Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We urge you to read the following discussion in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2020 as well as with our condensed financial statements and the notes thereto included elsewhere herein.

Overview

Blackboxstocks, Inc. is a financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of all levels. Our web-based software (the “Blackbox System”) employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the price of a stock or option. We continuously scan the New York Stock Exchange (“NYSE”), NASDAQ, Chicago Board Options Exchange (the “CBOE”) and other options markets, analyzing over 8,000 stocks and over 1,000,000 options contracts multiple times per second. We provide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and ideas quickly and efficiently through a common network. We recently introduced a live audio/video feature that allows our members to broadcast on their own channels to share trading strategies and market insight within the Blackbox community. We employ a subscription based Software as a Service (“SaaS”) business model and maintain a growing base of users that spans 42 countries.

The Blackbox System is a unique and disruptive financial technology platform combining proprietary analytics and broadcast enabled social media to connect traders of all types worldwide on an intuitive, user-friendly system. The complexity of our backend analytics is neatly hidden from the end user by our simple and easy to navigate dashboard which includes real-time alerts, scanners, financial news, institutional grade charting and proprietary analytics.

We launched the Blackbox System web application for domestic use and made it available to subscribers in September 2016. Subscriptions for the use of the Blackbox System web application are sold on a monthly and/or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com.

Our principal office is located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240 and our telephone number is (972) 726-9203. Our Common Stock is quoted on the OTC Pink tier of the OTC Markets Group, Inc.Nasdaq Stock Market LLC (the “OTC Pink”“Nasdaq”) under the symbol “BLBX.” Our corporate website is located at http://www.blackboxstocks.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this Report on Form 10-Q.

Basis of Presentation of Financial Information

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern, which is dependent upon our ability to establish the Company as a profitable business. At June 30, 2021, we had an accumulated deficit of $ 7,415,599 and for the three and six months ended June 30, 2021, reported net losses of $243,336 and $230,781, respectively. By contrast, at December 30, 2020, the Company had an accumulated deficit of $7,184,818 and for the three and six months ended June 30, 2020, reported net income of $193,827 and $236,657, respectively.

In November 2020, we executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022.

As a result of our debt financing and cash flows from operations, we had a cash balance of $626,490 at June 30, 2021. Management believes that this will be sufficient to fund our operations and service our debt requirements for the next twelve months. In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development. Nevertheless, there can be no assurance that we will be able to raise additional capital or on what terms.

The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

Significant Accounting Policies

There have been no changes from the Summary of Significant Accounting Policies described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2021.

Liquidity and Capital Resources

At JuneSeptember 30, 2021, we had a cash balance of $626,490$420,400 and a working capital deficit of $932,752$903,351 as compared to a cash balance of $972,825 and a working capital deficit of $990,738 at December 31, 2020. Our cash flows from operations were negative $26,192($211,360) for the sixnine months ended JuneSeptember 30, 2021 as compared to a positive $87,680$92,379 for the prior year period. For the sixnine months ended JuneSeptember 30, 2021, the net loss was largely offset by amortization of debt discount and debt issuance costs.costs as well as stock based compensation. During the same period,nine months ended September 30, 2021, the Company also incurred capital expenditures in the amount of $54,507$60,610 related primarily to the purchase of new servers. We do not expect this level of capital expenditures to continue for the next twelve months.

Net cash used fromin financing activities was $265,636$280,455 for the sixnine months ended JuneSeptember 30, 2021. This consisted of $403,642$418,461 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $50,039$35,220 in principal payments remaining on its convertible notes payable which willare expected to be paid in the thirdfourth quarter of 2021. Principal payments on our $1,000,000 senior debt begin in December of 2021 at $10,000 per month until its maturity in November 2022, which can be extended. As a result of retiring our convertible notes payable, the Company’s debt service requirements will be significantly lower for the next twelve months.

On November 9, 2021 the Company enter into an underwriting ageeement pursuant to which it sold 2,400,000 shares of its Common Stock at an offering price of $5.00 in an underwritten public offering upon which our shares became listed on the NASDAQ Capital Market. Net proceeds to the Company after underwring discounts and offering expenses were approximately $11,610,000. We may also issue additional equity or debt in orderexpect to improve liquidity or finance growth or development initiatives although there can be no assurance that we will be ableuse proceeds from this offering to do so or on what terms. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest infurther develop our Company.Blackbox System platform, expand our product offerings, fund marketing efforts to grow our subscriber base, as well as for general and administration expenses and other general corporate purposes.

We believe that the Company has sufficient capital resources to fund current operations and debt service requirements.

