TABLE OF CONTENTS

INTRODUCTORY COMMENT

Throughout thisQuarterly Report on Form 10-Q,, the terms “we,” “us,” “our,” “Blackboxstocks,” or the “Company” refers to Blackboxstocks Inc., a Nevada corporation.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-Q (the “Report”), we make forward-looking statements in this Item 2 and elsewhere that also involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business, and reflect our beliefs and assumptions based upon information available to us at the date of this report.Report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements include, among other things, plans for proposed operations, descriptions of our strategies, our productservice and market development plans, and other objectives, expectations and intentions, the trends we anticipate in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.

We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors including, but not limited to, the risks and uncertainties discussed in our other filings with the Securities Exchange Commission (“SEC”). We undertake no obligation to revise or update any forward-looking statement for any reason.

Blackboxstocks Inc.

Notes to Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

1. Organization

Blackboxstocks Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2017 (Unaudited) and December 31, 2016

The accompanying notes are an integral part of these consolidated

financial statements. 

The accompanying notes are an integral part of these consolidated

financial statements. 

The accompanying notes are an integral part of these consolidated

financial statements. 

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

1. Organization

Blackboxstocks Inc.(the “Company”) was incorporated on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan of Reorganization confirmed by the United States Bankruptcy Court for the Northern District of Texas for reorganization under Chapter 11 of the United States Bankruptcy Code.

On December 1, 2015, the Company entered into a Share Exchange Agreement (“Exchange Agreement”), by and among the Company, Tiger Trade Technologies, Inc. (“Tiger Trade”), a Texas corporation and the stockholders of Tiger Trade. As a result of the Exchange Agreement transaction, the Tiger Trade stockholders acquired approximately 88.64% of the issued and outstanding capital stock of the Company, and Tiger Trade became a wholly owned subsidiary of the Company. 

On February 8, 2016, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Tiger Trade, providing for the merger of Tiger Trade with and into the Company. At the effective time of the merger (February 9, 2016), the shares of Tiger Trade capital stock outstanding immediately before the effective time were canceled, retired and ceased to exist.

The Company filed a Certificate of Amendment tochanged its Articles of Incorporation effective as of March 9, 2016, changing the name of the Company to Blackboxstocks, Inc.

and began operating as a financial technology and social media platform in March 2016. The Company isplatform offers real-time proprietary analytics and news for stock and options traders of all levels.  The Company's web-based software employs "predictive technology" enhanced by artificial intelligence to find volatility and unusual market activity that may result in the businessrapid change in the price of developing and marketing a real time analytical platform and subscription basedstock or option.  The software as a service (the “Blackbox System”) to serve as a tool for day traders and swing traders on various securities exchanges and markets, includingcontinuously scans the OTC Markets Group, Inc. (“OTC”), theNASDAQ, New York Stock Exchange, CBOE, and other options markets, analyzing over 8,000 stocks and up to 900,000 options contracts multiple times per second.  The Company also provides users with a fully interactive social media platform that is integrated into our dashboard, enabling users to exchange information and ideas quickly and efficiently through a common network.  The Company also recently introduced a live audio/video feature that allows members to broadcast on their own channels to share trade strategies and market insight within the NYSE MKT, LLC (formerlycommunity.  The platform was initially made available to subscribers in September 2016.  Subscriptions for the American Stock Exchange),use of the NASDAQ markets,platform are sold on monthly and/or annual subscription basis to individual consumers through the Hong Kong Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange.Company website at http://www.blackboxstocks.com.

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 the Company's ability to obtain sufficient financing or establish itself as a profitable business. At June 30, 2020, the Company had an accumulated deficit of $6,593,250 and for the six months ended June 30, 2020 and 2019 the Company incurred net income of $236,657 and a net loss of $648,282, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with respect to operations include the sustained and aggressive marketing of subscriptions for the Blackbox System both domestically and abroad and raising additional capital through sales of equity or debt securities as may be necessary to pursue its business plans and sustain operations until such time as the Company can achieve profitability. Management believes that aggressive marketing combined with additional financing as necessary will result in improved operations and cash flow. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

2. Summary of Significant Accounting Policies

The accompanying interim unaudited financial statements and footnotes of Blackboxstocks Inc. have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).GAAP. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature.nature unless otherwise indicated. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with GAAPthe rules and regulation of the SEC have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report. The accompanying unaudited financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results for any subsequent quarter or the entire year ending December 31, 2017.

Basisof Presentation - The accompanying2020. These financial statements were preparedshould be read in conformityconjunction with GAAP.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

2. Summary of Significant Accounting Policies (continued)Company’s audited financial statements filed in its Form 10-K for the year ended December 31, 2019.

