Filing summary
Entity discrepancy: The request identifies REALLOYS INC., but the supplied Form 10-Q is for Blackboxstocks Inc. Confirm that this is the intended filing before relying on the information below.
Business context and reporting period
Blackboxstocks develops and sells subscription access to real-time analytical software for traders. This unaudited Form 10-Q covers the quarter ended March 31, 2020, compared with the quarter ended March 31, 2019. The company filed late under an SEC COVID-19 relief order, citing restricted office access and disruption to its accounting and reporting work. Its common stock was quoted on the OTC Pink market under BLBX.
Key financial results
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $415,251 | $226,349; up $188,902, or about 83% |
| Cost of operations | $207,848 | $161,318 |
| Gross margin | $207,403; about 50% of revenue | $65,031; about 29% of revenue |
| Operating expenses | $438,116 | $255,096 |
| Operating loss | $(230,713) | $(190,065) |
| Net income (loss) | $42,829 | $(208,503) |
| Operating cash flow | $(40,276) | $(105,094) |
| Cash at quarter-end | $74,970 | $24,650 at March 31, 2019 |
Reported Q1 2020 net income included a $601,170 gain from a change in the fair value of derivative liabilities. It also included $217,776 of convertible-note financing expense, $51,607 of debt-discount amortization, $33,495 of interest expense and $24,750 of default expense. The filing reports basic earnings per share of $0.01 and fully diluted earnings per share of $0.00.
Balance sheet, liquidity and financing
- At March 31, 2020, current assets were $80,718 and current liabilities were $3,448,047, resulting in a working capital deficit of $3,367,329. Total assets were $308,523; stockholders’ deficit was $3,195,470.
- Cash increased by $53,798 during the quarter, with $94,074 net cash provided by financing activities partly offsetting $40,276 of operating cash use. The company said available cash was insufficient to fund its operating plans.
- Current liabilities included $634,692 of convertible notes, $275,085 of notes payable, $198,000 of related-party notes, and a $1,122,136 derivative liability. The filing also reports current and long-term lease liabilities of $45,152 and $55,946.
- The company reported $100,000 of new convertible-note proceeds and $232,000 of proceeds from quasi-factoring financing during the quarter. The convertible notes carried 52% annual interest, were secured by company assets, and initially had a $0.60 conversion price. In June 2020, after quarter-end, their conversion price was amended to $1.95 and warrants for up to 115,385 shares at $0.01 per share were provided.
- A $100,000 third-party secured note and a $120,000 related-party note were in default at quarter-end. The third-party note carries 12% interest and a first-priority security interest; the filing says neither holder had demanded repayment. Daily-repayment quasi-factoring obligations also added near-term cash demands.
Changes, outlook and significant risks
- Management attributed revenue growth to an expanded monthly subscription base. Gross margin improved, but operating expenses rose $183,020 year over year; general and administrative expense increased $172,409, including higher financing, advertising, consulting and payroll costs.
- Management said it did not expect profitable operations before the end of 2020 and gave no assurance that profitability could be achieved. It estimated $1 million to $2 million in costs for planned marketing and operations over the next 12 months.
- The company said additional equity or debt financing was needed, had no financing arranged, and could not assure it could raise sufficient funds. It warned that without financing its business would likely fail. Management and the auditor-related disclosures identify substantial doubt about the company’s ability to continue as a going concern.
- COVID-19 restrictions limited office access and disrupted access to records and coordination among staff, accountants and advisers. The company warned that the pandemic could materially adversely affect operations, demand, financial condition and cash flows.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2020. Management cited a material weakness from lack of segregation of duties because one director/executive handled general administrative and financial matters; the company did not plan to add staff to address it given its cash position.
- A staffing-services creditor obtained a default judgment on April 9, 2020 for $45,030 of unpaid invoices. The company reported arrangements to pay in installments. Separately, the quarter-end note disclosure described negotiations over repayment.
- The company had $6,787,078 of accumulated deficit. Derivative liabilities were Level 3 fair-value measurements, and the reported quarterly gain was substantial relative to revenue and operating results.
Important facts for investors to verify
- Whether Blackboxstocks Inc., rather than REALLOYS INC., is the intended registrant and filing.
- Current cash, liquidity, financing availability, and repayment status of defaulted and daily-payment debt; the quarter-end figures are dated March 31, 2020.
- The impact and terms of the June 23, 2020 convertible-note amendments and warrants, including dilution and the effect on derivative liabilities.
- Whether subscription growth and gross-margin improvement can cover operating costs, and whether the stated $1 million to $2 million funding need was met.
- Resolution and payment status of the $45,030 judgment, and any developments affecting the secured creditor or related-party debt.
- Remediation of ineffective disclosure controls and the material weakness, and the company’s ability to continue as a going concern.