Business context and reporting period
Filing identity: The supplied filing is Blackboxstocks Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. This does not match the request metadata naming REALLOYS INC.; verify the intended issuer.
Blackboxstocks develops and markets subscription-based analytical software for securities traders. Its 2017 licensing agreement for Asian-market software ended in November 2017 after the licensee defaulted.
Financial performance and condition
| Metric | Three months ended Sep. 30, 2018 | Three months ended Sep. 30, 2017 | Nine months ended Sep. 30, 2018 | Nine months ended Sep. 30, 2017 |
|---|---|---|---|---|
| Revenue | $190,179 | $384,279 | $480,849 | $708,837 |
| Gross margin dollars | $33,813 | $221,208 | $6,470 | $316,294 |
| Gross margin rate | 17.8% | 57.6% | 1.3% | 44.6% |
| Operating loss | $(337,889) | $(214,869) | $(771,845) | $(758,173) |
| Net loss | $(350,901) | $(215,189) | $(797,419) | $(759,459) |
| Basic loss per share | $(0.02) | $(0.01) | $(0.03) | $(0.03) |
For the nine months, operating cash use was $188,781, compared with $498,408 in 2017. Investing activities provided $2,245, including related-party advances net of repayments; financing activities provided $214,510, chiefly from notes payable. Cash increased by $27,974 to $36,129. At September 30, total assets were $314,691, current liabilities $1,256,655, and stockholders’ deficit $947,064. Working capital was negative $982,308. Notes payable totaled $226,980, including a $200,000 secured note bearing 12% interest and maturing November 20, 2018.
Material changes versus the prior comparable period
- Revenue fell 50% in the quarter and 32% over nine months. Management attributed the decline mainly to the absence of BBTR licensing revenue: $300,000 less in the quarter and $400,000 less year to date. Subscription and commission revenue increased but did not offset the lost license revenue.
- Gross margin contracted sharply as operating costs rose year to date to $474,379 from $392,543, including increased customer referral/retention, data-feed, and merchant-card costs.
- Nine-month operating expenses declined $296,152 to $778,315, mainly because software-development expense fell after chat-feature development was completed. Despite that reduction, the operating loss widened slightly.
- Cash was $36,129 at September 30, 2018, versus $163,913 at September 30, 2017, as reported in MD&A. The balance sheet compares September 30, 2018 with December 31, 2017.
Outlook, risks, contingencies, and unusual items
- Management said subscription revenue had not reached a level sufficient to cover overhead, did not expect profitable operations before the end of 2018, and could not assure profitability or additional funding. It believed available working capital would cover operating deficiencies and development through year-end, subject to no significant change in cash needs.
- The filing identifies substantial doubt-related circumstances through accumulated deficit of $3,492,006, continuing losses, and dependence on raising capital; statements contain no adjustments that might be required if the company cannot continue as a going concern.
- Disclosure controls and procedures were deemed ineffective. Management identified a material weakness from inadequate segregation of duties because one director/officer handles general administrative and financial matters; it did not plan to add staff given cash constraints.
- Related-party transactions include $122,000 advanced by CEO Gust Kepler and $99,071 repaid during the nine months, leaving $79,392 owed, unsecured and non-interest-bearing. The company also reported $36,700 of prepaid marketing services with a company wholly owned by Kepler.
- An advisory agreement with ICV calls for monthly compensation in common stock valued at $20,000, a potential additional cash fee, 920,000 shares if a NASDAQ listing is achieved, and a transaction fee or minimum $500,000 acquisition fee under specified conditions.
- On November 9, 2018, after quarter-end, Kepler advanced $120,000 under a 12% promissory note maturing February 7, 2019. The company reported no material litigation and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for Blackboxstocks Inc., not REALLOYS INC.
- Assess near-term liquidity, the company’s ability to raise capital, and repayment or refinancing of the secured $200,000 note due November 20, 2018.
- Track subscription growth and whether recurring revenue can replace terminated licensing revenue and cover operating costs.
- Review the terms, accounting, and potential dilution or cash obligations from the ICV agreement and other related-party arrangements.
- Monitor remediation of the disclosed material weakness and whether disclosure controls improve.