Use of Estimates - Blackboxstocks’The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP.  Actual results could differ from those estimates.

Cash - Cash includes all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.

Recently Issued Accounting Pronouncements- During the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”).FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

In May 2014,February 2016, the FASB issued ASU No.2014-09,2016-02, Revenue from ContractsLeases. This is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It requires all leases that have a term in excess of 12 months be recognized on the balance sheet with Customers (Topic 606)the liability for lease payments and the corresponding right-of-use asset value based on the present value of future aggregate payments. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the term of the lease. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard provides a single set of guidelines for revenue recognition to be used across all industriesbecame effective beginning January 1, 2019 and requires additional disclosures. It is effective for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption, but not before December 15, 2016, and permits the use of either a retrospective or cumulative effect transition method. We are currently evaluating the potential impact of this standardwas adopted on our financial position and results of operations, as well as our selected transition method. Based on our preliminary assessment, we believestatements. The Company recorded the new standard will not have a material impact on our financial position and results of operations, as we do not expect to changeright-of-use asset for the manner or timing of recognizing revenue on a majority of our revenue transactions. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

Property and Equipment - Blackboxstocks is engagedlease in the developmentamount of its proprietary Blackbox System technology, an algorithm driven system, through a combination$160,073 and the related lease liability. The current liability for the lease is $43,927 and non-current of in house system analysts and outside firms. The Company’s Blackbox System software for use in China was in development and costs expensed until the software reached technological feasibility in April 2017 and capitalized until May 15, 2017 when the Blackbox System for use in China was marketable.

The Company’s property and equipment is being depreciated on the straight-line basis over an estimated useful life$45,647 as of three years.June 30, 2020.

Earnings or (Loss) (Loss) Per Share - Basic earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number of common stock shares outstanding for the period.  Diluted earnings per share reflects the potential dilution of securities by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period.  Therefore, because including shares issuable upon conversion of convertible securities and/or exercise of outstanding options and warrants would have an anti-dilutive effect on the loss per share, only the basic earnings (loss) per share is reported in the accompanying financial statements. At September 30, 2017 and 2016, the potential dilution would be 5,000,000 sharesstatements for period of common stock in the event the issued and outstanding shares of Series A Convertible Preferred Stock are converted.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

2. Summary of Significant Accounting Policies (continued)loss.

Revenue Recognition - The Company recognizes revenue Revenue is recognized from the sale of subscriptions for the use of the Blackbox System web application, when persuasive evidence of an arrangement exists, delivery and collectability is probable.on a monthly or annual basis. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The performance obligation by the Company is in exchange for the monthly subscription fee, the subscriber is allowed access to the Blackbox System on the website for the calendar month. The Company launched its Blackbox System web application and began generating subscription sales revenues during the quarter ended September 30, 2016.

In addition, the Company earns revenue from the licensing of its Blackbox System application for use in China, whereby Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a licensee is authorized to sell subscriptions for and sublicense the use of a version of the web application customized for analysis of data from certain Asian exchanges. A monthly licensing fee is charged to the licensee which began effective June 1, 2017.current liability.

Software DevelopmentMarketing Costs - Blackboxstocks is engaged inThe Company incurs significant marketing expenses related to the development and expansion of its proprietary Blackbox System technology, an algorithm driven system, through a combination of in house system analystssubscription base to potential users. During the six months ended June 30, 2020 and outside contractors. Under the guidelines of Accounting Standards Codification (“ASC”) Topic 985 the cost of the Company’s Blackbox System was expensed during development and the Blackbox System software for use in the US, reached technical feasibility in August 2016, became marketable and was made available to subscribers beginning September 1, 2016. The Blackbox System for use in China achieved technical feasibility during the quarter and became marketable and available to subscribers effective May 15, 2017. In continued accordance with ASC Topic 985 these costs were expensed until technical feasibility was achieved, costs incurred until May 15, 2017 were capitalized and subsequently amortized.

Prepaid Expenses - Prepaid expenses are current assets created when2019, the Company makes payments or incurs an obligation for expenses identified for a future period.  The Company has prepaidreported $231,076 and $138,750 for marketing and advertising services to be used over approximately the next twelve months and expensed a prorated amount during the quarter ended September 30, 2017. In addition, the Company entered into a consulting services agreement for investor relations advisory services for the period August 11, 2017 through February 10, 2018.costs, respectively.