Results of Operations

Comparison of Three Months Ended JuneSeptember 30, 2021 and 2020

For the three months ended JuneSeptember 30, 2021 and 2020, our revenue was $1,463,606$1,471,814 and $808,848,$1,100,329, respectively, an increase of 81%34%. The $654,758$371,485 increase in revenue resulted from growth in our subscriber base which was due towe beleve resultred from additional marketing and advertising expenditures and continued subscriber acceptance and use of our platform. Cost of revenues for the three months ended JuneSeptember 30, 2021 and 2020 were $409,578$469,601 and $242,158,$288,213, resulting in gross margins of 72%68% and 70%74%, respectively. The primary components of cost of revenues include costs related to data and news feed expenses for exchange information which comprise the majority of the costs, as well as the costs for program moderators. Costs for online program moderators increased 62%44% for the quarter ended JuneSeptember 30, 2021 as compared to the 2020 period and comprise the second largest portion of our cost of revenues. We do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.

For the three months ended JuneSeptember 30, 2021, operating expenses were $1,171,551$1,501,142 compared to $519,974$726,633 for the same period in 2020, an increase of $651,577$774,509 or 125%107%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $315,991$466,225 for the three months ended JuneSeptember 30, 2020 compared to $615,727$1,098,427 for the three months ended JuneSeptember 30, 2021, an increase of 95%136%. The increase in selling, general and administrative expenses of $299,736$632,202 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in referral expenses, of $37,766; professional and outside consulting services, of $68,673, general administrative expenses of $42,842,and salary and payroll of $134,491 and financingstock based compensation. Stock based compensation expense of $13,315.was $433,544 for the three months ended Spetember 30, 2021. Advertising and marketing expenses increased by $204,456$112,498 or 143%65% from $142,732$173,559 in the three months ended JuneSeptember 30, 2020 to $347,188$286,057 in the three months ended JuneSeptember 30, 2021. Software development costs also increased significantly by $145,341$28,193 or 251%34% from $57,914$83,705 in the three months ended JuneSeptember 30, 2020 as compared to $203,255$111,898 in same period in 2021. The increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development.

We expect to continue to incur increases in our operating costs for the foreseeable future. Expense increases for advertising and marketing activities should correlate most closely to sales growth, but as seen in the 2021 quarter, will not necessarily be directly correlated. Software development costs were relatively low in the quarter ended JuneSeptember 30, 2020 due to limited capital resources of the Company at that time. We anticipate that software development costs will remain relatively consistent with their current level through the balance of calendar 2021 and that any significant increases will be attributable to new product development.

Loss from operations for the three months ended JuneSeptember 30, 2021 was $117,523$498,929 as compared to income from operations of $46,717$85,483 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above.above with stock based compensation of $433,544 accounting for approximately 74% of the change. Non-operating expenses for the three months ended JuneSeptember 30, 2021 consisted of interest expense of $33,257$30,281 and amortization of debt discount of $92,556$10,171, as well as non-operating income of $33,405 from the gain on forgiveness of notes payable, resulting in a net loss for the period of $243,336.$505,976. Non-operating expenses for the three months ended JuneSeptember 30, 2020 included interest expense of 61,26533,469 and amortization of debt discount of $63,246.$135,482. In addition, during the 2020 period we also incurred $282,693 of convertible debt expense andhad a gain on derivative liabilities of $554,315.10,757. These non-recurring items more thanlosses offset the interest expensegain from operations and amortization of debt discount to result in net incomeloss for the period of $193,827.$72,711. The amortization of debt discount will declinehas declined in the third quarter of 2021 and will be eliminated with the retirement of the related debt resulting in net interest expense that should remain consistent at its current levels for the next year.

Comparison of SixNine Months Ended JuneSeptember 30, 2021 and 2020

For the sixnine months ended JuneSeptember 30, 2021 and 2020, the our revenue was $2,953,274$4,425,088 and $1,224,099,$2,324,428, respectively, andan increase of 141%90%. The $1,729,175$2,100,660 increase in revenue resulted from growth in our subscriber base which was due towe believe resulted from additional marketing and advertising expenditures and continued subscriber acceptance and use of our platform throughout the year. Relative growth was stronger in the first quarter of 2021 than the second quarter as the first quarter of 2020 was when the Company’s aggressive growth began, as well as significant gains in the first quarter of 2021 which we believe weremay have been attributable to unusual market activity in stocks such as Gamestop and AMC which we believe could have drove short term subscriptions. Cost of revenues for the sixnine months ended JuneSeptember 30, 2021 and 2020 were $805,232$1,274,953 and $412,510$700,723 resulting in gross margins of 73%71% and 66%70%, respectively. The higher margins in the 2021 period were the result of increased leverage of fixed costs including the fixed cost components of the data and news feed expenses for exchange information which comprise the majority of the costs. Costs for online program moderators increased 74% for the six months ended June 30, 2021 as compared to the 2020 period and comprised the second largest portion of our cost of revenues. As noted above, we do not expect our gross margins to change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.

