
reported in the accompanying financial statements. At December 31, 2019 and
2018, the potential dilution would be 5,311,667 and 5,000,000 shares of common
stock, respectively, in the event the issued and outstanding shares of Series A
Convertible Preferred Stock or other potentially dilutive securities be
exercised.
Share-Based Payment
Under ASC Topic 718, Compensation - Stock Compensation, all share based payments
to employees, including share option grants, are to be recognized in the
statement of operations based on their fair values. No share-based payments were
issued for the years ended December 31, 2019 and 2018.
Revenue Recognition
On January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts
with Customers (ASC 606) and adoption of the new standard had no impact on the
Company's statements of operations or balance sheets. 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 Company launched its Blackbox System web
application and began generating subscription sales revenues during the quarter
ended September 30, 2016. Revenue related to annual subscriptions is recognized
each month with unearned subscriptions reflected as a current liability.
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Other Liabilities
The Company is planning the development of a future product, a complimentary
platform that will share similar IP protocol with the current Blackbox System on
a subscription basis. The future product has not yet launched. The Company has
received advance payments from a new subscriber group in anticipation of the
development of this future product. These amounts are deferred until such time
as the platform is launched and the services earned. As of December 31, 2019,
the Company has received $180,000 from this future subscriber group.
Software Development Costs
Blackboxstocks is engaged in the development of its proprietary Blackbox System
technology, a proprietary algorithm driven system, through a combination of
in-house system analysts and outside contractors. Under the guidelines of ASC
Topic 985, "Software", the cost of the Company's Blackbox System was expensed
during development and the Blackbox System software for use in the United
States, 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 technological feasibility and became marketable and
available to subscribers during the quarter ended June 30, 2017. Subsequent to
that time, in accordance with ASC Topic 985 these costs were expensed. Costs
incurred during this period were capitalized and amortized.
Domain Name
The Company acquired a domain name for its exclusive use in anticipation of its
rollout within the next three years. The cost was capitalized and due to the
uncertainty of our ability to successfully market this name, we elected to
amortize the cost over a period of three years.
Prepaid Expenses
Prepaid expenses are current assets created when the Company makes payments or
incurs an obligation for expenses identified for a future period. These amounts
are charged to expense as the services are provided.
Marketing Costs
The Company incurs significant marketing expenses related to the development and
expansion of its subscription base to potential users. During the years ended
December 31, 2019 and 2018, the Company reported $261,470 and $173,885 for
marketing costs, respectively.
Contingencies
Certain conditions may exist as of the date the financial statements are issued,
which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company's management and
legal counsel assess such contingent liabilities, and such assessment inherently
involves judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may result in
such proceedings, the Company's legal counsel evaluates the perceived merits of
any legal proceedings or unasserted claims as well as the perceived merits of
the amount of relief sought or expected to be sought.
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If the assessment of a contingency indicates it is probable that a material loss
has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company's financial statements. If
the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material would be disclosed. Loss
contingencies considered to be remote by management are generally not disclosed
unless they involve guarantees, in which case the guarantee would be disclosed.
Liquidity and Capital Resources
The Company launched its Blackbox System web application 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 2020, nor
is there any assurance that such an operating level can ever be achieved.
At December 31, 2019, the Company had a cash balance of $21,172 and a working
capital deficit of $3,515,483 as compared to a cash balance of $28,001 and a
working capital deficit of $1,324,635 at December 31, 2018. Such cash amount is
not sufficient to fund our plans of operation. As such, we will need to raise
additional funds to carry out our plans of operation and fund our ongoing
operational expenses including the marketing of our Blackbox System platform and
services. We expect that costs and expenses necessary to implement our planned
marketing operations over the next 12 months will be between $1 Million to $2
Million. Additional funding is expected to be generated through equity financing
from the sale of our Common Stock and/or debt. If we are successful in
completing equity financing, existing stockholders will experience dilution of
their interest in our Company. We do not have any financing arranged and we
cannot provide investors with any assurance that we will be able to raise
sufficient funding from the sale of our Common Stock or debt to fund our plans
of operation and ongoing operational expenses. In the absence of such financing,
our business will likely fail. These factors raise substantial doubt about our
ability to continue as a going concern and the accompanying financial statements
do not include any adjustments related to the recoverability or classification
of asset carrying amounts or the amounts and classification of liabilities that
may result should we be unable to continue as a going concern.
Results of Operations
Comparison of Years Ended December 31, 2019 and 2018
For the years ending December 31, 2019 and 2018, the Company's revenue totaled
$1,062,573 and $692,803, respectively, for which its respective costs of
revenues totaled $736,612 and $645,318. Revenues increased as a result of an
expanded subscription base for monthly revenues. The Company's revenue from
subscriptions grew from $687,653 in the year ended December 31, 2018 to
$1,037,778 in the year ended December 31, 2019, an increase of $350,125. Costs
of operations increased as a result of the Company's additional subscriber
expenses. The costs of operations includes costs to provide the web application
to subscribers, the majority of which is data feed expense for exchange
information of approximately $343,030 and customer retention and referral
expense of $334,350.
For the year ending December 31, 2019, the Company had operating expenses
totaling $1,330,994 compared to $1,154,226 for the same period in 2018, an
increase of $176,768. This change is primarily a result of an increase in
general and administrative expenses of approximately $248,578 which reflects an
increase of $87,585 in marketing expense; $69,911 in legal and professional
expense; $90,991 in investment fundraising expense; $12,251 in salary and
administrative expense; $37,710 of travel and related expense netted with a
decrease in outside consulting expenses of $49,870. In addition, software
development costs decreased approximately $67,594 due to stabilization of the
development of the software application. The Company also recorded depreciation
expense of $18,142 for the year ended December 31, 2019 compared to $22,514 for
the year ended December 31, 2018.
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Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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BLACKBOXSTOCKS INC. 