3.   Stockholders’ EquityDeficit

The Company has authorized 10,000,000 shares of preferred stock at $0.001 par value, 5,000,000 of which are designated as “Series A Convertible Preferred Stock” at $0.001 par value and 100,000,000 authorized shares of common stock at $0.001 par value (“Common Stock”).

Shares of Series A Convertible Preferred Stock do not accumulate dividends, have no liquidation preferences and are convertible into shares of Common Stock on a one-for-one basis. Additionally, each share entitles the holder to 100 votes and, with respect to dividend and liquidation rights, the shares rankpari passu with the Company’s Common Stock. All shares are held by Gust C. Kepler, Director, CFO and President.

The Company announced and approved a reverse stock split effective July 15, 2019 at a ratio of 1 for 3, whereby every 3 shares of common stock issued and outstanding were automatically reclassified and combined into one share of common stock (“Reverse Stock Split”). The Reverse Stock Split has been reflected retroactively in these financial statements for all periods presented.

On December 1, 2015, the Company entered into an Exchange Agreement with Tiger Trade and its Stockholders (Note 1). Under the terms and conditions of the Exchange Agreement, the Company offered and sold Seventeen Million Nine Hundred Thousand (17,900,000) newly issued shares of Company Common Stock and Five Million (5,000,000) newly issued shares of Company Series A Convertible Preferred Stock in consideration for all the issued and outstanding shares of Tiger Trade capital stock. The effect of the issuance was that Tiger Trade stockholders acquired approximately 85.91% of the issued and outstanding shares of Company Common Stock and 100% of the issued and outstanding shares of Company Series A Convertible Preferred Stock. Tiger Trade became a wholly owned subsidiary of the Company as a result of the Exchange Agreement transaction.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

3.   Stockholders’ Equity (continued)

Tiger Trade was subsequently merged with and into the Company on February 9, 2016, at which time all of the outstanding shares of capital stock of Tiger Trade outstanding immediately before the effective date were canceled, retired and ceased to exist.

On February 10, 2016, the Company entered into a Stock Cancellation Agreement with Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, pursuant to which Mr. Kepler cancelled and forfeited 835,010 shares of the Company’s Common Stock.

During the year ended December 31, 2016,January 28, 2020 the Company issued a total of 3,310,00050,000 shares of Common Stockits common stock at a cash pricevalue of $0.50 per share for$2.00 to a total of $1,655,000. However,third party in conjunction with the Company subsequently honored a request by one investor to rescind the purchase of 200,000 of such shares of Common Stockfinancing arrangement on October 28, 2016.January 27, 2020.

4. Stock Options and Warrants

Costs attributable to the issuance of stock options and share purchase warrants are measured at fair value at the date of issuance and offset with a corresponding increase in ‘Additional Paid in Capital’ at the time of issuance. The fair value cost is computed utilizing the Black-Scholes model and assuming volatility based on U.S. Treasury yield rates for a similar period. The cost of these warrants was not recognized in the financial statements because they were granted in connection with raising capital for the Company.

When the options or warrants are exercised, the receipt of consideration is an increase in stockholders’ equity. There

Concurrently with certain securities purchase agreements entered into , warrants to purchase the Company’s Common Stock were issued to the subscribers. Each warrant is exercisable for a period of five years from the date of the securities purchase agreement at an exercise price of $1.95 per share. The fair value cost at the date of issuance of the warrants was no stock option or warrant activity during$560,935. In conjunction with the nine months ended Septemberissuance of convertible notes payable as described in Note 8, warrants exercisable for a five year period were issued at an exercise price of $0.01 per share. As of June 30, 2017 and 2016 and as of November 14, 2017, no options or2020, there are 199,680 warrants were outstanding.

5.  Related Party Transactions

DuringAs of January 1, 2020 the nine months ended September 30, 2017,Company was owed $9,823 from Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company was advanced $95,705 by the Company and he repaid $70,000. On September 28, 2017, the Company entered into a Stock Repurchase and Cancellation Agreement (Note 3) with Mr. Gust Kepler, pursuant to which the Company repurchased 110,000 shares of Common Stock in exchange for cancellation and forgiveness of debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $55,000. On September 28, 2017, the Company also agreed to cancel and forgive debt obligations owed by Mr. Kepler to the Company for advances in the aggregate amount of $12,500 in exchange for Mr. Kepler’s transfer of 25,000 shares of Common Stock for the benefit of the Company under the terms of a Services Agreement between the Company and PCG Advisory Group dated August 11, 2017. The remaining advance of $895 is unsecured and bears no interest.

Company. During the six months ended June 30, 20172020 Mr. Kepler repaid $5,000 and 2016,agreed to offset $4,823 of the advances as partial settlement of the note payable to him (Note 7).

