Business context and reporting period
The filing is a Form 10-Q for the quarter and nine months ended September 30, 2019. The filing identifies the registrant as Blackboxstocks Inc., a subscription-based provider of real-time market analytics software; this differs from the request metadata naming REALLOYS INC. The company’s common stock was quoted on OTC Pink under BLBX.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2019 | Three months ended Sept. 30, 2018 | Nine months ended Sept. 30, 2019 | Nine months ended Sept. 30, 2018 |
|---|---|---|---|---|
| Revenue | $296,332 | $190,179 | $776,489 | $480,849 |
| Gross profit | $100,988 | $33,813 | $250,819 | $6,470 |
| Gross margin | 34.1% | 17.8% | 32.3% | 1.3% |
| Operating expenses | $348,470 | $371,702 | $1,019,502 | $778,315 |
| Operating loss | $(247,482) | $(337,889) | $(768,683) | $(771,845) |
| Net loss | $(507,859) | $(350,901) | $(1,156,140) | $(797,419) |
| Basic loss per share | $(0.07) | $(0.05) | $(0.15) | $(0.10) |
Revenue growth was attributed to subscription-base expansion and marketing-partner commissions. Nine-month operating expenses rose, mainly from higher general and administrative, marketing, and software development costs. Net losses increased substantially, including $293,379 of nine-month debt-discount amortization ($223,004 in the third quarter).
For the first nine months, operating cash flow was $(657,924), versus $(188,781) in 2018; investing cash flow was $(1,587), and financing cash flow was $666,611. Cash at September 30 was $35,101. Total assets were $356,553, current liabilities $1,756,911, and working capital deficit $1,543,844. Stockholders’ deficit was $1,478,334. The filing reports no income-tax expense.
Material changes, debt, and unusual items
- Current liabilities included $369,654 of convertible notes net of discount, $191,139 of notes payable net of discount, and $228,000 of related-party notes payable. A further $100,000 third-party secured note and a $120,000 related-party note were past due and in default; the holders had not demanded repayment. The related-party note balance is reported as unpaid, with accrued interest separately recorded.
- Two 8% convertible notes were issued in 2019. They mature 180 days after issuance and provide for conversion at $1.95 per share before maturity; after maturity, conversion may be at the lower of that price or 65% of the lowest bid price over the preceding 15 trading days. The filing reports $473,725 in net proceeds from the notes.
- The company raised $272,547 from common-stock and warrant sales and had 71,795 warrants outstanding at $1.95 exercise price. Common shares outstanding were 7,883,231 at September 30; the company effected a 1-for-3 reverse split in July 2019.
- Accounts payable included a $29,523 judgment arising from a vendor dispute; the company said it was optimistic about negotiating a settlement. It also had $180,000 of deferred advances from a subscriber group for a future product that had not launched.
- Adoption of lease accounting in 2019 resulted in a $160,073 right-of-use asset and lease liability; lease liabilities were $47,141 current and $77,976 long term at quarter-end.
- After quarter-end, on October 3, 2019, the company obtained another $50,000 quasi-factoring advance, repayable in daily installments and subject to a $19,000 note discount.
Outlook, risks, and controls
Management said subscription revenue had not reached a level sufficient to cover overhead and did not expect profitable operations before the end of 2019; it gave no assurance that profitability could be achieved. It estimated planned marketing costs over the next 12 months at $1 million to $2 million and said additional equity or debt financing would be necessary. No financing was arranged, and management warned that without sufficient financing the business would likely fail. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
Management cited sustained marketing and additional financing as plans to improve operations and cash flow. The filing cautions that forward-looking statements are uncertain and undertakes no obligation to update them. Disclosure controls were deemed ineffective, and management identified lack of segregation of duties as a material weakness; it did not plan to add staff to address it given the cash position. The company reported no material off-balance-sheet arrangements and no material litigation, apart from the disclosed vendor judgment.
Important facts for investors to verify
- Confirm the registrant identity: the supplied metadata names REALLOYS INC., but the filing is for Blackboxstocks Inc.
- Assess near-term liquidity, cash burn, the large working-capital deficit, and the company’s ability to secure additional financing.
- Review the convertible-note maturities, potential variable-price conversion dilution, defaulted notes, and daily repayment obligations on short-term financing.
- Verify subscription growth, customer retention and marketing costs, and whether the future product associated with deferred subscriber advances launches.
- Review remediation of ineffective disclosure controls and the disclosed segregation-of-duties weakness.