The following discussion and analysis of the results of financial condition and
results of operations for the fiscal years ended December 31, 2022 and 2021
should be read in conjunction with our financial statements, and the notes to
those 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
We are 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 employs "predictive technology" enhanced by
artificial intelligence to find volatility and unusual market activity that may
result in the rapid change in the trading price of a stock or option. Our
Blackbox System continuously scans the NASDAQ, NYSE, CBOE, and other options
markets, analyzing over 10,000 stocks and up to 1,500,000 options contracts
multiple times per second. We also 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 including the ability
to broadcast on their own channels to share trading strategies and market
insight within the Blackbox community.
We launched our platform for domestic use and made it 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 our
website.
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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 listed on
the Nasdaq Capital Market under the symbol "BLBX." Our corporate website is
located at http://https://blackboxstocks.com.
Basis of Presentation
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. For the year ended December 31, 2022, the Company incurred
an operating loss of $4,546,026 and a net loss of $5,019,882 as compared to an
operating loss of $2,277,839 and net loss of $2,615,736 for the prior year. Cash
flows from operations were $(4,285,039) and $(672,485) for 2022 and 2021
respectively. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management has implemented a number of
initiatives aimed at improving operating cash flow including, new product
development, revised marketing strategies and expense reductions. In addition to
the operating initiatives, the Company has historically been able to raise debt
or equity financing to meet its capital needs and is also evaluating strategic
alternatives with respect to possible mergers or acquisitions. There can be no
assurance that the Company operational changes will impact its cash flow or if
it 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 the Company be unable to continue in operation.
Recently Issued Accounting Pronouncements
During the year ended December 31, 2022 and through April 6, 2023, 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.
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.
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.
Software Development Costs
The Company accounts for software development costs pursuant to ASC Topic
985-Software, which requires that the costs incurred for planning, designing,
coding and testing of software prior to technological feasibility be recorded as
research and development expenses as incurred. Such costs include both internal
development and engineering costs as well as development expenses contracted
through third parties.
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.
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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.
Share-Based Payment
All share-based payments to employees, directors and contractors, including
grants of stock options, restricted shares or warrants, are recognized in the
statement of operations based on their fair values at the time of grant in
accordance with ASC Topic 718, Compensation - Stock Compensation.
During the period ended December 31, 2021, the Company calculated the fair value
of the options granted based on assumptions used in the Cox-Ross-Rubinstein
binomial pricing model using the following inputs: the price of the Company's
common stock on the date of issuance; a risk-free interest rate of 1.30%,
expected volatility of 50% based on the volatility of comparable publicly traded
entities, various exercise prices, and terms of 10 years.
During the period ended December 31, 2022, the Company calculated the fair value
of the options granted based on assumptions used in the Cox-Ross-Rubinstein
binomial pricing model using the following inputs: the price of the Company's
common stock on the date of issuance; risk-free interest rates ranging from
2.72% to 3.37%, expected volatility ranging from 110% to 127% based on the
volatility of the Company's common stock, various exercise prices, and terms of
10 years.
Liquidity and Capital Resources
At December 31, 2022, the Company had a cash balance of $425,578 and marketable
securities valued at $3,216,280, which equal a combined cash and securities
total value of $3,641,858. The Company incurred negative cash flow from
operations of $(4,285,039) for the year ended December 31, 2022 as compared to
negative cash flow from operations of $(672,485) in the prior year. Cash flows
used in investing activities excluding marketable securities were $65,941 and
$63,912 for the years ended December 31, 2022 and 2021, respectively, and were
related primarily to the purchase of server equipment and office furniture. We
expect capital expenditures to remain at approximately the same level for 2023
in order to maintain our current operations. Cash flows from financing for the
year ended December 31, 2022 was $(2,120,823) and was driven primarily by
$990,000 in repayments of debt and $1,102,375 in purchases of treasury stock.
Cash flows from financing for the year ended December 31, 2021 was $10,194,239
and was driven primarily by the initial public offering that closed on November
15, 2021.
As noted above, the Company may need to raise additional debt or equity capital
in order to fund its operations. There can be no assurance that the Company will
be able to do so or on what terms.
