GTCH GBT Technologies Inc (PK)

 

United States

 

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)
☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2019
☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commissions file number: 000-54530

 

GBT TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

GOPHER PROTOCOL INC.

(Former name of registrant as specified in its charter)

 

Nevada		27-0603137
State or other jurisdiction of		I.R.S. Employer Identification Number
incorporation or organization

 

2500 Broadway, Suite F-125, Santa Monica, CA 90404

(Address of principal executive offices)

 

Issuer’s telephone number:          424-238-4589 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer  ☐

 

Non-accelerated filer  ☐      (Do not check if a smaller reporting company)  Smaller reporting company  ☒     Emerging growth company   ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Exchange Act). Yes ☐ No ☒ 

 

Securities registered pursuant to Section 12(b) of the Act: Not applicable.

 

Title of each class	Trading Symbol	Name of each exchange on which registered
Not applicable.

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 

 

Common Stock, $0.00001 par value	14,455,569  Common Shares
(Class)	(Outstanding at November 14, 2019)

 

 

GBT TECHNOLOGIES INC.

 

TABLE OF CONTENTS

 

 

PART I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018 (audited)		3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)		4
	Condensed Consolidated Statements of Stockholder’s Equity (Deficit) for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		36
Item 4.	Controls and Procedures		36
PART II.	Other Information		37
Signatures			50

 

 

 

 

 

Item 1: Condensed consolidated financial statements

 

GBT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS		September 30				December 31,
		2019				2018
			(unaudited)
Current Assets:
Cash		$	189,907			$	1,863,510
Accounts receivable			—				40,466
Prepaid expenses and other current assets			281,250				27,602
Marketable equity security			1,050,000				4,200,000
Assets of discontinued operations			—				4,223,011
Total current assets			1,521,157				10,354,589
Property and equipment, net			136,881				191,094
Convertible note receivable			4,000,000
Marketable equity security			—				14,000,000
Equity investment			32,283,568				—
Total assets		$	37,941,606			$	24,545,683
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses (including related parties of $711,042 and $312,052)		$	2,704,969			$	1,431,425
Unearned revenue			252,309				257,848
Due to Guardian LLC (related party)			—				702,483
Convertible notes payable, net of discount of $0 and $3,233,124			5,410,000				198,076
Note payable, net of discount of $123,287 and $744			5,330,530				2,699,256
Derivative liability			20,905,848				3,833,506
Liabilities of discontinued operations			—				906,700
Total current liabilities			34,603,656				10,029,294
Convertible notes payable			11,000,000				—
Total liabilities			45,603,656				10,029,294
Contingencies			—				—
Stockholders' Equity (Deficit):
Series B Preferred stock, $0.00001 par value; 20,000,000 shares authorized;
45,000 and 45,000 shares issued and outstanding at September 30, 2019 and December 31, 2018			—				—
Series C Preferred stock, $0.00001 par value; 10,000 shares authorized;
700 and 700 shares issued and outstanding at September 30, 2019 and December 31, 2018			—				—
Series D Preferred stock, $0.00001 par value; 100,000 shares authorized;
0 and 0 shares issued and outstanding at September 30, 2019 and December 31, 2018			—				—
Series G Preferred stock, $0.00001 par value; 2,000,000 shares authorized;
0 and 0 shares issued and outstanding at September 30, 2019 and December 31, 2018			—				—
Series H Preferred stock, $0.00001 par value ($500.00 stated value); 40,000 shares authorized;
20,000 shares issued and outstanding at September 30, 2019			—				—
Common stock, $0.00001 par value; 100,000,000,000 shares authorized;
1,970,137 and 1,822,243 shares issued and outstanding at September 30, 2019 and December 31, 2018			4,164				3,822
Treasury stock, at cost; 1,040 shares at September 30, 2019 and December 31, 2018			(643,059	)			(643,059	)
Stock loan receivable			(7,610,147	)			—
Additional paid in capital			225,892,607				81,306,958
Accumulated deficit			(225,305,615	)			(66,151,332	)
Total stockholders' equity (deficit)			(7,662,050	)			14,516,389
Total liabilities and stockholders' equity (deficit)		$	37,941,606			$	24,545,683

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

 

3

 

 

GBT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Sales:
Sales		$	4,422,800			$	3,727,041			$	14,180,761			$	8,935,506
Related party sales			45,000				90,000				135,000				135,000
Total sales			4,467,800				3,817,041				14,315,761				9,070,506
Cost of goods sold			4,220,843				3,291,800				13,569,709				8,136,517
Gross profit			246,957				525,241				746,052				933,989
Operating expenses:
General and administrative expenses			122,615,570				3,099,671				127,373,766				13,278,674
Marketing expenses			82,770				106,305				800,594				376,806
Acquisition costs			—				—				150,000				10,966,791
Buyout of joint venture agreement (related party)			—				11,750,000								11,750,000
Impairment of assets			—				7,132,286								7,132,286
Total operating expenses			122,698,340				22,088,262				128,324,360				43,504,557
Loss from operations			(122,451,383	)			(21,563,021	)			(127,578,308	)			(42,570,568	)
Other income (expense):
Amortization of debt discount			(4,165,716	)			(379,679	)			(6,745,837	)			(849,802	)
Change in fair value of derivative liability			88,275,752				(2,440,383	)			(13,614,981	)			(2,458,506	)
Interest expense and financing costs			(490,265	)			(160,726	)			(6,414,500	)			(289,737	)
Unrealized loss on marketable equity security			(792,405	)			—				(6,475,317	)			—
Realized gain (loss) on disposal of marketable equity security			(3,673,595	)			—				(90,683	)			—
Equity income (loss) in investment			620,127				(173,648	)			583,568				(173,648	)
Interest income			93,750				—				281,250				—
Total other income (expense)			79,867,648				(3,154,436	)			(32,476,500	)			(3,771,693	)
Loss before income taxes			(42,583,735	)			(24,717,457	)			(160,054,808	)			(46,342,261	)
Income tax expense			—				—				—				—
Loss from continuing operations			(42,583,735	)			(24,717,457	)			(160,054,808	)			(46,342,261	)
Discontinued operations:
Loss from operations of discontinued operations			(201,116	)			(122,283	)			(481,278	)			(100,206	)
Gain on disposition of discontinued operations			1,381,803				—				1,381,803				—
			1,180,687				(122,283	)			900,525				(100,206	)
Net loss		$	(41,403,048	)		$	(24,839,740	)		$	(159,154,283	)		$	(46,442,467	)
Weighted average common shares outstanding:
Basic and diluted			2,126,620				1,363,479				2,093,473				1,185,878
Net loss per share (basic and diluted):
Continuing operations		$	(20.02	)		$	(18.13	)		$	(76.45	)		$	(39.08	)
Discontinued operations			0.56				(0.09	)			0.43				(0.08	)
		$	(19.47	)		$	(18.22	)		$	(76.02	)		$	(39.16	)

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

GBT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

 

		Series B Convertible Preferred Stock								Series C Convertible Preferred Stock								Series D Convertible Preferred Stock								Series G Convertible Preferred Stock								Series H Convertible Preferred Stock								Common Stock								Treasury Stock								Loan				Additional Paid-in				Accumulated				Equity/
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Receivable				Capital				Deficit				(Deficit)
Balance, December 31, 2018			45,000			$	—				700			$	—				—				—				—			$	—				—			$	—				1,822,243			$	3,822			$	1,040			$	(643,059	)		$	—			$	81,306,958			$	(66,151,332	)		$	14,516,389
Common stock issued for services			—				—				—				—				—				—				—				—				—				—				3,000				3				—				—				—				134,697								134,700
Common stock issued for conversion of convertible debt and accrued interest			—				—				—				—				—				—				—				—				—				—				51,586				52				—				—				—				982,202				—				982,254
Common stock issued for stock loan			—				—				—				—				—				—				—				—				—				—				200,267				200				—				—				(7,610,147	)			7,609,947				—				—
Stock options issued for services			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				694,816				—				694,816
Fair value of beneficial conversion feature of converted/debt repaid			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				2,018,302				—				2,018,302
Relative fair value of warrants issued with convertible debt			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				1,634,760				—				1,634,760
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(8,105,860	)			(8,105,860	)
Balance, March 31, 2019			45,000				—				700				—				—				—				—				—				—				—				2,077,096				4,077				1,040				(643,059	)			(7,610,147	)			94,381,682				(74,257,192	)			11,875,361
Common stock issued for services			—				—				—				—				—				—				—				—				—				—				6,500				7				—				—				—				101,193								101,200
Common stock issued for penalty			—				—				—				—				—				—				—				—				—				—				59,820				59				—				—				—				975,006								975,065
Common stock issued for conversion of convertible debt and accrued interest			—				—				—				—				—				—				—				—				—				—				23,176				23				—				—				—				437,857				—				437,880
Series H preferred stock issued for acquisition			—				—				—				—				—				—				—				—				20,000				—				—				—				—				—				—				10,000,000				—				10,000,000
Stock options issued for services			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				71,988				—				71,988
Fair value of beneficial conversion feature of converted/debt repaid			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				246,276				—				246,276
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(109,645,375	)			(109,645,375	)
Balance, June 30, 2019			45,000				—				700				—				—				—				—				—				20,000				—				2,166,592				4,166				1,040				(643,059	)			(7,610,147	)			106,214,002				(183,902,567	)			(85,937,605	)
Rounding of shares due to stock split			—				—				—				—				—				—				—				—				—				—				3,545				—				—				—				—				—								—
Cancellation of shares for exchange of Mobiquity shares			—				—				—				—				—				—				—				—				—				—				(200,000	)			(2	)			—				—				—				(797,998	)							(798,000	)
Fair value of warrants issued			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				120,476,603				—				120,476,603
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(41,403,048	)			(41,403,048	)
Balance, September 30, 2019			45,000			$	—				700			$	—				—			$	—				—			$	—				20,000			$	—				1,970,137			$	4,164			$	1,040			$	(643,059	)		$	(7,610,147	)		$	225,892,607			$	(225,305,615	)		$	(7,662,050	)
Balance, December 31, 2017			45,000			$	—				700			$	—				66,000			$	1				2,000,000			$	20				—			$	—				582,154			$	2,582			$	1,040			$	(643,059	)		$	—			$	19,243,959			$	(14,381,662	)		$	4,221,841
Conversion of Series D to common stock			—				—				—				—				(66,000	)			(1	)			—				—				—				—				660,000				660				—				—				—				(659	)			—				—
Common stock issued for services			—				—				—				—				—				—				—				—				—				—				7,500				7				—				—				—				1,133,718								1,133,725
Common stock issued for acquisition			—				—				—				—				—				—				—				—				—				—				5,000				5				—				—				—				1,009,995				—				1,010,000
Common stock issued for acquisition services			—				—				—				—				—				—				—				—				—				—				40,000				40				—				—				—				6,609,960				—				6,610,000
Common stock issued for cash			—				—				—				—				—				—				—				—				—				—				6,667				7				—				—				—				499,993				—				500,000
Warrants issued for acquisition			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				992,958				—				992,958
Warrants issued for services			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				1,985,915				—				1,985,915
Warrants issued for acqusition services			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				2,978,873				—				2,978,873
Fair value of beneficial conversion feature of debt repaid			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				113,287				—				113,287
Relative fair value of warrants issued with convertible debt			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				393,407				—				393,407
Fair value of beneficial conversion feature associated with convertible debt			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				356,593				—				356,593
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(14,108,022	)			(14,108,022	)
Balance, March 31, 2018			45,000				—				700				—				—				—				2,000,000				20				—				—				1,301,321				3,301				1,040				(643,059	)		$	—				35,317,999				(28,489,684	)			6,188,577
Common stock issued for services			—				—				—				—				—				—				—				—				—				—				9,000				9				—				—				—				2,613,991								2,614,000
Common stock issued for acquisition			—				—				—				—				—				—				—				—				—				—				2,500				2				—				—				—				694,998				—				695,000
Common stock issued for acquisition services			—				—				—				—				—				—				—				—				—				—				2,500				3				—				—				—				694,997				—				695,000
Common stock issued for cash			—				—				—				—				—				—				—				—				—				—				6,060				6				—				—				—				999,994				—				1,000,000
Warrants issued for acquisition			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				682,919				—				682,919
Warrants issued for services			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				1,922,962				—				1,922,962
Warrants issued for acqusition services			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				682,918				—				682,918
Relative fair value of warrants issued with convertible debt			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				548,222				—				548,222
Fair value of beneficial conversion feature associated with convertible debt			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				201,778				—				201,778
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(7,494,705	)			(7,494,705	)
Balance, June 30, 2018			45,000				—				700				—				—				—				2,000,000				20				—				—				1,321,381				3,321				1,040				(643,059	)			—				44,360,778				(35,984,389	)			7,736,671
Common stock issued for services			—				—				—				—				—				—				—				—				—				—				14,000				14				—				—				—				1,778,486								1,778,500
Common stock issued for equity interest in Mobiquity Technologies, Inc.			—				—				—				—				—				—				—				—				—				—				100,000				100				—				—				—				9,979,900				—				9,980,000
Common stock issued to Guardian LLC for termination of agreement			—				—				—				—				—				—				—				—				—				—				125,000				125				—				—				—				11,749,875				—				11,750,000
Conversion of Series G to common stock			—				—				—				—				—				—				(2,000,000	)			(20	)			—				—				20,000				20				—				—				—				—				—				—
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(24,839,740	)			(24,839,740	)
Balance, September 30, 2018			45,000			$	—				700			$	—				—			$	—				—			$	—				—			$	—				1,580,381			$	3,580			$	1,040			$	(643,059	)		$	—			$	67,869,039			$	(60,824,129	)		$	6,405,431

