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. (the “OTC Pink”) under the symbol “BLBX.” Our corporate website is located at http://www.blackboxstocks.com.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 obtain sufficient financing or establish the Company as a profitable business. At March 31,June 30, 2021, we had an accumulated deficit of $7,172,263$ 7,415,599 and for the yearsthree and six months ended December 31, 2020 and 2019 the Company incurredJune 30, 2021, reported net losses of $354,911$243,336 and $2,983,438,$230,781, respectively. These conditions raise substantial doubt aboutBy contrast, at December 30, 2020, the Company’s ability to continue as a going concern.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.

During the quarter ended March 31, 2021 we sold 70,772 shares of Common Stock to third parties for $138,006 and issued 6,411 shares of Common Stock previously subscribed for $12,500.

As a result of our debt and equity financing and cash flows from operations, we had a cash balance of $1,114,468$626,490 at March 31,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 March 31,June 30, 2021, we had a cash balance of $1,114,468$626,490 and a working capital deficit of $678,125$932,752 as compared to a cash balance of $74,970$972,825 and a working capital deficit of $3,367,329$990,738 at MarchDecember 31, 2020. Our cash flows from operations were negative $26,192 for the six months ended June 30, 2021 as compared to a positive $87,680 for the prior year period. For the six months ended June 30, 2021, the net loss was largely offset by amortization of debt discount and debt issuance costs. During the same period, the Company incurred capital expenditures in the amount of $54,507 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 from financing activities was $265,636 for the six months ended June 30, 2021. This consisted of $403,642 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $50,039 in principal payments remaining on its convertible notes payable which will be paid in the third 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. We may also issue additional equity or debt in order to improve liquidity or finance growth or development initiatives although there can be no assurance that we will be able to do so or on what terms. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company.

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

Sale of Common Stock and Warrants

During the three months ended March 31, 2021, we received subscriptions for the purchase of 70,772 shares of Common Stock at a cash price of $1.95 per share for aggregate cash consideration of $138,006.

During the quarter ended March 31, 2021 the Company issued 92,308 shares of Common Stock in settlement of a liability in the amount of $180,000 relating to the purchase of a Simple Agreement for Future Tokens.

We may raise additional capital through the sale of our Common Stock or issuing debt. If we are successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company.

Results of Operations

Comparison of Three Months Ended March 31,June 30, 2021 and 2020

For the three months ended March 31,June 30, 2021 and 2020, our revenue totaled $1,489,668was $1,463,606 and $415,251,$808,848, respectively, an increase of 259% for which our respective costs of revenues totaled $ 395,775 and $170,352, an increase of 132%81%. The $1,074,417$654,758 increase in revenue resulted from an expanded subscriptiongrowth in our subscriber base for monthly revenues. Gross marginwhich was due to additional marketing and advertising expenditures and continued acceptance of our platform. Cost of revenues for the three months ended March 31,June 30, 2021 and 2020 were $1,093,893$409,578 and $244,899$242,158, resulting in gross margins of 72% and 70%, respectively. Gross margin as a percentageThe primary components of sales increased from 59.0%cost of revenues include costs related to 73.4% indata and news feed expenses for exchange information which comprise the period ended March 31, 2021 as a resultmajority of the higher revenues and certain fixed cost of sales.

Forcosts as well as the three months ended March 31, 2021, we had operating expenses totaling $948,761 compared to $475,612costs for program moderators. Costs for online program moderators increased 62% for the same period in 2020, an increase of $473,149 or 99%. This change is primarily a result of an increase in selling, general and administrative expenses from $349,446 for the three monthsquarter ended March 31, 2020 compared to $606,687 for the three months ended March 31, 2021. The increase in selling, general and administrative expenses of $257,241 was due to increases in referral expenses of $88,638; professional and outside consulting services of $106,571; rent expense of $7,967; general administrative expenses of $48,833; salary and related $91,492; and computer and internet expenses of $6,456 netted with a decrease in financing expenses of $92,716. Advertising and marketing expenses increased by $118,968 or 135% from $88,344 in the three months ended March 31, 2020 to $207,312 in the three months ended March 31, 2021. Software development costs also increased by $96,107 from $34,331 in the three months ended March 31, 2020June 30, 2021 as compared to $130,438 in samethe 2020 period in 2021. We also recorded depreciation and amortization expense of $4,324 forcomprise the three months ended March 31, 2021 compared to $3,491 for the three months ended March 31, 2020. For the three months ended March 31, 2021 we recorded operating income of $145,132 as compared to an operating loss of $230,713 for the three months ended March 31, 2020.

For the three months ended March 31, 2021 we incurred interest expense of $41,038 and amortization of debt discount in the amount of $91,539.  The amortization of debt discount relates to our convertible preferred notes.  For the three months ended March 31, 2020, we incurred interest expense of $33,495, convertible note financing expense of $217,776 default expense of $24,750 and amortization of debt discount of $51,607.  The lower interest and financing expenses resulted from the Company repaying certain high interest debt during 2020 and its reliance on lower cost financing.  In addition the company recorded a gain on derivative liability in the amount of $601,170 during the three months ended March 31, 2020.  We recorded net income of $12,555 for the three months ended March 31, 2021 as a resultsecond largest portion of our significant increase in revenues and higher operatingcost of revenues. We do not expect our gross margins as compared to net income of $42,829 for the three months ended March 31, 2020.  The 2020 net income was due to the gain on derivative liability offsetting the operating loss of $230,713 and interest and other financing costs totaling $327,628.change significantly from their current level unless we add additional products with different margins or incur unexpected cost increases.