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Initial Public Offering
On November 15, 2021, the Company completed an initial public offering of
2,400,000 shares of common stock at a price of $5.00 per share in connection
with our uplist to the Nasdaq exchange. After underwriting discounts and
expenses, the company realized net proceeds from the offering of $10,519,914.
Proceeds from the offering are used to promote and market our Blackbox System
platform and increase our subscriber base and for general and administration
expenses. In addition, we intend to develop and market additional products and
services that employ or are complementary to our Blackbox System. We expect to
release a new product utilizing the proprietary Blackbox System that target
traditional investors that do not necessarily engage in day trading or swing
trading. We believe that the market for this type of product is significant and
we intend to devote significant resources to advertise and market this product.
In addition, we anticipate hiring additional personnel to aid in the development
and improvement of our existing and future products and services.
Stock Repurchase Plan
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, 2023 or when the $2,500,000 authorized has been
fully utilized. As of April 6, 2023, the Company has repurchased 687,761 shares
for an aggregate purchase price of $1,102,375. We do not expect the capital used
in conjunction with the plan to impede our operations for the foreseeable
future.
Results of Operations
Comparison of Years Ended December 31, 2022 and 2021
For the years ended December 31, 2022 and 2021, the Company's revenue was
$4,959,109 and $6,112,324, respectively. The decrease of $1,153,215 or 18.9% was
driven primarily by a decline in subscribers which we believe resulted from an
unfavorable macro-economic environment in 2022. During 2022, we ran several
promotions that offered our monthly subscription for $1 to $5 as opposed to the
regular price of $99.97 which caused revenues to decline greater than the
decline in subscribers. Our average subscriber count for the year ended December
31, 2022 was 5,420 or 2.6% lower than the year ended December 31, 2021. Gross
margin for the year ended December 31, 2022 was $2,878,230 or 58% of revenues as
compared to 2021 gross margin of $4,260,969 or 69.7% of revenues. The decrease
in the gross margin percentage from 2021 to 2022 was due to a lower average
revenue per subscriber as a result of the promotions discussed above. The
primary costs of operating our platform include data feeds of real time prices
from exchanges, news feeds, personnel costs of our moderators as well as general
system expenses.
For the year ended December 31, 2022, our operating expenses increased to
$7,424,256 as compared to $6,538,808 in 2021. This increase of $885,448 or 13.5%
was due to substantial increases in our operating expenses in all categories.
Software development expenses incurred the highest percentage increase of 87.2%
for the year ended December 31, 2022 as compared to the previous year. The
$560,268 increase in expense for 2022 resulted significant investment in the
technological infrastructure of the Blackbox system, the release of our mobile
application for IOS and Android devices as well as new product development. We
expect that our development expense will continue to increase in 2023 although
the specific timing of those increases is uncertain. Our selling, general and
administrative costs increased by $104,353 or 2.3% to $4,729,686 for the year
ended December 31, 2022. Advertising and marketing expenses increased by
$217.820 to $1,468,702. We relied on digital marketing as our primary medium for
advertising and marketing but also incurred approximately [$155,000] in
television related advertising. We will continue to evaluate our advertising and
marketing plans in 2023 in order to improve its cost effectiveness.
For the year ended December 31, 2021, other income (expense) was a net expense
of $337,897 as compared to other expenses of $473,856 for the year ended
December 31, 2022. The primary components of the 2021 expense were interest
expense of $135,492 and amortization of debt discount of $247,522. For the year
ended December 31, 2022 other expense included interest expense of $98,541,
amortization of debt discount of $46,597 and an investment loss of $328,718.
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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.
Reconciliation of net loss to EBITDA
Year ended December 31,
2022 2021
Net loss $ (5,019,882 ) $ (2,615,736 )
Adjustments:
Interest expense 98,541 135,492
Depreciation and amortization expense 22,728 19,721
Amortization of debt discount 46,597 247,522
Gain on forgiveness of note payable - (33,405 )
Stock based compensation 482,460 1,353,020
Total Adjustments 650,326 1,722,350
EBITDA $ (4,369,556 ) $ (893,386 )Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
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BLACKBOXSTOCKS INC. 