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

GBT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		Nine Months Ended September 30,
		2019				2018
Cash Flows From Operating Activities:
Net loss		$	(159,154,283	)		$	(46,442,467	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation of property and equipment			83,750				79,814
Amortization of intangible assets			358,266				1,029,526
Amortization of debt discount			6,745,837				849,802
Change in fair value of derivative liability			13,614,981				2,458,506
Financing cost			4,356,699				134,669
Shares issued for services			235,900				12,831,225
Shares issued for buyout of joint venture agreement			—				11,750,000
Shares issued for penalty			975,065				—
Warrants issued for services			766,804				7,570,668
Fair value of warrants issued in accordance with anit-dilution			120,476,603
Impairment of assets			—				7,132,286
Unrealized loss on market equity security			6,475,317				—
Realized loss on disposal of market equity security			90,683				—
Equity (income) loss in investment			(583,568	)			173,648
Gain on disposition of discontinued operations			(1,381,803	)			—
Convertible note issued for services			1,000,000				—
Changes in operating assets and liabilities:
Accounts receivable			(526,961	)			(814,297	)
Inventory			—				(25,226	)
Prepaid expenses			(265,250	)			(49,000	)
Accounts payable and accrued expenses			1,460,086				830,045
Unearned revenue			(5,539	)			261,726
Due to Guardian, LLC			(702,483	)			(612,932	)
Net cash used in operating activities			(5,979,896	)			(2,842,007	)
Cash Flows From Investing Activities:
Purchase of property and equipment			(13,321	)			(33,208	)
Cash paid for acquisitions			—				(200,000	)
Cash paid for investment in Spare			—				(265,000	)
Cash paid for investment			(1,200,000	)			—
Cash of discontinued operations			(270,947	)			—
Cash from the sale of marketable equity security			336,000				—
Other			—				1,979
Net cash used in investing activities			(1,148,268	)			(496,229	)
Cash Flows From Financing Activities:
Issuance of convertible notes			3,000,000				1,703,000
Issuance of note payable			2,553,817				—
Repayment of convertible notes			—				(80,000	)
Payment on note payable			(99,256	)			(567,381	)
Issuance of common stock			—				1,500,000
Net cash provided by financing activities			5,454,561				2,555,619
Net decrease in cash			(1,673,603	)			(782,617	)
Cash, beginning of period			1,863,510				1,305,062
Cash, end of period		$	189,907			$	522,445
Cash paid for:
Interest		$	744			$	36,695
Income taxes		$	—			$	—
Supplemental non-cash investing and financing activities
Debt discount		$	3,636,000			$	1,743,600
Transfer of derivative liability to equity		$	2,264,578			$	113,287
Shares issued for equity interest in Mobiquity Technologies, Inc.		$	—			$	9,980,000

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

 

6

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

GBT Technologies Inc. (formerly Gopher Protocol Inc.) (the “Company”, “GBT”, “GTCH”) was incorporated on July 22, 2009 under the laws of the State of Nevada. The Company is creating and patenting innovative mobile microchip (ICs) and software technologies based on the GopherInsight™ technology platform. Effective August 5, 2019, the Company changed its name from Gopher Protocol Inc. to GBT Technologies Inc. The Company also offers prepaid cellular phone minutes for both domestic and international carriers. In addition, the Company offers cellular activation (activating SIM cards with wireless carriers) to create additional users (consumers) on those networks and provides check processing, verification and recovery solutions for small to medium sized businesses. The Company derived revenues from (i) the provision of IT services; (ii) from the operations of the assets that include the sale of phones, phone card products, prepaid cellular phone minutes and cellular activation and (iii) from the licensing of its technology.

 

The unaudited condensed consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to such rules and regulations. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the results expected for the year ending December 31, 2019.

 

Basis of Presentation

 

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Stock Split

 

On August 5, 2019, the Company effectuated a 1 for 100 reverse stock split. The share and per share information has been retroactively restated to reflect this reverse stock split.

 

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include useful lives of property and equipment, valuation of beneficial conversion feature, debt discounts, valuation of derivatives, and the valuation allowance on deferred tax assets.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, UGopherServices Corp. and Gopher Protocol UK Limited (currently inactive); the Company’s 50% owned subsidiary, Gopher Protocol Costa Rica Sociedad De Responabilidad Limitada (currently inactive), Altcorp Trading LLC, a Costa Rica company. All significant intercompany transactions and balances have been eliminated.

 

7

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Cash Equivalents

 

For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly-liquid debt instruments with original maturities of three months or less.

 

Accounts Receivable

 

The Company grants credit to establishments (such as convenience stores) that sell the Company’s products under credit terms that it believes are customary in the industry and do not require collateral to support customer receivables. The accounts receivable balances are generally collected within 10 days of the product sale and the Company has minimal bad debts. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 7-30 days after the issuance of the invoice and typically would be considered past due when the term expires. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. The Company did not have an allowance for doubtful accounts at September 30, 2019 and December 31, 2018.

 

Property and Equipment

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

 

Furniture	7 years
Computers and equipment	3 years
POSA machines	3 years

 

Long-Lived Assets

 

The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at September 30, 2019 and December 31, 2018, the Company believes there was no impairment of its long-lived assets.

 

Marketable Equity Securities

 

The Company accounts for marketable equity securities in accordance with ASC Topic 321, Investments – equity securities. Marketable equity securities are reported at fair value based on quotations available on securities exchanges with any unrealized gain or loss being reported as a component of other income (expense) on the statement of operations. The portion of marketable equity security expected to be sold within twelve months of the balance sheet date is reported as a current asset.

 

Derivative Financial Instruments

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of September 30, 2019 and December 31, 2018, the Company’s only derivative financial instrument was an embedded conversion feature associated with convertible notes payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company’s stock price at the date of conversion.

 

8

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

 

FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

·

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

·

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

·

Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement.

 

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.

 

For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

 

The Company uses Level 2 inputs for its valuation methodology for derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

 

At September 30, 2019 and December 31, 2018, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:

 

		Fair Value				Fair Value Measurements at
		As of				September 30, 2019
Description		September 30, 2019				Using Fair Value Hierarchy
						Level 1				Level 2				Level 3
Marketable equity security - Surge Holdings, Inc.		$	1,050,000			$	—			$	1,050,000			$	—
Conversion feature on convertible notes		$	20,905,848			$	—			$	20,905,848			$	—

 

9

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

		Fair Value				Fair Value Measurements at
		As of				December 31, 2018
Description		December 31, 2018				Using Fair Value Hierarchy
						Level 1				Level 2				Level 3
Marketable equity security - Mobiquity Technologies, Inc.		$	18,200,000			$	—			$	18,200,000			$	—
Conversion feature on convertible notes		$	3,833,506			$	—			$	3,833,506			$	—

 

Treasury Stock

 

Treasury stock is recorded at cost. The re-issuance of treasury shares is accounted for on a first in, first-out basis and any difference between the cost of treasury shares and the re-issuance proceeds are charged or credited to additional paid-in capital.

 

Stock Loan Receivable

 

On January 8, 2019, the Company entered into a Stock Pledge Agreement with Latin American Exchange Latinex Casa de Cambio, S.A., a Costa Rica corporation (“Latinex”), to provide that Latinex may maintain its required regulatory capital as required by various regulators. The Company has pledged 200,267 restricted shares of its common stock valued at $7,610,147 (based on the closing price on the grant date) for a term of three years in consideration of an annual payment of $375,000 paid in quarterly installments of $93,750. In lieu of cash payment, Latinex may pay the Company in virtual currency of WISE Network S.A. valued at a 50% discount of its offering price of $10 per token. In the event that Latinex’s required capital has decreased below $5,000,000, Latinex is permitted to sell the pledged shares of common stock only in an amount to ensure that Latinex can satisfy the required capital levels. The Company must consent to such sale of the shares of common stock, which may not be unreasonably withheld. Upon expiration of the agreement, the remaining shares of common stock shall be returned to the Company free and clear of all liens. The Company has recorded the value of these shares of common stock as a stock loan receivable which is presented as a contra-equity account in the accompanying consolidated balance sheets.

 

Revenue Recognition

 

Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily from IT services, sale of phones, phone card products, prepaid cellular phone minutes and cellular activation, and the Company has no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.

 

Revenue from providing IT services, sale of phones, phone card products, prepaid cellular phone minutes and cellular activation services are recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:

 

·

executed contracts with the Company’s customers that it believes are legally enforceable;

·

identification of performance obligations in the respective contract;

·

determination of the transaction price for each performance obligation in the respective contract;

·

allocation the transaction price to each performance obligation; and

·

recognition of revenue only when the Company satisfies each performance obligation.

 

10

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

These five elements, as applied to each of the Company’s revenue category, is summarized below:

 

·

IT services - revenue is recorded on a monthly basis as services are provided;

·

Sale of phones, phone card products, prepaid cellular phone minutes and cellular activation – revenue is recognized at the time of sale to the customer; and

·

License fees and Royalties – revenue is recognized based on the terms of the agreement with its customer.

 

Cost of Goods Sold

 

Cost of goods sold represents the cost of the phone, phone card products and prepaid cellular phone minutes sold by the Company.

 

Unearned revenue

 

Unearned revenue represents the amount received for the purchase of products that have not seen shipped to the Company’s customers. In 2018, the Company ran pre-sales efforts for its pet tracker product and received prepayments for its product. As of September 30, 2019 and December 31, 2018, unearned revenue related to this pre-sales campaign was $52,309 and $57,848, respectively. In addition, during 2018, the Company received $200,000 in connection with an intellectual property license and royalty agreement.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Due to the net loss incurred potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. The following potentially-dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.

 

		September 30,				September 30,
		2019				2018
Series B preferred stock			30				30
Series C preferred stock			8				8
Series G preferred stock			—				20,000
Series H preferred stock			1,100,000				—
Warrants			25,774,167				419,167
Convertible notes			7,887,955				43,166
Total			34,762,160				482,371

 

11

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Management’s Evaluation of Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date of September 30, 2019, through the date which the consolidated financial statements are issued. Based upon the review, other than described in Note 14 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements as the Company did not have any leases covered by this new ASU.

 

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

Note 3 – Discontinued Operations

 

On September 30, 2019, the Company entered into an Asset Purchase Agreement with Surge Holdings, Inc., a Nevada corporation (“SURG”) pursuant to which the Company agreed to sell and assign to SURG all the assets and certain specified liabilities of its ECS Prepaid, Electronic Check Services and the Central State Legal Services businesses in consideration of $5,000,000 to be paid through the issuance of 3,333,333 shares of SURG’s common stock and a convertible promissory note in favor of the Company in the principal amount of $4,000,000. The 3,333,333 shares of SURG’s common stock have been pledged to a third party for providing working capital needs of the Company (See Note 14).

 

The ECS Prepaid, Electronic Check Services and the Central State Legal Services businesses have been presented as discontinued operations on the accompanying financial statements.

 

The operating results for ECS Prepaid, Electronic Check Services and the Central State Legal Services have been presented in the accompanying consolidated statement of operations for the three and nine months ended September 30, 2019 and 2018 as discontinued operations and are summarized below:

 

		Three Months Ended September 30,
		2019				2018
Revenue		$	7,924,152			$	11,719,155
Cost of revenue			7,774,888				11,400,450
Gross Profit			149,264				318,705
Operating expenses			350,380				440,988
Loss from operations			(201,116	)			(122,283	)
Other income (expenses)			—				—
		$	(201,116	)		$	(122,283	)

 

12

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

		Nine Months Ended September 30,
		2019				2018
Revenue			23,901,278			$	27,836,706
Cost of revenue			23,336,163				27,179,686
Gross Profit			565,115				657,020
Operating expenses			1,046,390				757,226
Loss from operations			(481,275	)			(100,206	)
Other income (expenses)			(3	)			—
Net loss			(481,278	)		$	(100,206	)

 

The assets and liabilities of the discontinued operations at September 30, 2019 and December 31, 2018 are summarized below:

 

		September 30,				December 31,
		2019				2018
Current assets		$	—			$	100,050
Property and equipment			—				47,344
Intangible assets			—				3,149,740
Goodwill			—				925,877
Total assets		$	—			$	4,223,011
Current liabilities		$	—			$	906,700
Total liabilities		$	—			$	906,700

 

As a result of this transaction, the Company recognized a gain on the disposition of discontinued operations of $1,381,803.

 

Note 4 - Property and Equipment, Net

 

Property and equipment consisted of the following as of September 30, 2019 and December 31, 2018:

 

		September 30,				December 31,
		2019				2018
Furniture		$	33,739			$	33,739
Computers and equipment			23,316				23,316
POSA machines			283,745				270,424
			340,800				327,479
Less accumulated depreciation			(203,919	)			(136,385	)
Property and equipment, net		$	136,881			$	191,094

 

Depreciation expense for the nine months ended September 30, 2019 and 2018 was $83,750 and $79,814 respectively.

 

13

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Note 5 – Investment in Mobiquity Technologies, Inc. and Surge Holdings, Inc.; Convertible Note Receivable

 

Mobiquity Technologies, Inc.

 

On September 4, 2018, the Company and Mobiquity Technologies, Inc., a New York corporation (“Mobiquity”) entered an agreement pursuant to which the parties exchanged equity interest in each of the companies. In accordance with the agreement, the Company received 1,000 shares of Mobiquity’s restricted Series AAAA Preferred Stock (the “Mobiquity Preferred Stock”) in consideration of Company’s concurrent sale and issuance to Mobiquity of 10,000,000 shares of Company’s common stock. The shares of Mobiquity Preferred Stock are convertible into an aggregate of up to 100,000,000 shares of Mobiquity common stock (the “Mobiquity Common Stock”) and 150,000,000 common stock purchase warrants (the “Mobiquity Warrants”). The Mobiquity Warrants shall have a term of 5 years from the date of grant and shall be exercisable at a price of $0.12 per share and the shares of Mobiquity Preferred Stock shall not be convertible into shares of Mobiquity Common Stock and the Mobiquity Warrants shall not be contemporaneously granted until after Mobiquity’s Board of Directors and stockholders shall have increased the authorized number of shares of Mobiquity’s common stock to a number sufficient to accommodate a reserve in the Company’s favor of 250,000,000 shares of Mobiquity’s common stock. The Mobiquity Preferred Stock shall have immediate voting rights equal to the number of shares of Mobiquity Common Stock into which they may be converted, not including the shares of Mobiquity’s common stock underlying the Mobiquity Warrants.

 

On November 19, 2018, the Company and Mobiquity entered into an Amendment and Exercise Letter waiving the requirement that Mobiquity’s Board of Directors and stockholders increase the authorized number of shares of Mobiquity’s common stock to a number sufficient to accommodate a reserve in the Company’s favor of 250,000,000 shares of Mobiquity’s common stock prior to the conversion of the Mobiquity Preferred Stock or exercise of the Mobiquity Warrants. In addition, the Company converted 200 shares of Mobiquity Preferred Stock resulting in the issuance to the Company by Mobiquity of 20,000,000 shares of Mobiquity Common Stock and 30,000,000 Mobiquity Warrants. The Company exercised the 30,000,000 Mobiquity Warrants at an exercise price of $0.12 per share of common stock, payable through of the issuance to Mobiquity of 10,000,000 shares of common stock of the Company.

 

In addition, the Company issued 20,000 shares of common stock to Glen Eagles Acquisition LP (“GEAL”) in consideration of its consulting services associated with the negotiation of the number of shares of common stock to be delivered to Mobiquity upon exercise of the Mobiquity Warrants.

 

As a result of the transaction on September 4, 2018, the Company had an approximate 21% interest in Mobiquity and began to account for its investment in Mobiquity using the equity method of accounting. During the fourth quarter of 2018, Mobiquity issued additional shares of common stock resulting in the Company’s ownership in Mobiquity dropping to approximately 18% at December 31, 2018. The Company determined that during the fourth quarter of 2018 that it did not exercise significant influence over Mobiquity due to its decreased ownership percentage and the Company’s intent to begin selling shares of Mobiquity common stock that will further decrease its ownership percentage. As a result, during the fourth quarter of 2018 the Company began accounting for its investment in Mobiquity as a marketable equity security.

 

On May 10, 2019, the Company entered into a Membership Interest Purchase Agreement with GEAL pursuant to which the Company acquired 49% of the membership interest in Advangelists, LLC (the “AVNG Interest”) in consideration of the assumption of a Promissory Note payable by GEAL to the former owners of the AVGN Interest with an outstanding balance of $7,475,000 (the “AVNG Note”) and cancellation of an outstanding Promissory Note payable by GEAL to the Company in the amount of $1,200,000 originally issued on March 1, 2019. Concurrently, the Company entered into a Membership Interest Purchase Agreement with Mobiquity pursuant to which the Company sold the AVNG Interest to Mobiquity in consideration of Mobiquity assuming the AVNG Note and Mobiquity amending the terms of the Remaining Mobiquity Warrant providing for cashless exercise.

 

The Company paid 60,000,000 of its Mobiquity shares as partial consideration for the purchase of GBT Technologies, S. A. (see Note 6).

 

On August 6, 2019, Mobiquity delivered a counter signed letter agreement dated August 2, 2019 pursuant to which the Company exchanged 120,000,000 Mobiquity Warrants into 20,000,000 shares of Mobiquity common stock, which resulted in the Company holding 60,000,000 shares of Mobiquity common stock.

 

14

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

On September 10, 2019, the Company entered into (i) a Stock Purchase Agreement with Mobiquity pursuant to which the Company agreed to return 15,000,000 shares of Mobiquity common stock to Mobiquity in exchange for 110,000 shares of common stock of the Company, (ii) a Stock Purchase Agreement with Marital Trust GST Subject U/W/O Leopold Salkind (“Salkind Trust”) pursuant to which the Company agreed to sell 7,000,000 shares of Mobiquity common stock to Salkind Trust in consideration of $67,200, (iii) Stock Purchase Agreement with Dr. Gene Salkind (“Salkind”) pursuant to which the Company agreed to sell 28,000,000 shares of Mobiquity common stock to Salkind in consideration of $268,000 and (iv) a Stock Purchase Agreement with Deepanker Katyal (“Katyal”) pursuant to which the Company agreed to sell 10,000,000 shares of Mobiquity common stock to Katyal in consideration of 90,000 shares of common stock of the Company. The closing of the agreements occurred on September 13, 2019. As a result of these transactions, the Company realized a loss on the sale of Mobiquity common stock of $3,673,595. At September 30, 2019, the Company owned no shares of Mobiquity common stock.

 

Surge Holdings, Inc.

 

On September 30, 2019, the Company entered into an Asset Purchase Agreement with Surge Holdings, Inc., a Nevada corporation (“SURG”) pursuant to which the Company agreed to sell and assign to SURG, all the assets and certain specified liabilities, of its ECS Prepaid, Electronic Check Services and the Central State Legal Services businesses in consideration of $5,000,000 to be paid through the issuance of 3,333,333 shares of SURG’s common stock (See Note 14 for pledge to third party) and a convertible promissory note in favor of the Company in the principal amount of $4,000,000 (the “SURG “Note”), convertible into SURG’s shares of common stock following the six-month anniversary of the issuance date. The conversion price of the SURG Note is the volume weighted-average price of SURG’s common stock over the 20 trading days prior to the conversion; provided, however, the conversion price shall never be lower than $0.10 or higher than $0.70. The Company has agreed to restrict its ability to convert the SURG Note and receive shares of common stock such that the number of shares of common stock held by it in the aggregate and its affiliates after such conversion does not exceed 4.99% of the then issued and outstanding shares of common stock. The SURG Note is payable by SURG to the Company on the 18-month anniversary of the issuance date and does not bear interest.

 

Note 6 – Equity Investment in GBT Technologies, S.A.

 

On June 17, 2019, the Company, Altcorp Trading LLC, a Costa Rica company and a wholly-owned subsidiary of the Company (“Altcorp”), GBT Technologies, S.A., a Costa Rica company (“GBT-CR”) and Pablo Gonzalez, a shareholder’s representative of GBT-CR (“Gonzalez”), entered into and closed an Exchange Agreement (the “GBT Exchange Agreement”) pursuant to which the parties exchanged certain securities. In accordance with the Exchange Agreement, Altcorp acquired 625,000 shares of GBT-CR representing 25% of its issued and outstanding shares of common stock from Gonzalez in exchange for the issuance of 20,000 shares of Series H Convertible Preferred Stock of the Company and a Convertible Note in the principal amount of $10,000,000 issued by the Company (the “Gopher Convertible Note”) as well as the transfer and assignment of a Promissory Note payable by Gopher Protocol Costa Rica Sociedad De Responsabilidad Limitada to the Company in the principal amount of $5,000,000 dated February 6, 2019 (of which the underlying security for this Promissory Note is 30,000,000 restricted shares of common stock of Mobiquity) and 60,000,000 restricted shares of common stock of Mobiquity.

The Gopher Convertible Note bears interest of 6% per annum and is payable at maturity on December 31, 2021. At the election of Gonzalez, the Gopher Convertible Note can be converted into a maximum of 20,000 shares of Series H Preferred Stock. Each share of Series H Preferred Stock is convertible, at the option of the holder but subject to the Company increasing its authorized shares of common stock, into such number of shares of common stock of the Company as determined by dividing the Stated Value ($500 per share) by the conversion price ($10.00 per share).  The Series H Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series H Preferred Stock shall be entitled to one vote for each share of common stock that the Series H Preferred Stock may be convertible into. Upon conversion of the Gopher Convertible Note and the 20,000 shares of Series H Preferred Stock, Gonzalez would be entitled to less than 50% of the resulting outstanding shares of common stock of the Company following conversion in full and, as a result, such transaction is not considered a change of control.

GBT-CR is in the business of the strategic management of BPO (Business Process Outsourcing) digital communications processing for enterprises and startups, distributed ledger technology development, AI development and fintech software development and applications.

 

The Company accounts for its investment in GBT-CR using the equity method of accounting.

 

Information regarding GBT-CR as of and for the nine months ended September 30, 2019 is below:

 

Current assets		$	867,189
Total assets			7,001,481
Current liabilities			500,813
Total liabilities			2,825,279
Total stockholders' equity			4,176,202
Revenue		$	3,580,599
Operating expenses			2,786,929
Other expenses			349,231
Net income			444,439

 

15

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Note 7 – Convertible Notes Payable

 

Convertible notes payable at September 30, 2019 and December 31, 2018 consist of the following:

 

		September 30,				December 31,
		2019				2018
Convertible notes payable to Power Up		$	—			$	427,200
Convertible notes payable to Investor			5,410,000				3,004,000
Convertible note payable to GBT Technologies			10,000,000				—
Convertible note payable to Glen Eagle			1,000,000				—
Total convertible notes payable			16,410,000				3,431,200
Unamortized debt discount			—				(3,233,124	)
Convertible notes payable			16,410,000				198,076
Less current portion			(5,410,000	)			(198,076	)
Convertible notes, long-term portion		$	11,000,000			$	—

Power Up Lending Group Ltd.

 

On October 2, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., an accredited investor (“Power Up”) pursuant to which the Company issued to Power Up a Convertible Promissory Note (the “Power Note No. 1”) in the aggregate principal amount of $80,000. The Power Note No. 1 has a maturity date of July 10, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Power Note No. 1 at the rate of ten percent (10%) per annum from the date on which the Power Note No. 1 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Power Note, provided that it makes a payment to Power Up as set forth in the Power Note No. 1.

 

The outstanding principal amount of the Power Note No. 1 is convertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest trading price with a 15-day look back immediately preceding the date of conversion. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the Power Note), the Power Note No. 1 shall become immediately due and payable and the Company shall pay to Power Up, in full satisfaction of its obligations hereunder, additional amounts as set forth in the Power Note No. 1.

 

Due to the variable conversion price associated with the Power Note No. 1, the Company has determined that the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $172,282, which is recorded as a derivative liability as of the date of issuance. The derivative liability was first recorded as a debt discount up to the face amount of the Power Note No. 1, with the remainder being charged to financing cost during the period. The debt discount is being amortized over the terms of the Power Note No. 1.

 

As of March 6, 2018, the Company had paid off in full all principal, interest and penalties with respect to the Power Note No. 1, and there are no further obligations owed with respect to such note.

 

On September 28, 2018, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which the Company issued to Power Up a Convertible Promissory Note (the “Power Note No. 2”) in the aggregate principal amount of $243,600 for a purchase price of $203,000. The Power Note No. 2 has a maturity date of December 24, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Power Note No. 2 at the rate of six percent (6%) per annum from the date on which the Power Note No. 2 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Power Note No. 2, provided it makes a payment to Power Up as set forth in the Power Note No. 2.

 

16

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

The outstanding principal amount of the Power Note No. 2 may not be converted prior to the period beginning on the date that is 180 days following the issue date. Following the 180^th day, Power Up may convert the Power Note No. 2 into shares of the Company’s common stock at a conversion price equal to 85% of the lowest trading price with a 15 day look back immediately preceding the date of conversion. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the Power Note No. 2), the Power Note No. 2 shall become immediately due and payable and the Company shall pay to Power Up, in full satisfaction of its obligations hereunder, additional amounts as set forth in the Power Note No. 2.

 

Due to the variable conversion price associated with the Power Note No. 2, the Company has determined that the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $337,669, which is recorded as a derivative liability as of the date of issuance. The derivative liability was first recorded as a debt discount up to the face amount of the Power Note No. 2, with the remainder being charged to financing cost during the period. The debt discount is being amortized over the terms of the Power Note No. 2.

 

At September 30, 2019 and December 31, 2018, the principal amount outstanding under the Power Note No. 2 was $0 and $243,600. During the nine months ended September 30, 2019, the entire principal balance of $243,600 and accrued interest of $6,090 was converted into 7,491 shares of common stock.

 

On November 6, 2018, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which the Company issued to Power Up a Convertible Promissory Note (the “Power Note No. 3”) in the aggregate principal amount of $183,600 for a purchase price of $153,000. The Power Note No. 3 has a maturity date of February 6, 2020 and the Company has agreed to pay interest on the unpaid principal balance of the Power Note No. 3 at the rate of six percent (6%) per annum from the date on which the Power Note No. 3 is issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Power Note No. 3, provided it makes a payment to Power Up as set forth in the Power Note No. 3.

 

The outstanding principal amount of the Power Note No. 3 may not be converted prior to the period beginning on the date that is 180 days following the issue date. Following the 180^th day, Power Up may convert the Power Note No. 3 into shares of the Company’s common stock at a conversion price equal to 85% of the lowest trading price with a 15 day look back immediately preceding the date of conversion. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the Power Note No. 3), the Power Note No. 3 shall become immediately due and payable and the Company shall pay to Power Up, in full satisfaction of its obligations hereunder, additional amounts as set forth in the Power Note No.3.

 

Due to the variable conversion price associated with the Power Note No. 3, the Company has determined that the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $171,942, which is recorded as a derivative liability as of the date of issuance. The derivative liability was first recorded as a debt discount up to the face amount of the Power Note No. 3, with the remainder being charged to financing cost during the period. The debt discount is being amortized over the terms of the Power Note No. 3.

 

At September 30, 2019 and December 31, 2018, the principal amount outstanding under the Power Note No. 3 was $0 and $183,600. During the nine months ended September 30, 2019, the entire principal balance of $183,600 and accrued interest of $4,590 was converted into 15,685 shares of common stock.

 

$8,340,000 Senior Secured Redeemable Convertible Debenture

 

17

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

On December 3, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company issued a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $8,340,000. The Debenture has a maturity date two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal to the Wall Street Journal Prime Rate plus 2% per annum (Wall Street Journal Prime Rate plus 12% per annum upon the occurrence of a Triggering Event). Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued a Common Stock Purchase Warrant to acquire up to 225,000 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $100.00 per share with respect to 50,000 Warrant Shares, $75.00 with respect to 75,000 Warrant Shares and $50.00 with respect to 100,000 Warrant Shares. Pursuant to the terms of the SPA, the investor agreed to tender to the Company the sum of $7,500,000, of which the Company received the sum of $4,500,000 as of the closing, $1,000,000 on January 4, 2019, $1,000,000 on February 5, 2019 and $1,000,000 on March 5, 2019. As of the closing, the face value of the Debenture was $5,004,000.00; as of the first month’s anniversary of the closing, the face value of the Debenture increased to $6,116,000; as of the second month’s anniversary of the closing, the face value of the Debenture increased to $7,228,000; and as of the third month’s anniversary of the closing, the face value of the Debenture increased to $8,340,000. As of the closing, the number of Warrant Shares was 135,000; as of the first month’s anniversary of the closing, the number of Warrant Shares increased to 165,000; as of the second month’s anniversary of the closing, the number of Warrant Shares increased to 195,000; as of the third month’s anniversary of the closing, the number of Warrant Shares increased to 225,000.

 

The outstanding principal amount may be converted at any time into shares of the Company’s common stock at a conversion price equal to 95% of the Market Price less $0.05 (The conversion price is lowered by 10% upon the occurrence of each Triggering Event). The Market Price is the average of the 5 lowest individual daily volume weighted average prices during the period the Debenture is outstanding.

 

In connection with the Debenture, the Company issued 225,000 warrants to purchase shares of the Company’s common stock with an exercise prices ranging from $50.00 to $100.00. The Company first determined the value of the convertible note and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $7,832,697 and was determined using the Black-Scholes option pricing model with the following assumptions:

 

·

Expected life of 3.0 years

·

Volatility of 190%;

·

Dividend yield of 0%;

·

Risk free interest rate of 2.47% to 2.84%

 

The face amount of the convertible note of $8,340,000 was proportionately allocated to the convertible note and the warrant in the amount of $4,310,085 and $4,029,915, respectively. The amount allocated to the warrants of $4,029,915 was recorded as a discount to the convertible note and as additional paid in capital. The value of the convertible note was then allocated between the convertible note and the beneficial conversion feature. Due to the variable conversion price associated with the Debenture, the Company has determined that the conversion feature is considered derivative liabilities. The embedded conversion feature was initially calculated to be $11,212,573, which is recorded as a derivative liability as of the dates of issuance. The derivative liability was first recorded as a debt discount up to value allocated to the convertible note, with the remainder being charged to financing cost during the period. The combined total discount is $8,340,000 and will be amortized over the year life of the convertible note.

 

In December 2018, the investor converted $2,000,000 in principal and $6,616 in accrued interest into 94,993 shares of common stock. In January 2019, the investor converted $350,000 in principal and $1,158 in accrued interest into 16,624 shares of common stock. In March 2019, the investor converted $580,000 in principal and $51,096 in accrued interest into 34,963 shares of common stock.

 

At September 30, 2019 and December 31, 2018, the principal amount outstanding under the Debenture was $5,410,000 and $3,004,000, respectively.

 

On May 28, 2019, the Investor delivered to the Company a “Notice of Default and Notice of Sale of Collateral” (the “Notice”). In the Notice, the Investor declared that the Company was in default of the terms of the SPA. Specifically, the Investor claimed multiple “Trigger Events” had occurred under the Debenture which constituted an Event of Default. On May 30, 2019, in a letter to the Investor the Company disputed each of the purported “Trigger Events” and demanded the Investor retract the Notice. It is the Company’s position that the Notice is a further attempt by the Investor to mask its issues surrounding its recent conversion notice and resulting affiliate status as previously reported by the Company. The Investor responded that the Notice will not be withdrawn. In the Notice, the Investor declared all obligations under the SPA immediately due and payable. (See Note 12 for further discussions of this matter)

 

18

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

$10,000,000 for GBT Technologies S. A. acquisition

 

In accordance with the acquisition of GBT-CR the Company issued a convertible note in the principal amount of $10,000,000. The convertible note bears interest of 6% per annum and is payable at maturity on December 31, 2021. At the election of the holder, the convertible note can be converted into a maximum of 20,000 shares of Series H Preferred Stock. Each share of Series H Preferred Stock is convertible, at the option of the holder but subject to the Company increasing its authorized shares of common stock, into such number of shares of common stock of the Company as determined by dividing the Stated Value ($500 per share) by the conversion price ($10.00 per share).  The convertible note is convertible into common stock at a fixed price that was higher than the Company’s common stock on the date of grant, therefore, this convertible note does not contain a beneficial conversion feature.

 

Glen Eagles Glen Eagles Acquisition LP

 

On July 8, 2019, the Company entered a Consulting Agreement with Glen Eagles Glen Eagles Acquisition LP (“Glen”) as consultant to provide services in connection with the Company’s acquisition of 25% of GBT Technologies, S.A., a Costa Rican corporation (“GBT-CR”). Consultant will provide analysis, interaction with related professional and other services as requested by the Company to integrate and expand capabilities between GBT-CR and the Company. The Company shall pay Glen $1,000,000 through the issuance of a 6% Convertible Note. At the election of Glen, the Convertible Note can be converted into a maximum of 2,000 shares of Series H Preferred Stock. Each share of Series H Preferred Stock is convertible, at the option of the holder but subject to the Company increasing its authorized shares of common stock, into such number of shares of common stock of the Company as determined by dividing the Stated Value ($500 per share) by the conversion price ($10.00 per share).  The Series H Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series H Preferred Stock shall be entitled to one vote for each share of common stock that the Series H Preferred Stock may be convertible into. In addition, the Company enter into an Amendment of a Common Stock Purchase Warrant held by Glen to acquire nine million shares of common stock that had been assigned to Glen by Guardian Patch LLC. Pursuant to the amendment, the Company agreed to provide that the Common Stock Purchase Warrant may be exercised on a cashless basis and provided a beneficial ownership limitation of 4.99%.

 

Discounts on convertible notes

 

The Company recognized interest expense of $6,569,124 and $849,802 during the nine months ended September 30, 2019 and 2018, respectively, related to the amortization of the debt discount on convertible notes. The unamortized debt discount at September 30, 2019 was $0.

 

A roll-forward of the convertible note from December 31, 2018 to September 30, 2019 is below:

 

Convertible notes, December 31, 2018		$	198,076
Issued for cash			3,000,000
Issued for acquisition			10,000,000
Issued for services			1,000,000
Original issue discount			336,000
Conversion to common stock			(1,357,200	)
Debt discount related to new convertible notes			(3,336,000	)
Amortization of debt discounts			6,569,124
Convertible notes, September 30, 2019		$	16,410,000

 

Note 8- Notes Payable

 

Notes payable at September 30, 2019 and December 31, 2018 consist of the following:

 

		September 30,				December 31,
		2019				2018
RWJ acquisition note		$	2,600,000			$	2,600,000
ECS acquisition note			—				100,000
Promissory note to investor			2,325,000				—
Promissory notes to investor			528,817				—
Total notes payable			5,453,817				2,700,000
Unamortized debt discount			(123,287	)			(744	)
Notes payable		$	5,330,530			$	2,699,256

 

19

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

RWJ Acquisition Note

 

In connection with the acquisition of RWJ in September 2017, the Company issued a note payable. The note accrues interest at 3.5% per annum, is due on December 31, 2019 and is secured by the assets purchased in the acquisition. (See Note 12)

 

ECS Acquisition Note

 

In connection with the acquisition of ECS, the Company issued a note payable. The note is to be repaid in monthly installment payments of $100,000 with the final payment due on January 15, 2019. The Company imputed interest of 9% on this note payable. The balance of this note payable was paid in full in January 2019.

 

Promissory Notes

 

On February 27, 2019, the Company entered into a note purchase agreement with a third party investor, pursuant to which the Company issued a promissory note for the original principal amount of $2,325,000. The promissory note had an original issue discount of $300,000 and the inventor paid consideration of $2,025,000 to the Company. The outstanding balance of the promissory note is to be paid on the one-year anniversary of the issuance of the note. Interest on the note accrues at the rate of 10% per annum compounding daily. Subject to the terms and conditions set forth in the note, the Company may prepay all or any portion of the outstanding balance of the note at any time in an amount in cash equal to 120% of the amount repaid. In connection with transactions that generate less than $1,000,000 in proceeds, the Company has agreed to not issue any debt instrument or incurrence of any debt other than trade payables in the ordinary course of business, any securities or agreements to sell common stock with anti-dilution or price reset/reduction features or any securities that are or may be become convertible or exercisable into common stock with a price that varies with the market price of the common stock (collectively, “Restricted Issuance Transaction”). The outstanding balance of the Note will be increased by 5% in the event the Company enters into a Restricted Issuance Transaction that is approved by Iliad. The original issue discount in being amortized to interest expense over the term of the promissory note.

 

The Company issued promissory notes for $528,817 to a third party for funds received as working capital during the nine months ended September 30, 2019. The notes accrues interest at 10% per annum, are due on February 9, 2020 and are unsecured. (See Note 14 for stock pledge securing this note).

 

Discounts on Promissory Note

 

The Company recognized interest expense of $176,712 and $0 during the nine months ended September 30, 2019 and 2018, respectively, related to the amortization of the debt discount on promissory notes. The unamortized debt discount at September 30, 2019 was $123,287.

 

A roll-forward of the promissory notes from December 31, 2018 to September 30, 2019 is below:

 

Notes payable, December 31, 2018		$	2,699,256
Issued for cash			2,553,818
Original issue discount			300,000
Repayment of note payable			(99,256	)
Debt discount related to new promissory notes			(300,000	)
Amortization of debt discounts			176,712
Notes payable, September 30, 2019		$	5,330,530

 

20

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Note 9 - Derivative Liability

 

Certain of the convertible notes payable discussed in Note 7 have a conversion price that can be adjusted based on the Company’s stock price which results in the conversion feature being recorded as a derivative liability.

 

The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).

 

The Company uses a weighted average Black-Scholes-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at September 30, 2019 and December 31, 2018:

 

	September 30,				December 31,
	2019				2018
Stock price	$	3.08			$	32.00
Risk free rate		1.75	%			2.63	%
Volatility		650	%			150	%
Conversion/ Exercise price	$	0.80	*		$	21.00 to 25.00
Dividend rate		0	%			0	%

 

 

* the conversion price used to calculate the derivative liability at September 30, 2019 is the same conversion price used at June 30, 2019 since the calculated conversion price, as specified in the convertible note agreement, would result in a negative conversion price at September 30, 2019.

 

The following table represents the Company’s derivative liability activity for the nine months ended September 30, 2019:

 

Derivative liability balance, December 31, 2018		$	3,833,506
Issuance of derivative liability during the period			5,721,939
Fair value of beneficial conversion feature of debt converted			(2,264,578	)
Change in derivative liability during the period			13,614,981
Derivative liability balance, September 30, 2019		$	20,905,848

 

Note 10- Stockholders’ Equity

 

Common Stock

 

On September 24, 2019, the “Company amended its articles of incorporation to increase its authorized shares of common stock to 100,000,000,000 (the “Increase Amendment”). The Increase Amendment was approved by the board of directors as well as the shareholders holding in excess of a majority of the issued and outstanding shares of common stock.

 

During the nine months ended September 30, 2019, the Company had the following transactions in its common stock:

 

·

issued an aggregate of 9,500 shares to employees and board members as part of their compensation agreements with the Company. The value of the common stock of $235,900 was determined based on the closing stock price of the Company’s common stock on the grant date;

 

·

issued 74,762 shares to an investor for the conversion of $1,357,200 in convertible notes and $62,934 in accrued interest;

 

·

issued 59,820 shares to an investor for disputed penalties on a convertible debenture. The value of the common stock of $975,065 was determined based on the closing stock price of the Company’s common stock on the grant date;

 

·

issued 200,267 shares to Latinex in order to provide that Latinex may maintain its required regulatory capital as required by various regulators. The Company has recorded the value of these shares of common stock as a stock loan receivable which is presented as a contra-equity account in the accompanying consolidated balance sheets. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the grant date; and

 

21

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

·

canceled 200,000 shares that were returned in connection with the Company’s sale of its investment with Mobiquity. (See Note 5). The shares were valued based on the Company’s stock price on the date of the agreement.

 

During the nine months ended September 30, 2018, the Company had the following transactions in its common stock:

 

·

issued 660,000 shares in connection with the conversion of 66,000 shares of Series D Preferred Stock;

 

·

issued 20,000 shares in connection with the conversion of 2,000,000 shares of Series G Preferred Stock;

 

·

issued 2,500 shares to a consultant for professional services rendered valued at $123,725. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the dates that the shares earned based on the agreement;

 

·

issued an aggregate of 18,000 shares to employees and board members as part of their agreements with the Company. The value of the common stock of $4,404,500 was determined based on the closing stock price of the Company’s common stock on the date of the respective agreements;

 

·

issued 30,000 to a consultant for services related to assisting the Company with the acquisition of the RWJ assets. The 30,000 shares were earned when the operations of the RWJ assets produced revenue in excess of $10,000,000. The value of the common stock of $4,590,000 was determined based on the closing stock price of the Company’s common stock on the date of the shares were earned.

 

·

issued aggregate of 12,500 shares to a consultant for services rendered valued at $2,715,000. The services, which include business development, analysis, and interaction with professionals, were principally related to assisting the Company with the acquisition of the ECS and Electronic Check assets (see Note 3). The value of the common stock was determined based on the closing stock price of the Company’s common stock on the closing date of acquisition of ECS and Electronic Check;

 

·

issued 5,000 shares for the acquisition of the ECS assets valued at $1,010,000. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the acquisition date;

 

·

issued ,2500 shares for the acquisition of the Electronic Check valued at $695,000. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the acquisition date;

 

·

issued aggregate of 100,000 shares in connection with its equity interest in Mobiquity valued at $9,980,000 (See Note 6). The value of the common stock was determined based on the closing stock price of the Company’s common stock on the closing date of the Mobiquity transaction;

 

·

issued aggregate of 10,000 shares to a consultant for services rendered valued at $998,000. The services, which include business development, analysis, and interaction with professionals, were principally related to assisting the Company with the acquisition of its equity interest in Mobiquity. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the closing date of Mobiquity transaction;

 

·

issued aggregate of 125,000 shares to Guardian LLC in connection the termination of its 50% interest in the profits of certain of the Company’s products (See Note 11). The shares were valued at $11,750,000 which was determined based on the closing stock price of the Company’s common stock at the date of the agreement; and

 

·

issued 12,727 shares of common stock to an investor for cash proceeds of $1,500,000.

 

22

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

The Company created with its transfer agent a 66,616,129,323 reserve of the Company’s common shares for potential future issuance to meet the Company obligations (which include issuance per Warrants, as well as other potential commitments) toward thirds parties, if any.

 

Series B Preferred Shares

 

On November 1, 2011, the Company and certain creditors entered into a Settlement Agreement (the “Settlement Agreement”) whereby without admitting any wrongdoing on either part, the parties settled all previous agreements and resolved any existing disputes. Under the terms of the Settlement Agreement, the Company agreed to issue the creditors 45,000 shares of Series B Preferred Stock of the Company on a pro-rata basis. Following the issuance and delivery of the shares of Series B Preferred Stock to said creditors, as well as surrendering the undelivered shares, the Settlement Agreement resulted in the settlement of all debts, liabilities and obligations between the parties.

 

The Series B Preferred Stock has a stated value of $100 per share and is convertible into the Company’s common stock at a conversion price of $30.00 per share representing 30 posts split common shares. Furthermore, the Series B Preferred Stock votes on an as converted basis and carries standard anti-dilution rights. These rights were subsequently removed, except in cases of stock dividends or splits.

 

As of September 30, 2019 and December 31, 2018, there were 45,000 Series B Preferred Shares outstanding.

 

Series C Preferred Shares

 

On April 29, 2011, GV Global Communications, Inc. (“GV”) provided funding to the Company in the aggregate principal amount of $111,000 (the “Loan”).  On September 25, 2012, the Company and GV entered into a Conversion Agreement pursuant to which the Company agreed to convert the Loan into 10,000 shares of Series C Preferred Stock of the Company, which was approved by the Board of Directors.

 

 

Each share of Series C Preferred Stock is convertible, at the option of GV, into such number of shares of common stock of the Company as determined by dividing the Stated Value (as defined below) by the Conversion Price (as defined below).  The Conversion Price for each share is equal to a 50% discount to the average of the lowest three lowest closing bid prices of the Company’s common stock during the 10-day trading period prior to the conversion with a minimum conversion price of $0.02.  The stated value is $11.00 per share (the “Stated Value”).  The Series C Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series C Preferred Stock shall be entitled to one vote for each share of common stock that the Series C Preferred Stock shall be convertible into. GV has contractually agreed to restrict its ability to convert the Series C Preferred Stock and receive shares of the Company’s common stock such that the number of shares of the Company’s common stock held by it and its affiliates after such conversion does not exceed 4.9% of the then issued and outstanding shares of the Company’s common stock.

 

During the year ended December 31, 2014, GV Global Communications, Inc. converted 7,770 of its Series C Preferred Stock into 120 post-split. During the third quarter of 2014, the Company received 42 post-split common shares to adjust the shares issued to reflect the amount that both they and the Company believed that they were owed. At September 30, 2019 and December 31, 2018, GV owns 700 Series C Preferred Shares.

 

The issuance of the Series C Preferred Stock was made in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act of 1933 and Rule 506 promulgated under Regulation D thereunder.  GV is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.

 

As of September 30, 2019 and December 31, 2018, there were 700 Series C Preferred Shares outstanding.

 

Series D Preferred Shares

 

Per the terms of the Exclusive License Agreement and in consideration of the licensing agreement signed between the Company and Hermes Roll LLC, the Company issued 100,000 shares of Series D Preferred Stock of the Company (the “Preferred Shares”). The preferred stock has a value of $ 1,000 based upon the cost of the license; due to the holder of license is the related party of the Company. The Preferred Shares have no liquidation rights. The Holder of the Preferred Shares will be entitled to vote on all matters submitted to shareholders of the Company on an as-converted basis. The Preferred Shares have a conversion price of $0.01 (the “Conversion Price”) and a stated value of $10.00 per share (the “Stated Value”). Each Preferred Share is convertible, at the option of the Holder, into such number of shares of common stock of the Company as determined by dividing the Stated Value by the Conversion Price.

 

23

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

On January 23, 2018, Reko Holdings, LLC converted 66,000 shares of its Series D Preferred Stock into 660,000 restricted common shares. 

 

As of September 30, 2019 and December 31, 2018, there are 0 and 0 shares of Series D Preferred Shares outstanding, respectively.

 

Series G Preferred Shares

 

On December 29, 2017, Guardian LLC converted all of the principal and interest of the Note, into 2,000,000 shares of Series G Preferred Stock. The Series G Preferred Stock is entitled to vote on an as-converted basis, automatically converts to common stock upon any liquidation, dissolution or winding up and the Company may not declare a dividend until the Series G Preferred Stock has received a dividend. Each share of Series G Preferred Stock is convertible into one shares of common stock of the Company and contain standard anti-dilution rights.

 

On August 30, 2018, Guardian LLC converted the 2,000,000 shares of Series G Preferred Stock into 20,000 shares of common stock.

 

As of September 30, 2019 and December 31, 2018, there are 0 and 0 shares of Series G Preferred Shares outstanding, respectively.

 

Series H Preferred Shares

 

On June 17, 2019, the Company, Altcorp Trading LLC, a Costa Rica company and a wholly-owned subsidiary of the Company (“Altcorp”), GBT Technologies, S.A., a Costa Rica company (“GBT-CR”) and Pablo Gonzalez, a shareholder’s representative of GBT-CR (“Gonzalez”), entered into and closed an Exchange Agreement (the “GBT Exchange Agreement”) pursuant to which the parties exchanged certain securities. In accordance with the Exchange Agreement, Altcorp acquired 625,000 shares of GBT-CR representing 25% of its issued and outstanding shares of common stock from Gonzalez in exchange for the issuance of 20,000 shares of Series H Convertible Preferred Stock of the Company and a Convertible Note in the principal amount of $10,000,000 issued by the Company (the “Gopher Convertible Note”) as well as additional consideration. The Gopher Convertible Note bears interest of 6% per annum and is payable at maturity on December 31, 2021. At the election of Gonzalez, the Gopher Convertible Note can be converted into a maximum of 20,000 shares of Series H Preferred Stock. Each share of Series H Preferred Stock is convertible, at the option of the holder but subject to the Company increasing its authorized shares of common stock, into such number of shares of common stock of the Company as determined by dividing the Stated Value ($500 per share) by the conversion price ($10.00 per share).  The Series H Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series H Preferred Stock shall be entitled to one vote for each share of common stock that the Series H Preferred Stock may be convertible into. On July 8, 2019, the Company entered a Consulting Agreement with Glen Eagles Glen Eagles Acquisition LP (“Glen”) as consultant to provide services in connection with the Company’s acquisition of 25% of GBT-CR. Consultant will provide analysis, interaction with related professional and other services as requested by the Company to integrate and expand capabilities between GBT-CR and the Company. (See Note 14 for further details.)

As of September 30, 2019, there are 20,000 shares of Series H Preferred Shares outstanding.

 

24

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Warrants

 

 The following is a summary of warrant activity from December 31, 2018 to September 30, 2019:

 

												Weighted
								Weighted				Average
								Average				Remaining				Aggregate
				Warrants				Exercise				Contractual				Intrinsic
				Outstanding				Price				Life				Value
	Outstanding, December 31, 2018				419,167			$	61.00				3.48			$	—
	Granted				25,355,000				0.97
	Forfeited				—
	Exercised				—
	Outstanding, September 30, 2019				25,774,167			$	1.31				3.24			$	60,640,000
	Exercisable, September 30, 2019				25,770,167			$	1.31				3.24			$	60,640,000

 

The exercise price for warrant outstanding and exercisable at September 30, 2019:

 

Outstanding				Exercisable
Number of		Exercise		Number of		Exercise
Warrants		Price		Warrants		Price
22,000,000	$	0.50		22,000,000	$	0.50
3,000,000		1.85		3,000,000		1.85
500,000		2.70		500,000		2.70
20,000		31.90		20,000		31.90
100,000		50.00		100,000		50.00
75,000		75.00		75,000		75.00
50,000		100.00		50,000		100.00
6,667		200.00		6,667		200.00
10,000		235.00		10,000		235.00
7,500		250.00		7,500		250.00
5,000		280.00		1,000		280.00
25,774,167				25,770,167

 

The fair value of the warrants listed above was determined using the Black-Scholes option pricing model with the following assumptions:

 

		September 30,		December 31,
		2019		2018
Risk-free interest rate		1.55% to 2.49%		2.65%
Expected life of the options		3.1 to 5 years		5 years
Expected volatility		185% - 200%		210%
Expected dividend yield		0%		0%

 

As a result of the above mentioned reverse stock split, the Company issued 25,245,000 warrants to purchase shares of the Company’s common stock with exercise prices ranging from $0.50 to $2.70 per share as a result of an anti-dilutive clause in certain of the Company’s outstanding warrants. The fair value of these warrants was $120,476,603 which is shown as a charge to earnings on the accompanying financial statements.

 

Note 11 - Related Parties

 

Related parties are natural persons or other entities that have the ability, directly or indirectly, to control another party or exercise significant influence over the party in making financial and operating decisions. Related parties include other parties that are subject to common control or that are subject to common significant influences. For the nine months ended September 30, 2019 and 2018, $135,000 and $135,000, respectively of the Company’s revenue is from IT services delivered to Guardian Patch LLC (“Guardian LLC”), which was previously a related party to the Company. The revenue generated from Guardian LLC was paid to the Company via a reduction in the amount that the Company owes Guardian LLC that is classified as Due to Guardian LLC in the accompanying consolidated balance sheet.

 

25

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

For the nine months ended September 30, 2019 and 2018, the Company paid a law firm owned by the Company’s chairman $90,000 and $0, respectively, for legal services. On June 5, 2019, said chairman Mr. Robert Yaspan resigned as Director of the Company to pursue other interests.

 

On April 6, 2018, the Company and Danny Rittman, Chief Technology Officer and a Director of the Company, agreed to amend his employment agreement pursuant to which he will receive salary at the rate of $250,000 annually payable in equal increments of $15,000 per month with an additional $70,000 to be paid within 15 days of the end of the calendar year. 

 

 On September 25, 2018, the Company entered into a Joint Venture Interest Purchase Agreement with Guardian, LLC pursuant to which the Company purchased Guardian LLC’s 50% interest in a joint venture (the “JV Interest”) previously entered between the parties in March 2016 covering the Guardian Patch, Puzpix and Epsilon. In consideration for the JV Interest, the Company issued Guardian 125,000 shares of common stock. During the year ended December 31, 2018, the Company took a charge to earnings of $11,750,000 related to the purchase of Guardian LLC’s 50% JV Interest.

 

On September 14, 2018, the Company and Dr. Rittman entered into a letter agreement confirming that the Company is the owner of all intellectual property developed by Dr. Rittman relating to the Internet of Things (IoT) and Artificial Intelligence enabled mobile technologies, including a global platform with both mobile and fixed solutions, commencing June 16, 2015 and continuing until Dr. Rittman’s employment agreement is terminated.

 

On September 1, 2017, the Company entered into and closed an Asset Purchase Agreement with a third party, RWJ Advanced Marketing, LLC (“RWJ”), a Georgia corporation, pursuant to which the Company purchased certain assets from RWJ, including inventory, terminals, licenses and permits and intangible assets. At closing, the Company and Mr. Greg Bauer entered into an Employment Agreement pursuant to which Mr. Bauer was retained as Chief Executive Officer for a term of one year, subject to an automatic extension, unless terminated, in consideration of a base salary of $250,000 and a bonus of 10% of net profit generated by the assets acquired. Mr. Bauer was also appointed to the Board of Directors of the Company. As of the closing date, Mr. Murray resigned as Chief Executive Officer of the Company but will remain as a director of the Company. Mr. Bauer, since 2004 through present, has served as executive director with W.L. Petrey Wholesale, Inc. where he was in charge of the UGO/Preway operations. Mr. Bauer holds a Bachelor of Science degree from University of Maryland College Park. Mr. Bauer is veteran of the United States Navy and was honorably discharged in 1983. He held the title of United States Navy Surface Warfare Qualified. In May 2018, Mr. Bauer’s resigned as Chief Executive Officer and director of the Company and entered into a consulting agreement with the Company. The Company is in litigation in connection with RWJ transaction – See Note 12 - Contingencies.

  

On January 1, 2019, the Company and Douglas Davis entered into an Amended and Restated Employment Agreement pursuant to which Mr. Davis was retained as Chief Executive Officer. Mr. Davis has served as Interim Chief Executive Officer since July 2018. The term of Mr. Davis’ employment is for two years through January 1, 2021. Mr. Davis will be entitled to an annual base salary of $250,000, which shall be increased to $400,000 upon the Company uplisting to a national exchange. Mr. Davis is also be entitled to the issuance of Stock Options to acquire an aggregate of 50,000 shares of common stock of the Company, exercisable for five years, subject to vesting. The options will be earned and vested (i) with respect to 20,000 shares of common stock on the date hereof, (ii) 5,000 shares of common stock upon the successful dual list of the Company on an international exchange such as SIX Zurich Stock Exchange or Euronext, (iii) 15,000 shares of common stock upon the successful up listing to a national exchange such as the Nasdaq, NYSE Euronext, TSX, AMEX or other, and (iv) with respect to 5,000 shares of common stock at each of the six (6) month anniversaries (July 1, 2019 and January 1, 2020). The exercise price of such options shall be the closing price of the Company on the date prior to such event.

 

Regulatory

 

The Company has commenced development, and the Company has completed the Statement of Work (SOW) for the Federal Communications Commission (“FCC”) survey to deploy the Company’s Guardian Global Tracking Device within the continental US. The Company has also completed their transmitters/transceivers modules feasibility research. Although the Company can use open channels, and therefore is not required to comply with various FCC regulations relevant to the system, the Company has chosen to comply, and is complying with FCC regulations. The FCC regulates the limits of potentially harmful interference to licensed transmitters due to low power unlicensed transmitters. The Guardian Patch/Sphere system consists of advanced security protocols in order to maintain the global, private, fully-secured network. In addition, the Guardian Patch device needs to perform communication tasks across the globe providing breakthrough tracking features. The Company successfully completed thorough research that involved security, performance and FCC regulations compliance. The Company completed the design and construction of the Guardian Patch/Sphere circuit prototype device. The Company has completed the construction of 10 prototype units, and performed intensive testing program to be tested as a complete system in designated areas by the Company.

 

26

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Note 12 - Contingencies

 

Legal Proceedings

 

From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business.  There is currently no litigation that management believes will have a material impact on the financial position of the Company.

 

On June 10, 2016, the Company entered into a consulting agreement with Waterford Group LLC (“Waterford”) pursuant to which the Company engaged Waterford to provide sales and marketing consulting and advisory services to the Company in consideration of 1,000 shares of restricted common stock of the Company (the “Shares”) and a common stock purchase warrant (the “Warrant”) to acquire 7,500 shares of restricted common stock of the Company at an exercise price of $225.00 per share for a period of five (5) years. 500 of the Shares were issued to Waterford upon the execution of the Agreement. The Warrant vested on a quarterly basis in eight (8) equal quarterly installments each in the amount of 938 shares each quarter during the term of the Agreement. The first quarterly installment vested upon the execution of the Agreement and each subsequent quarterly installment was to vest each quarter thereafter. The Company believes that Waterford is in default of its agreement, as it failed to perform or provide any services under the agreement. As such, the Company put Waterford on notice in writing that the Company did not issue shares or warrants during the third or fourth fiscal quarters of 2016 due to the default.

 

On or around January 23, 2017, the Company filed a complaint against Waterford and the Company’s Transfer Agent, in Superior Court of the State of California, County of Riverside. On February 1, 2017, the Company obtained a temporary restraining order that prohibits Waterford from (x) lifting the restricted legend from the 500 shares that it received in connection with signing the Agreement; (y) selling the 500 shares to another party; and, (z) from exercising the warrant on 938 shares that was issued and vested upon the execution of the Agreement. As ordered by the court, on February 9, 2017, the Company deposited a Corporate Surety Bond in the amount of $42,875 to secure the temporary restraining order. The Company agreed with Waterford to go to binding arbitration, which is currently being scheduled.

 

On or around February 27, 2017, the Company was issued a stay of the temporary restraining order barring its transfer agent from providing shares in connection with the exercise of the first Waterford warrant on 938 shares that was provided to Waterford in connection with the execution of the engagement letter that was executed by the parties on or around June 10, 2016. On October 12, 2018, the Waterford legal matter was settled in favor of the Company that resulted in the cancelation of Waterford’s 938 warrants and the cancelation of 500 shares of the Company’s common stock owned by Waterford.

 

On or around January 30, 2019, RWJ Advanced Marketing, LLC, Greg Bauer, and Warren Jackson sued the Company in Superior Court of the State of California - County of Los Angeles, General District in connection with the acquisition of UGopherServices in September 2017. The case number is 19STCV03320. The lawsuit alleges breach of contract, among other causes of action. The Company answered the complaint and filed a cross-complaint against the plaintiffs in the case and third parties on or around February 15, 2019.

 

On December 3, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with Discover Growth Fund, LLC pursuant to which the Company issued a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $8,340,000. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued a Common Stock Purchase Warrant to acquire up to 225,000 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $100.00 per share with respect to 50,000 Warrant Shares, $75.00 with respect to 75,000 Warrant Shares and $50.00 with respect to 100,000 Warrant Shares. The holder may not exercise any portion of the Warrants to the extent that the holder would own more than 4.99% of the Company’s outstanding common stock immediately after exercise. The outstanding principal amount may be converted at any time into shares of the Company’s common stock at a conversion price equal to 95% of the Market Price less $5.00 (The conversion price is lowered by 10% upon the occurrence of each Triggering Event – the current conversion price is 75% of the Market Price less $5.00). The Market Price is the average of the 5 lowest individual daily volume weighted average prices during the period the Debenture is outstanding. On May 28, 2019, the Investor delivered to the Company a “Notice of Default and Notice of Sale of Collateral” (the “Notice”). In the Notice, the Investor declared that the Company was in default of the terms of the SPA. On May 30, 2019, in a letter to the Investor the Company disputed each of the purported “Trigger Events” and demanded the Investor retract the Notice. It is the Company’s position that the Notice is a further attempt by the Investor to mask its issues surrounding its recent conversion notice and resulting affiliate status and the investors ownership position in the Company as set forth above. The Investor responded that the Notice will not be withdrawn. In the Notice, the Investor declared all obligations under the SPA immediately due and payable. In the Notice, the Investor purported to establish 10:00 a.m. Eastern Time on Monday, June 24, 2019, as the date on which it intended to sell and dispose of the collateral securing the Debentures and said the sale would take place in St. Thomas, The Virgin Islands. On June 20, 2019, the United States District Court District of Nevada (the “Court”) granted an Order Granting Ex Parte Application for Temporary Restraining Order (Case Number: 2:19-cv-01039) in favor of the Company temporarily restraining the Investor from selling, foreclosing upon, encumbering, dissipating, or otherwise transferring any of the collateral referenced in the Notice and from conducting the sale currently referenced in the Notice.

 

27

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

The Company obtained injunction restraining the Investor from proceeding with the Sale of Collateral, (District Court District of Nevada - Case Number: 2:19-cv-01039) and filed its arbitration demand on Friday, June 7, 2019. On July 2, 2019, Honorable Philip Pro (Ret.) was appointed as Arbitrator in Gopher Protocol, Inc. vs. Discover Growth Fund, LLC (JAMS Ref# 1260005395). 

 

The United States District Court for the District of Nevada (Gopher Protocol, Inc, a Nevada corporation, Plaintiff, vs. Discover Growth Fund, LLC, a US Virgin Islands limited liability company, Defendant; Case Number: 2:19-cv-01039) granted the motion of GBT Technologies Inc. (the “Company”) for a Preliminary Injunction against Discover Growth Fund, LLC (“DGF”), continuing in effect the Court’s previously granted Temporary Restraining Order that enjoined DGF from selling, foreclosing upon, encumbering, dissipating, or otherwise transferring any of the Company’s assets (the “Preliminary Injunction”).

