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 Nasdaq Stock Market LLC (the "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.

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 September 30, 2021, we had a cash balance of $420,400 and a working capital deficit of $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 ($211,360) for the nine months ended September 30, 2021 as compared to $92,379 for the prior year period. For the nine months ended September 30, 2021, the net loss was largely offset by amortization of debt discount and debt issuance costs as well as stock based compensation. During the nine months ended September 30, 2021, the Company also incurred capital expenditures in the amount of $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 in financing activities was $280,455 for the nine months ended September 30, 2021. This consisted of $418,461 of principal repayments that was partially offset by $138,006 in stock issuances. The Company has only $35,220 in principal payments remaining on its convertible notes payable which are expected to be paid in the fourth quarter of 2021. Principal payments on our $1,000,000 senior debt begin in December 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 expect to use proceeds from this offering to further develop our 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.


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Results of Operations

Comparison of Three Months Ended September 30, 2021 and 2020

For the three months ended September 30, 2021 and 2020, our revenue was $1,471,814 and $1,100,329, respectively, an increase of 34%. The $371,485 increase in revenue resulted from growth in our subscriber base which we 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 September 30, 2021 and 2020 were $469,601 and $288,213, resulting in gross margins of 68% and 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 44% for the quarter ended September 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 September 30, 2021, operating expenses were $1,501,142 compared to $726,633 for the same period in 2020, an increase of $774,509 or 107%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $466,225 for the three months ended September 30, 2020 compared to $1,098,427 for the three months ended September 30, 2021, an increase of 136%. The increase in selling, general and administrative expenses of $632,202 was the largest dollar value component of the operating expense increase. The primary components of the increase were increases in referral expenses, professional and outside consulting services, and salary and stock based compensation. Stock based compensation expense was $433,544 for the three months ended Spetember 30, 2021. Advertising and marketing expenses increased by $112,498 or 65% from $173,559 in the three months ended September 30, 2020 to $286,057 in the three months ended September 30, 2021. Software development costs also increased by $28,193 or 34% from $83,705 in the three months ended September 30, 2020 as compared to $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 September 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 September 30, 2021 was $498,929 as compared to income from operations of $85,483 for the prior year period due to higher sales and gross margins being offset by increased operating expenses as delineated above with stock based compensation of $433,544 accounting for approximately 74% of the change. Non-operating expenses for the three months ended September 30, 2021 consisted of interest expense of $30,281 and amortization of debt discount of $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 $505,976. Non-operating expenses for the three months ended September 30, 2020 included interest expense of 33,469 and amortization of debt discount of $135,482. In addition, during the 2020 period we also had a gain on derivative liabilities of 10,757. These non-recurring losses offset the gain from operations and result in net loss for the period of $72,711. The amortization of debt discount has 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 Nine Months Ended September 30, 2021 and 2020

For the nine months ended September 30, 2021 and 2020, the our revenue was $4,425,088 and $2,324,428, respectively, an increase of 90%. The $2,100,660 increase in revenue resulted from growth in our subscriber base which we 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 may 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 nine months ended September 30, 2021 and 2020 were $1,274,953 and $700,723 resulting in gross margins of 71% and 70%, respectively. 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.





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For the nine months ended September 30, 2021, we incurred operating expenses totaling $3,621,454 compared to $1,722,218 for the same period in 2020, an increase of $1,899,236 or 110%. We experienced significantly higher expenditures in most of our expense categories for the 2021 period. Selling, general and administrative expenses increased from $1,722,218 for the nine months ended September 30, 2020 to $3,621,454 for the nine months ended September 30, 2021, an increase of 105%. The primary components of the $1,189,180 increase were increases in referral expenses, professional and outside consulting services, and salary and stock based compensation. Advertising and marketing expenses increased by $435,922 or 108% from $404,635 in the nine months ended September 30, 2020 to $840,557 in the nine months ended September 30, 2021. Software development costs also significantly increased by $269,641 or 153% from $175,950 in the nine months ended September 30, 2020 as compared to $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.

For the nine months ended September 30, 2021 we recorded a loss from operations of $471,319 as compared to a loss from operations of $98,513 for the nine months ended September 30, 2020, an increase of $372,806 due to increased operating expenses. Non-operating expenses for the nine months ended September 30, 2021 consisted of interest expense of $104,576, amortization of debt discount of $194,267, and a gain on the foregiveness of a note payable of $33,405 resulting in a net loss for the period of $736,757. Non-operating expenses for the nine months ended September 30, 2020 included interest expense of $128,229, amortization of debt discount of $250,335, and default expense of $24,750. In addition, during 2020, we incurred $500,469 of convertible debt expense and a gain on derivative liabilities of $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 $163,946.

Off Balance Sheet Arrangements

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

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