Business context and reporting period
The filing is Blackboxstocks Inc.’s audited Form 10-K for the fiscal year ended December 31, 2019, comparing 2019 with 2018. The company sells subscriptions to its web-based trading analytics and social platform. The request metadata names REALLOYS INC.; that does not match the registrant named in this filing.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $1,062,573 | $692,803 |
| Gross profit | $325,961 | $47,485 |
| Gross margin | 30.7% | 6.9% |
| Operating loss | $(1,005,033) | $(1,106,741) |
| Net loss | $(2,983,438) | $(1,151,882) |
| Basic loss per share | $(0.38) | $(0.15) |
| Cash used in operations | $(710,992) | $(472,273) |
| Cash at year-end | $21,172 | $28,001 |
Subscription revenue rose to $1,037,778 from $687,653. Cost of operations increased to $736,612 from $645,318; operating expenses rose to $1,330,994 from $1,154,226. The larger 2019 net loss included $1,240,347 of convertible-note financing expense, $531,452 of debt-discount amortization, $83,766 of derivative-liability loss, $57,750 of default expense and $65,090 of interest expense.
At December 31, 2019, current liabilities were $3,552,223 against current assets of $36,740, producing a reported working-capital deficit of $3,515,483. The balance sheet reported $593,891 of convertible notes payable, net of discount; $218,138 of other notes payable, net of discount; $228,000 of related-party notes; and a $1,405,530 derivative liability. Stockholders’ deficit was $3,338,299. The company reported an accumulated deficit of $6,829,907.
Material changes and notable items
- Revenue and gross profit improved substantially year over year, and the operating loss narrowed. Net loss nevertheless worsened, largely because of financing and debt-accounting charges.
- Management reported that subscription revenue remained insufficient to cover overhead. The auditor’s report and management’s disclosures identify substantial doubt about the company’s ability to continue as a going concern.
- The company adopted lease accounting in 2019, recording a right-of-use asset of $160,073 and lease liabilities of $46,124 current and $66,715 non-current at year-end.
- Convertible notes issued in 2019 were in default at year-end and included conversion terms that could result in substantial share dilution. Potentially dilutive shares disclosed for year-end 2019 totaled 5,311,667.
- Management identified ineffective disclosure controls and a material weakness in internal control over financial reporting, citing insufficient accounting resources and lack of segregation of duties.
Outlook, risks and contingencies
Management planned aggressive marketing and anticipated $1 million to $2 million of marketing and operating costs over the next 12 months. It expected additional equity or debt financing to fund operations, but disclosed that financing was not arranged and could not be assured; absent funding, the business could likely fail. Management did not expect profitable operations before the end of 2020 and gave no assurance that profitability would be achieved.
Subsequent to year-end, the company obtained additional high-cost financing, including March 2020 secured convertible notes bearing 52% annual interest and convertible at $0.60 per share. A staffing vendor sought $45,030 for unpaid invoices; the amount was included in accounts payable, and repayment discussions were underway. A separate vendor judgment of $29,523 was also included in accounts payable. The company disclosed no off-balance-sheet arrangements and no expected dividends.
Most important facts for investors to verify
- Confirm the issuer identity: the metadata says REALLOYS INC., while the filing is for Blackboxstocks Inc.
- Review the going-concern disclosures, near-term cash needs, and whether sufficient financing was secured after filing.
- Examine the defaulted convertible notes, conversion-price provisions, derivative valuation, and resulting dilution risk.
- Verify subsequent financing terms, including the 52% notes, collateral and conversion price.
- Assess the status and potential settlement costs of creditor claims and vendor litigation, and the remediation of the disclosed control weakness.