Blackboxstocks Inc. — Form 10-Q Summary
Entity note: The filing identifies the registrant as Blackboxstocks Inc.; the request metadata names REALLOYS INC. This summary follows the filing. Reporting period: three months ended March 31, 2018; filed May 21, 2018. Figures are unaudited.
Business context and financial results
The company develops and sells subscription-based web and mobile analytical software for securities traders. Its domestic service generated subscription revenue; it reported no licensing revenue in either comparative quarter.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $143,295 | $127,612 |
| Cost of operations | $167,275 | $96,280 |
| Gross profit (loss) | $(23,980) | $31,332 |
| Gross margin | (16.7%) | 24.6% |
| Operating expenses | $173,815 | $222,683 |
| Operating loss | $(197,795) | $(191,351) |
| Net loss | $(202,542) | $(191,799) |
| Basic loss per share | $(0.01) | $(0.01) |
Revenue increased about 12%, but operating costs rose about 74%, turning gross profit into a gross loss. Management attributed higher costs to market-data feeds and affiliate, customer-retention, and media-coordination expenses. Operating expenses declined about $48,900, principally because the company had no BBTR System development costs in Q1 2018 and negotiated lower provider fees. Interest expense increased to $4,747 from $448.
The income statement reports software development costs of $(15,424) for Q1 2018, compared with $28,138 in Q1 2017. The filing does not clearly explain the negative amount.
Cash flow, balance sheet, and liquidity
- Operating cash flow was positive $66,587, versus negative $136,032 a year earlier. It included a $245,000 increase in unearned revenue from customer advances for an anticipated subscription service; this is not recognized revenue in the quarter.
- Cash was $78,022 at March 31, 2018, up from $8,155 at December 31, 2017. Investing cash use was $2,000 and financing cash provided $5,280.
- Current assets were $322,346 and current liabilities $721,637, resulting in a $399,291 working-capital deficit. Total assets were $347,450; stockholders’ deficit was $374,187.
- Current liabilities included $355,498 accounts payable, $245,000 unearned revenue, $45,866 unearned subscriptions, $29,575 short-term notes payable, and $45,698 owed to the CEO. The CEO balance is unsecured and non-interest-bearing.
- The company reported an accumulated deficit of $2,897,129 and said it may need additional capital to sustain operations. It stated that, absent a significant change in cash requirements, it believed available working capital could fund operating deficiencies and development costs through the end of 2018.
Outlook, risks, and other notable items
- Management did not expect profitable operations before the end of Q3 2018 and cautioned there was no assurance profitability would be achieved. The filing includes a going-concern dependency on establishing a profitable business; financial statements contain no adjustments for a potential inability to continue operating.
- The BBTR license was terminated in November 2017 after BBTR defaulted on payment obligations. The company received $500,000 in licensing revenue during 2017; there was no licensing revenue in Q1 2018.
- The company received $245,000 in advance customer payments for a new subscription service, recorded as unearned revenue. The filing does not provide further detail on launch timing or delivery obligations.
- The office lease runs through September 30, 2022. Rent expense was $16,128 in Q1 2018. No material litigation or off-balance-sheet arrangements were reported.
- Management concluded disclosure controls were ineffective. It identified a material weakness from lack of segregation of duties because one director and executive officer handles general administrative and financial matters; the company did not plan to add staff to address it given its cash position.
- The company has 5,000,000 Series A convertible preferred shares outstanding, convertible one-for-one into common shares; the filing notes potential dilution of 5,000,000 shares.
Most important facts for investors to verify
- Whether the $245,000 customer advance relates to a service launched or delivered, and when it may be recognized as revenue.
- Cash runway, financing availability, and progress toward profitability given the working-capital deficit, recurring losses, and management’s stated funding risk.
- The cause and accounting treatment of the reported negative software development cost, and the drivers of sharply higher operating costs.
- Remediation plans, if any, for the disclosed material weakness and ineffective disclosure controls.
- Related-party balances and transactions, including amounts owed to the CEO and the $36,700 prepaid balance with a company wholly owned by the CEO.