Business context and reporting period
The supplied filing is Blackboxstocks Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017; this does not match the request metadata identifying REALLOYS INC. The company develops and markets a real-time analytics and subscription software platform for securities traders, and licenses a version for Asian exchanges.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $384,279 | $19,540 | $708,837 | $19,540 |
| Gross margin dollars | $221,208 | $3,907 | $316,294 | $3,907 |
| Operating expenses | $436,077 | $160,747 | $1,074,467 | $464,127 |
| Operating loss | $(214,869) | $(156,840) | $(758,173) | $(460,220) |
| Net loss | $(215,189) | $(159,958) | $(759,459) | $(463,338) |
| Basic loss per share | $(0.01) | $(0.01) | $(0.03) | $(0.02) |
Gross margin was approximately 58% for Q3 2017 and 45% for the first nine months of 2017, calculated from reported revenue and cost of operations. Nine-month operating cash use was $498,408, versus $220,461 in 2016. Investing activities used $41,317, mainly reflecting $95,705 in advances to the CEO/shareholder, partly offset by $70,000 in repayments; there was no financing cash flow in 2017.
At September 30, 2017, cash was $163,913, working capital was $192,871, total assets were $685,738, and stockholders’ equity was $216,889. Current liabilities were $468,849, including $442,490 of accounts payable. The balance sheet reports no debt at quarter-end. Cash was $703,638 at December 31, 2016; the filing separately cites $28,867 cash and a $160,006 working-capital deficit at September 30, 2016. Accumulated deficit was $2,192,303.
Material changes versus comparable periods
- Revenue increased substantially from the 2016 periods, reflecting subscription sales after the domestic platform launch in September 2016 and licensing revenue from the BBTR arrangement. The company reported $300,000 of license revenue in Q3 and $400,000 for the nine months.
- Operating expenses rose, and losses widened. Nine-month software development expense increased to $355,243 from $124,764; general and administrative expense increased to $710,966 from $335,497.
- Cash declined by $539,725 from year-end 2016. Prepaid expenses increased to $458,481 from $236,300, and accounts payable rose to $442,490 from $72,279.
- Common shares outstanding were 23,000,000 at September 30, 2017, versus 23,110,000 at December 31, 2016. Five million Series A preferred shares were outstanding and convertible one-for-one into common shares; each preferred share carries 100 votes.
Outlook, risks, contingencies and unusual items
Management stated that subscription revenue had not yet reached a level sufficient to cover overhead and that it might need additional capital. It did not expect profitable operations before the end of Q4 2017 and gave no assurance profitability would be achieved. Absent a significant change in cash requirements, management believed working capital could fund operating deficiencies and development costs through the end of 2018. These are management expectations, not guarantees; the filing identifies dependence on financing and profitability as going-concern uncertainties.
The BBTR licensee’s principal held approximately 13% of Blackboxstocks’ common stock. The company also disclosed related-party transactions involving CEO Gust Kepler: advances, repayments, forgiveness of $67,500 in obligations in exchange for share transfers/cancellation, and repurchase and cancellation of 110,000 common shares. A prepaid balance of $36,700 remained with a company wholly owned by the CEO. The filing reports no material litigation and no off-balance-sheet arrangements.
Management concluded disclosure controls were not effective as of September 30, 2017, citing a material weakness from lack of segregation of duties because one director and executive officer handled general administrative and financial matters. Management did not intend to add staff to address this weakness given the cash situation. The filing also notes that revenue recognition standard Topic 606 was being evaluated and was not expected to have a material impact.
Important facts for investors to verify
- Confirm the issuer: the filing names Blackboxstocks Inc., not REALLOYS INC.
- Assess the sustainability and terms of BBTR licensing revenue, including customer concentration, collection, and the licensee relationship.
- Review cash burn, rising payables, prepaid balances, and management’s assumptions behind its stated funding runway and need for additional capital.
- Examine the CEO-related advances, share cancellation/repurchase, and prepaid balance with the CEO-owned entity.
- Evaluate the disclosed material weakness in disclosure controls and whether it has since been remediated.
- Account for potential dilution and voting effects from the five million convertible preferred shares.