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, 2019, as well as with our condensed financial statements and
the notes thereto included elsewhere herein.
Overview
We are 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. We
consider the Blackbox System technology to be among the most user-friendly of
its kind.
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 the Company's ability to establish itself as a
profitable business. At March 31, 2020, the Company had an accumulated deficit
of $6,787,078 and for the three months ended March 31, 2020, reported net income
of $42,829, as compared to a net loss of $208,503 for the same period in 2019.
Management expects that the Company will 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 filed with the Securities and
Exchange Commission on April 16, 2020.
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Liquidity and Capital Resources
We launched the Blackbox System web application for domestic use and made it
available to subscribers in September 2016, but 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 March 31, 2020, the Company had a cash balance of $74,970 and a working
capital deficit of $3,367,329 as compared to a cash balance of $24,650 and a
working capital deficit of $1,418,223 at March 31, 2019. As discussed below,
during the three months ended March 31, 2020 we raised $100,000 in net proceeds
to the Company from the sale of two convertible promissory notes and $232,000 in
net proceeds to the Company from other quasi-factoring debt financing. 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. 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 the incurrence of 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.
Sale of Convertible Promissory Notes
On March 23, 2020 two lenders advanced an aggregate of $100,000 to the Company
in exchange for Convertible Promissory Notes, bearing interest at 52% per annum
to be paid monthly in arrears beginning April 30, 2020, and secured by the
Company's assets, which are convertible into the Company's Common Stock at a
price of $0.60 per share, and maturing on March 25, 2021. On June 23, 2020 the
notes were amended to adjust the conversion price from $0.60 to $1.95. The
amendment also provided for the issuance of warrants for the purchase of Company
Common Stock to be exercised at any time until the maturity date of the notes.
The warrants provide for purchase of up to 115,385 shares at $0.01 per share of
Common Stock in the aggregate. In the event that the Convertible Promissory
Notes are not converted before maturity, the Company retains a call right to
repurchase one share of Common Stock for each $0.8666 of unconverted principal
at a price of $0.01.
Other Debt Financing
On March 13, 2020 a third party advanced $25,000 to the Company in exchange for
quasi-factoring financing arrangements to be repaid in daily installments of
$291.67, through August 31, 2020. The related note discount of $12,500 is being
amortized over the term of the agreement for a total of $1,316 in interest
expense as of March 31, 2020.
On January 27, 2020 a third party advanced $207,000 to the Company in exchange
for quasi-factoring financing arrangements to be repaid in daily installments of
$1,035, through November 3, 2020. The related note discount of $57,000 is being
amortized over the term of the agreement for a total of $13,092 in interest
expense as of March 31, 2020.
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Results of Operations
Comparison of Three Months Ended March 31, 2020 and 2019
For the three months ended March 31, 2020 and 2019, the Company's revenue
totaled $415,251 and $226,349, respectively, for which our respective costs of
revenues totaled $207,848 and $161,318. The $188,902 increase in revenue
resulted from an expanded subscription base for monthly revenues. The majority
of the costs of operations are data feed expenses for exchange information
totaling approximately $81,691 for the three months ended March 31, 2020. Other
costs of operations included subscriber referral program payments of $37,496 and
customer retention payments of approximately $69,528 to certain select online
program moderators, on-boarders and educator partners.
For the three months ended March 31, 2020, the Company had operating expenses
totaling $438,116 compared to $255,096 for the same period in 2019, an increase
of $183,020. This change is primarily a result of an increase in general and
administrative expenses from $227,885 for the three months ended March 31, 2019
compared to $400,294 for the three months ended March 31, 2020. The increase in
general and administrative expenses of $172,409 was due to increases in
financing expenses of $106,030; advertising expense of $19,005; professional and
outside consulting services of $17,334; rent expense of $5,997; general
administrative expenses of $1,934; salary and related $18,316; and computer and
internet expenses of $3,793. Software development costs also increased
approximately $12,353. We also recorded depreciation and amortization expense of
$3,491 for the three months ended March 31, 2020 compared to $5,233 for the
three months ended March 31, 2019.
Off Balance Sheet Arrangements
As of March 31, 2020, we did not have any material off-balance sheet
arrangements.
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BLACKBOXSTOCKS INC. 