During the year ended December 31, 2019 the Company (andadvanced $1,500 to its predecessor, Tiger Trade) engagedVP/Director of Operations and the services of Karma Black Box LLC (“Karma”), which became a Company stockholder as a result of the Exchange Agreement (Note 1balance remains outstanding, is unsecured and 3), for application development services of the Company’s Blackbox System technology. During the nine months ended September 30, 2017 and 2016, Karma was paid $85,500 and $10,500 for services, respectively.

Blackboxstocks Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2017 and 2016

5.  Related Party Transactions (continued)bears no interest.

G2 International, Inc. (“G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. In 2016 G2/IPA refunded $117,800As of prepayments for marketing services leavingboth June 30, 2020 and 2019 the Company has a prepaid balance of $36,700 for public relations and marketing services with G2/IPA. These funds are reserved in anticipation of a future campaign to move the Company’s stock to listing on a national exchange.

6. Notes Payable

On March 13, 2020 a third party advanced $35,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $291.67, through August 31, 2020. The related note discount of $12,500 is being amortized over the term of the agreement for a total of $7,968 in interest expense as of SeptemberJune 30, 2017. At September2020.

On January 27, 2020 a third party advanced $207,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $1,035, through November 3, 2020. The related note discount of $57,000 is being amortized over the term of the agreement for a total of $31,420 in interest expense as of June 30, 2017 and 2016, there were no accounts payable owed2020. A portion of the proceeds of this financing settled the balance of approximately $39,000 of previous funding from the third party with an original due date of May 28, 2020.

In October 2019 third parties advanced $80,000 to G2.the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $761 through May 2020. Approximately $39,000 of this funding was settled with proceeds of the January 27, 2020 financing described in the preceding paragraph. The related note discount of $31,600 has been fully amortized over the term of the agreements in interest expenses as of June 30, 2020.

On August 9, 2017, we entered into8, 2018 a Licensethird party advanced $200,000 to the Company in exchange for a secured promissory note, bearing interest at the rate of 12% per annum with a maturity date of November 20, 2018. The note is secured by a Security Agreement (the “BBTR License”) with EIGH8T TECHNOLOGIES INC. (also known as Black Box Tradersproviding for a continuing lien and referred to herein as “BBTR”), a British Virgin Island registered company, forfirst priority security interest in the development, customization and license to use and sublicense a versionassets of the Blackbox System (knownCompany and by a personal Guaranty Agreement with Gust Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. On December 6, 2018, Mr. Kepler made a payment on the note in the amount of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. The principal balance of $100,000 remains outstanding and is in default as of June 30, 2020.

7. Notes Payable, Related Party

On November 9, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the “BBTR System”) with dataCompany advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on January 28, 2019. The note remains unpaid as of June 30, 2020 and is in default; however, no demand for repayment has been made by the holder. Accrued interest due on the note is $23,960 as of June 30, 2020.

On December 6, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $108,000 to the Company for payment to a third party note holder (Note 6) in exchange for an unsecured promissory note. During the six months ended June 30, 2020 the Company repaid $78,246 in principal and Mr. Kepler agreed to offset previous cash advances of $4,823 to him as additional repayment of the note, reducing the balance due as of June 30, 2020 to $24,931.

8. Convertible Notes Payable

On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value up to $550,000, which included an original issue discount of 10% on the investment amount of up to $500,000. The note specifies that the note holder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matured 180 days from the HKEX, SSEeffective date. The note provides for a redemption premium of 115% if retired after the 91^st day. The noteholder paid the first consideration of $350,000 and SZSE. Stephen Chiang,no further consideration was remitted within the allowed thirty days. As the note was not retired on or before the maturity date, the noteholder was entitled to convert a portion or all the outstanding principal into shares of the Company’s common stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95 per share or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the noteholder’s election to convert. As of June 30, 2020 the note is in default and the Company recorded a redemption fee of $57,750. The note included a conversion feature recorded at inception of $207,308 and the conversion into the Company’s common stock resulted in the recognition of a derivative liability in the amount of $365,445 as of June 30, 2020.