For the sixnine months ended JuneSeptember 30, 2021, we incurred operating expenses totaling $2,120,312$3,621,454 compared to $995,585$1,722,218 for the same period in 2020, an increase of $1,124,727$1,899,236 or 113%110%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $665,436$1,722,218 for the sixnine months ended JuneSeptember 30, 2020 to $1,222,414$3,621,454 for the sixnine months ended JuneSeptember 30, 2021, an increase of 84%105%. The primary components of the $1,189,180 increase in selling, general and administrative expenses of $556,978 was primarily due towere increases in referral expenses, of $126,404; professional and outside consulting services, of $175,245; general administrative expenses of $94,076;and salary and payroll of $225,983, which were partially offset by a decrease in financing expenses of $79,402.stock based compensation. Advertising and marketing expenses increased by $323,424$435,922 or 140%108% from $231,076$404,635 in the sixnine months ended JuneSeptember 30, 2020 to $554,500$840,557 in the sixnine months ended JuneSeptember 30, 2021. Software development costs also significantly increased by $241,448$269,641 or 262%153% from $92,245$175,950 in the sixnine months ended JuneSeptember 30, 2020 as compared to $333,693$445,591 in same period in 2021. As noted above, the increased software development costs were incurred for improvements to our platform including our online social media component, development of a native application and new product development and were significantly higher in the second quarter of 2021 than in the first quarter.development.

For the sixnine months ended JuneSeptember 30, 2021 we recorded incomea loss from operations of $27,610$471,319 as compared to a loss from operations of $183,996$98,513 for the sixnine months ended JuneSeptember 30, 2020, an increase of $ 211,606. Gross margin for the six months ended June 30, 2021 of $2,147,922 was $1,336,333 or 165% higher than the same period in 2020, but was partially offset by $1,124,727 in higher$372,806 due to increased operating expenses. Non-operating expenses for the sixnine months ended JuneSeptember 30, 2021 consisted of interest expense of $74,295 and$104,576, amortization of debt discount of $184,086$194,267, and a gain on the foregiveness of a note payable of $33,405 resulting in a net loss for the period of $230,781.$736,757. Non-operating expenses for the sixnine months ended JuneSeptember 30, 2020 included interest expense of $94,760 and$128,229, amortization of debt discount of $114,853.$250,335, and default expense of $24,750. In addition, theduring 2020, period also hadwe incurred $500,469 of convertible debt expense and a gain on derivative liabilities of $1,155,485.$1,166,242. These non-recurring items more than offset the loss from operations as well as interest expense and amortization of debt discount to result in net income for the period of $236,657.$163,946.

Off Balance Sheet Arrangements

As of JuneSeptember 30, 2021, we did not have any material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Gust Kepler, our principal executive officer and Robert Winspear, our principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of JuneSeptember 30, 2021, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of JuneSeptember 30, 2021, were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

ThereOn September 11, 2021 the Company appointed Robert Winspear as its Chief Financial Officer and Secretary. This appointment provides for additional segregation of duties as both of these offices were previously held by our Chief Executive Officer.  In addition, the Company also appointed three new independent directors and created an audit committee, compensation committee and a nominating and governance committee. Part of Mr. Winspear’s responsibilities will be to design and implement improved internal controls. Except as provided above, there were no other changes in our internal controls over financial reporting during the quarter ended JuneSeptember 30, 2021 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Management is aware that there is a lack of segregation of duties at the Company due to the fact that we only have two directors and executive officers dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officers and directors involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of our current cash flow situation, we do not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A.  Risk Factors

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On June 16,August 31, 2021, our Board of Directors granted stock options for the purchase of an aggregate of 597,500 shares of common stock to certain employees and consultants and on September 11, 2021 granted options on an additional 15,000 shares to our independent directors under the terms of our 2021 Stock Incentive Plan.

On September 11, 2021, we issued 11,000a warrant to Robert Winspear for the purchase of 100,000 shares of our Common Stock valued at an exercise price of $1.95 per share, to Winspear Investments, LLC, in exchange for services.share. The warrant vests ratably over 36 months and has a term of ten years.

The securities described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. We reasonably believed that each of the purchasers of such securities had access to information concerning its operations and financial condition, were acquiring the securities for their own account and not with a view to the distribution thereof, and each investor qualified as an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Furthermore, no "general solicitation" was made by the Company with respect to sale of any of the securities. At the time of their issuance, the securities described above were deemed to be restricted securities for purposes of the Securities Act and the documentation representing the securities bear legends and/or non-transfer provisions to that effect.

All of the our other sales of unregistered securities during the period covered by the Report have been previously reported as required in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and/or current reports on Form 8-K.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference as described below.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX