Business context and reporting period
The supplied filing is Blackboxstocks Inc.’s Form 10-Q for the quarter ended September 30, 2016, not a filing identified as Realloys Inc. Blackboxstocks develops and markets a real-time analytics platform for stock traders. It launched the Blackbox System web application and began selling subscriptions in September 2016; by quarter-end it reported 230 monthly and 23 annual subscriptions.
Financial performance and position
- Revenue: $19,540 for both the third quarter and first nine months of 2016, versus no revenue in the comparable 2015 periods. Cost of operations was $15,633, leaving gross margin of $3,907, or approximately 20%.
- Losses: Third-quarter net loss was $159,958, compared with $124,802 in 2015. Nine-month net loss was $463,338, compared with $245,199. Nine-month operating expenses rose to $464,127 from $245,199; the filing attributes most of the increase to general and administrative costs.
- Cash flow: Nine-month operating cash use was $220,461, compared with $468,279 in 2015. Financing provided $189,042, including $110,000 from common-stock sales, a $29,042 related-party advance, and $50,000 in note proceeds. Cash declined to $28,867 from $60,286 at year-end 2015.
- Liquidity and debt: Current assets were $60,197 against current liabilities of $220,203. Liabilities included $50,000 of notes payable and $29,042 in related-party advances. The note bears 10% annual interest, is secured by company assets, and had $2,139 of accrued interest at quarter-end.
- Equity: Stockholders’ deficit was $148,407, including an accumulated deficit of $1,083,849. The company reported 20,220,000 common shares outstanding at quarter-end.
Material changes and developments
- Revenue began with the September 2016 product launch, but remained small relative to operating costs.
- Nine-month general and administrative expense increased by $212,605 year over year, while software development costs increased by $2,457. Management cited payroll, consulting, rent, insurance, marketing, accounting, legal, and transfer-agent expenses.
- After quarter-end, the company sold 3,000,000 common shares for $1.5 million in a private offering. It also rescinded a 200,000-share purchase and refunded $100,000. The filing reported 23,020,000 shares outstanding as of November 14, 2016.
Outlook, risks, and unusual items
- Management estimated $1 million to $2 million in costs over the next 12 months for research and development, marketing, implementation, and maintenance. It said additional financing would likely be needed and gave no assurance that financing or sufficient subscription sales could be achieved.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. The financial statements include no adjustments for the possible effects of that uncertainty.
- Disclosure controls and procedures were deemed ineffective. Management identified a material weakness from lack of segregation of duties because one director/executive handles general administrative and financial matters; it did not plan to add staff given the company’s cash position.
- The company reported no material litigation and no off-balance-sheet arrangements. It leases office space under a sublease expiring March 31, 2020.
Important facts for investors to verify
- Confirm the issuer’s identity: the supplied metadata names Realloys Inc., while the filing itself is for Blackboxstocks Inc.
- Verify the terms, receipt, and use of proceeds from the post-quarter $1.5 million share sale, and the effects of the $100,000 rescission on cash and shares outstanding.
- Assess subscription growth, renewal rates, pricing, and whether revenue can cover ongoing development, marketing, and operating costs.
- Review the company’s financing needs, the secured note’s repayment status, and its ability to meet near-term liabilities.
- Track remediation of the disclosed control weakness and any subsequent changes to disclosure controls.