On July 17, 2019, the Company issued an individual citizen8% Fixed Convertible Promissory Note payable to a third party for a total face value of Singapore who holds 3,000,000$165,000, which included an original issue discount of Company10% on the investment amount of $150,000. The note specifies that the noteholder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective date. The note provides for a redemption premium of 115% if retired after the 91^st day. Until maturity, the note holder may convert all or a portion of the outstanding principal into shares of Common Stock (approximately 13% of the issued andCompany at a fixed conversion price equal to $1.95 per share. If the note is not retired on or before the maturity date, the noteholder was entitled to convert a portion or all the outstanding Common Stock), is a principal of BBTR. Under the termsprinciple into shares of the BBTR LicenseCompany’s common stock at a variable conversion price which equals the lower of the fixed conversion price or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the noteholder’s election to convert. The note included a conversion feature recorded at inception of $135,000. This note is currently in default and the Company has received $400,000recognized a derivative liability in the amount of licensing revenue$156,620 as of SeptemberJune 30, 2017.2020.

6. CommitmentsOn March 23, 2020 third parties advanced $75,000 and Contingencies$25,000 to the Company in exchange for Convertible Promissory Notes, bearing interest at 52% per annum to be paid monthly in arrears beginning April 30, 2020, secured by the Company’s assets, with rights to convert into the Company’s common stock at $0.60, and maturing on March 25, 2021. On June 23, 2020 the Company amended the notes changing the provision for conversion into the Company’s common stock from $0.60 to $1.95. Additional consideration for the amended and restated notes included the issuance of warrants for the purchase of up to 115,385 shares of common stock at a price of $0.01 to be exercised at any time until the maturity date of the notes. In the event the notes are not converted prior to the maturity date, the Company has the right to repurchase one warrant share for each $0.8666 of unconverted principal. The Company recognized a derivative liability in the amount of $45,756 as of June 30, 2020.

9. Derivative Liabilities

During the year ended December 31, 2019, notes payable aggregating $550,000 were issued as convertible debt or became convertible and qualified as a derivative liability under FASB ASC 820. As of June 30, 2020 the aggregate fair value of the outstanding derivative liability using the Black-Scholes option pricing model used the following key assumptions:

Additional notes payable in the principal amount of $100,000 were issued as convertible debt and qualified as derivative liabilities. As of June 30, 2020 the aggregate fair value of the outstanding derivative liability for these notes using the Black-Scholes option pricing model used the following key assumptions:

The Company entered into a sublease agreement with G2 effective July 1, 2015 subjectdetermines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the termsuse of observable inputs and conditionsminimize the use of the office lease between G2 and Teachers Insurance and Annuity Associationunobservable inputs when measuring fair value. The following three levels of America for approximately 1,502 square feet of office space at 5430 LBJ Freeway, Dallas, Texas. The sublease agreement expires March 31, 2020. During the nine months ended September 30, 2017 and 2016 we incurred $35,072 and $33,742, respectively, in office rental expense.inputs may be used to measure fair value:

On August 11, 2017,Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company entered into a six month consulting Services Agreement with PCG Advisory Group, providinghas the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for capitalsimilar assets and liabilities in active markets, advisory and investor relations consulting services in exchange for cash payments totaling $32,000inputs such as interest rates and stock compensation for a totalyield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

The following table presents the Company’s liabilities that were measured and recognized at fair value as of 75,000 common shares, restricted under Rule 144 to be issued during the six months of the agreement. On September 28, 2017, the Company also agreed to cancelJune 30, 2020:

10. Commitments and forgive debt obligations owed by Gust C. Kepler to the Company for advances in the aggregate amount of $12,500 in exchange for Mr. Kepler’s transfer of 25,000 shares of Common Stock for the benefit of the Company under the terms of the Services Agreement.Contingencies

The Company is not currently a defendant in any material litigation or any threatened litigation that could have a material effect on the Company’s financial statements.

11. Subsequent Events

On July 10, 2020, the Company entered into a Forbearance and Note Settlement Agreement (“Agreement”) with third parties holding 8% Fixed Convertible Promissory Notes payable, agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreement stipulates the Company will remit payment of all accrued interest and principal outstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full. As additional consideration for the Agreement, the Holders will be issued warrants to purchase up to 360,000 shares of the Company’s common stock at a price of $1.00 per share, beginning January 10, 2021 and expiring on July 10, 2025.  The fair value cost at the date of issuance of the warrants was $795,911.

On July 6, 2020 the holders of warrants issued on June 23, 2020 as additional consideration for amended and restated notes exercised their warrants for the purchase of 115,385 shares of common stock at a price of $0.01.

On July 6, 2020 the Company sold 25,641 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares of Common Stock at an exercise price of $1.95 per share, to a third party, for aggregate consideration of $49,995.  The fair value cost at the date of issuance of the warrant was $26,935.

On July 30, 2020 the Company sold 25,641 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares of Common Stock at an exercise price of $1.95 per share, to a third party, for aggregate consideration of $49,995.  The fair value cost at the date of issuance of the warrant was $26,935.