For the three months ended June 30, 2021, operating expenses were $1,171,551 compared to $519,974 for the same period in 2020, an increase of $651,577 or 125%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $315,991 for the three months ended June 30, 2020 compared to $615,727 for the three months ended June 30, 2021, an increase of 95%.  The increase in selling, general and administrative expenses of $299,736 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, salary and payroll of $134,491 and financing expense of $13,315. Advertising and marketing expenses increased by $204,456 or 143% from $142,732 in the three months ended June 30, 2020 to $347,188 in the three months ended June 30, 2021. Software development costs also increased significantly by $145,341 or 251% from $57,914 in the three months ended June 30, 2020 as compared to $203,255 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 June 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 June 30, 2021 was $117,523 as compared to income from operations of $46,717 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above. Non-operating expenses for the three months ended June 30, 2021 consisted of interest expense of $33,257 and amortization of debt discount of $92,556 resulting in a net loss for the period of $243,336. Non-operating expenses for the three months ended June 30, 2020 included interest expense of 61,265 and amortization of debt discount of $63,246. In addition, during the 2020 period we also incurred $282,693 of convertible debt expense and a gain on derivative liabilities of $554,315. These non-recurring items more than offset the interest expense and amortization of debt discount to result in net income for the period of $193,827. The amortization of debt discount will decline in the third quarter of 2021 and 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 Six Months Ended June 30, 2021 and 2020

For the six months ended June 30, 2021 and 2020, our revenue was $2,953,274 and $1,224,099, respectively, and increase of 141%. The $1,729,175 increase in revenue resulted from growth in our subscriber base which was due to additional marketing and advertising expenditures and continued acceptance 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 were attributable to unusual market activity in stocks such as Gamestop and AMC which we believe drove short term subscriptions. Cost of revenues for the six months ended June 30, 2021 and 2020 were $805,232 and $412,510 resulting in gross margins of 73% and 66%, 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 six months ended June 30, 2021, we incurred operating expenses totaling $2,120,312 compared to $995,585 for the same period in 2020, an increase of $1,124,727 or 113%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $665,436 for the six months ended June 30, 2020 to $1,222,414 for the six months ended June 30, 2021, an increase of 84%.  The increase in selling, general and administrative expenses of $556,978 was primarily due to increases in referral expenses of $126,404; professional and outside consulting services of $175,245; general administrative expenses of $94,076; salary and payroll of $225,983, which were partially offset by a decrease in financing expenses of $79,402. Advertising and marketing expenses increased by $323,424 or 140% from $231,076 in the six months ended June 30, 2020 to $554,500 in the six months ended June 30, 2021. Software development costs also significantly increased by $241,448 or 262% from $92,245 in the six months ended June 30, 2020 as compared to $333,693 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.

For the six months ended June 30, 2021 we recorded income from operations of $27,610 as compared to a loss from operations of $183,996 for the six months ended June 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 operating expenses. Non-operating expenses for the six months ended June 30, 2021 consisted of interest expense of $74,295 and amortization of debt discount of $184,086 resulting in a net loss for the period of $230,781. Non-operating expenses for the six months ended June 30, 2020 included interest expense of $94,760 and amortization of debt discount of $114,853. In addition, the 2020 period also had $500,469 of convertible debt expense and a gain on derivative liabilities of $1,155,485. 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.

Off Balance Sheet Arrangements

As of March 31,June 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 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 March 31,June 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 March 31,June 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

There were no changes in our internal controls over financial reporting during the quarter ended March 31,June 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 one directortwo directors and executive officerofficers dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officer/directorofficers 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 January 4,June 16, 2021 we sold 12,821issued 11,000 shares of Common Stock valued at $1.95 per share, to a third partyWinspear Investments, LLC, in exchange for $25,001.

On January 25, 2021 we sold 25,641 shares of Common Stock at $1.95 per share to a third party for $50,000.

On January 28, 2021 we converted previously received payments of $130,000 for the purchase of a Simple Agreement for Future Tokens into 66,667 shares of Common Stock.

On February 3, 2021 we entered into a subscription agreement to sell 5,129 shares of Common Stock at $1.95 per share to a third party for $10,002.

On February 3, 2021 we entered into a subscription agreement to sell 12,821 shares of Common Stock at $1.95 per share to a third party, for $25,001.

On February 8, 2021 we entered into a subscription agreement to sell 5,129 shares of Common Stock at $1.95 per share, to a third party, for $10,002.

On March 11, 2021 we sold 9,231 shares of Common Stock at $1.95 per share to a third party for $18,000.

On March 16, 2021 we converted previously received payments of $50,000 for the purchase of a Simple Agreement for Future Tokens into 25,641 shares of Common Stock.services.

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. OtheOther 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