 

Since the issuance of the Preliminary Injunction, the Company believes that DGF (in a series of its own actions that included Notices to increase reserves and a Notice of Conversion) has again violated the Preliminary Injunction. The most recent example is DGF’s October 24, 2019 delivery to the Company of a purported “Notice of Default and Notice of Sale of Collateral” (the “Most Recent Notice”). In the Most Recent Notice, DGF again declared that the Company was in default of the terms of the December 3, 2018 Securities Purchase Agreement (“SPA”) between the Company and DGF. In the Most Recent Notice, DGF purported to declare all of the Company’s obligations under the SPA immediately due and payable. In the Most Recent Notice, DGF purported to establish 10:00 a.m. Eastern Time on Monday, December 2, 2019, as the date on which DGF intended to sell and dispose of the collateral securing the Senior Secured Redeemable Convertible Debenture that were the subject of the SPA and that the sale would take place in St. Thomas, The Virgin Islands.

 

The Company disputes the fundamental basis for any such sale as set forth in the Most Recent Notice, including the purported basis for DGF’s claims that the Company is in default under the SPA.  Among other issues, the Company continues to maintain that the SPA is void and that DGF’s actions thereunder are legally unsupportable. The Company will seek to have the purported sale terminated and to have DGF held in contempt by the United States District Court for the District of Nevada.  The Company will also seek to recover all of its associated fees and costs relative to its pursuit of this matter.

 

Spare CS, Inc.

 

On January 14, 2018, the Company entered into an Initial Term Agreement (the “ITA”) with Spare CS Inc. (“Spare”), a Delaware corporation, pursuant to which the Company agreed to acquire 50% of the equity of Spare. Spare is a mobile banking app that allows customers to access cash with no ATM, no debit or credit card, and no purchase required from participating merchants. During the years ended December 31, 2018, the Company terminated the ITA with Spare and wrote off the $265,000 that has been advanced to Spare. The $265,000 is included as part of the impairment of assets in the accompanying consolidated statement of operations for the year ended December 31, 2018.

 

GBT Technologies, S.A.

 

 On September 14, 2018, the Company entered into an Exclusive Intellectual Property License and Royalty Agreement (the “GBT License Agreement”) with GBT-CR, a fully compliant and regulated cryptocurrency exchange platform that currently operates in Costa Rica as a decentralized cryptocurrency platform, pursuant to which, among other things, the Company granted to GBT-CR an exclusive, royalty-bearing right and license relating intellectual property relating to systems and methods of converting electronic transmissions into digital currency as reflected in that certain patent filed with the United Stated Patent and Trademark Office on or about June 14, 2018 (EFS ID: 32893586; Application Number: 16008069; Type: Utility under 35 USC 111(a); Confirmation Number: 6787)(collectively, the “Digital Currently Technology”). Pursuant to the GBT License Agreement, the Company granted GBT-CR an exclusive worldwide license to use the Digital Currency Technology to make, use, sell, lease or otherwise commercialize and dispose of products and devices utilizing the Digital Currently Technology.

 

28

 

GBT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018  

(UNAUDITED)

 

Under the terms of the GBT License Agreement, the Company is entitled to receive a royalty payment of 2% of gross revenue of each licensed product sold by GBT-CR during the period starting in which revenue is first generated using the licensed products and continuing for five years thereafter. Upon signing the GBT-CR License Agreement, GBT-CR paid the Company $300,000 which is nonrefundable. The Company has recognized the $300,000 as revenue during the years ended December 31, 2018. Upon GBT-CR making available for sale (the “Commercial Event”) an ICO (Initial Coin Offering) (the “Coin”), GBT-CR will make a payment to the Company in the amount of $5,000,000. Further, upon the Commercial Event, GBT-CR will grant the Company the ability to acquire 30% of the Coin at a 30% discount of such offering price of the Coin. The GBT License Agreement commenced as of the signing date and, unless terminated in accordance with the termination provisions of the GBT License Agreement, shall remain in force until the expiration of the patent pertaining to the Digital Currency Technology; provided that the right to use trade secrets shall survive the expiration of the GBT License Agreement provided the Company has not terminated. Prior to the signing of the GBT License Agreement, GBT-CR advanced $200,000 to the Company, which the parties have agreed will be applied toward the $5,000,000 fee when it becomes due. The $200,000 is recorded as unearned revenue at September 30, 2019 and December 31, 2018 in the accompanying consolidated balance sheet.

 

 Note 13 – Concentrations

 

Concentration of Credit Risk

 

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments. There have been no losses in these accounts through September 30, 2019.

 

Note 14 - Subsequent Events

 

Management has evaluated events that occurred subsequent to the end of the reporting period shown herein:

 

On October 10, 2019, the Company entered into a Joint Venture Agreement (the “BitSpeed Agreement”) with BitSpeed LLC, which is owned by Douglas Davis, the Company’s Chief Executive Officer, to form GBT BitSpeed Corp., a Nevada company (“GBT BitSpeed”). The purpose of GBT BitSpeed is to develop, maintain and support its proprietary Extreme Transfer Software Application Concurrency, a software application to transfer secure, accelerated transmission of large file data over networks, and connection to cloud storage, Network-Attached Storage (NAS) and Storage Area Networks (SANs) (“Concurrency”). BitSpeed shall contribute the services and resources for the development of Concurrency to GBT BitSpeed. The Company shall contribute 10 million shares of common stock of the Company to GBT BitSpeed. BitSpeed and the Company will each own 50% of GBT BitSpeed. The Company shall appoint two directors and BitSpeed shall appoint one director of GBT BitSpeed. In addition, GBT BitSpeed and Mr. Davis entered into a Consulting Agreement in which Mr. Davis is engaged to provide services in consideration of $10,000 per month payable quarterly which may be paid in shares of common stock calculated by the amount owed divided by the Company’s 20-day VWAP. Mr. Davis will provide services in connection with the development of the business as well as GBT BitSpeed’s capital raising efforts. The term of the Consulting Agreement is two years. The closing of the BitSpeed Agreement occurred on October 14, 2019.

 

Subsequent to September 30, 2019, the Company issued $105,000 in promissory notes to an investor.

 

On October 15, 2019 holders of cashless warrants exercised 1,440,000 warrants for 1,193,840 common shares of the Company.

 

On November 1, 2019 holder of cashless warrants exercised 1,800,000 warrants for 1,291,592 common shares of the Company.

 

On November 14,2019, the Company pledged its 3,333,333 shares in SURG to a third party to secure working capital of up to $500,000 which has been provided.

 

29

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion should be read in conjunction with our financial statements and related notes included elsewhere in this report. In addition to historical information, this discussion includes forward-looking information that involves risks and assumptions, which could cause actual results to differ materially from management’s expectations. See “Forward-Looking Statements” included in this report.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

 

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

 

This section of the report should be read together with Footnotes of the Company audited financials for the year ended December 31, 2018. The unaudited statements of operations for the nine months ended September 30, 2019 and 2018 are compared in the sections below.

 

General Overview

 

GBT Technologies Inc. (the “Company”, “we”, “us”, “our”, “GBT”, or “GTCH”) was incorporated on July 22, 2009 under the laws of the State of Nevada and is headquartered in Santa Monica, California. The Company considers itself a Native IoT solutions creator, developing Internet of Things (IoT) and Artificial Intelligence enabled mesh network and asset tracking IoT mobile technology. The Company has a portfolio of Intellectual Property that when commercialized will include smart microchips, mobile application software and supporting cloud software. The system contemplates the creation of a global mesh network. The core of the system will be its advanced microchip technology that can be installed in any mobile or fixed device worldwide. The Company envisions this system as a low-cost, private and secure network between all enabled mobile devices providing shared processing, advanced mobile database management/sharing and enhanced mobile features.

 

Recent Developments

 

GBT Technologies, S.A. (“GBT-CR”)

 

On June 17, 2019, the Company, Altcorp Trading LLC, a Costa Rica company and a wholly-owned subsidiary of the Company (“Altcorp”), GBT Technologies, S.A., a Costa Rica company (“GBT-CR”) and Pablo Gonzalez, a shareholder’s representative of GBT-CR (“Gonzalez”), entered into and closed an Exchange Agreement (the “GBT Exchange Agreement”) pursuant to which the parties exchanged certain securities. In accordance with the Exchange Agreement, Altcorp acquired 625,000 shares of GBT-CR representing 25% of its issued and outstanding shares of common stock from Gonzalez in exchange for the issuance of 20,000 shares of Series H Convertible Preferred Stock of the Company and a Convertible Note in the principal amount of $10,000,000 issued by the Company (the “Gopher Convertible Note”) as well as the transfer and assignment of a Promissory Note payable by Gopher Protocol Costa Rica Sociedad De Responsabilidad Limitada to the Company in the principal amount of $5,000,000 dated February 6, 2019 (of which the underlying security for this Promissory Note is 30,000,000 restricted shares of common stock of Mobiquity) and 60,000,000 restricted shares of common stock of Mobiquity Technologies, Inc.

 

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GBT-CR is in the business of the strategic management of BPO (Business Process Outsourcing) digital communications processing for enterprises and startups, distributed ledger technology development, AI development and fintech software development and applications.

 

Latinex

 

On January 8, 2019, the Company entered into a Stock Pledge Agreement with Latin American Exchange Latinex Casa de Cambio, S.A., a Costa Rica corporation (“Latinex”). Latinex is a fully licensed and Central Bank regulated “Currency Exchange” in Costa Rica. In order to provide that Latinex may maintain its required regulatory capital as required by various regulators, the Company has pledged restricted shares of its common stock valued at $7.5 million for a term of three years in consideration of an annual payment of $375,000 paid in quarterly installments of $93,750. In lieu of cash payment, Latinex may pay the Company in virtual currency of WISE Network S.A. valued at a 50% discount of its offering price of $10 per token. In the event Latinex’s required capital has decreased below $5,000,000, Latinex is permitted to sell the pledged shares of common stock only in an amount to ensure that Latinex can satisfy the required capital levels. The Company must consent to such sale of the shares of common stock, if at all, which may not be unreasonably withheld. Upon expiration of the agreement, the remaining shares of common stock shall be returned to the Company free and clear of all liens.

 

Results of Operations:

 

Three months Ended September 30, 2019 and September 30, 2018

 

A comparison of the statements of operations for the three months ended September 30, 2019 and 2018 is as follows:

 

		Three Months Ended September 30,								Change
		2019				2018				$				%
Sales		$	4,467,800			$	3,817,041			$	650,759				17.0	%
Cost of goods sold			4,220,843				3,291,800				929,043				28.2	%
Gross profit			246,957				525,241				(278,284	)			-53.0	%
Operating expenses			122,698,340				22,088,262				100,610,078				455.5	%
Loss from operations			(122,451,383	)			(21,563,021	)			(100,888,362	)			467.9	%
Other expense			79,867,648				(3,154,436	)			83,022,084				-2631.9	%
Loss before provision for income taxes			(42,583,735	)			(24,717,457	)			(17,866,278	)			72.3	%
Provision for income taxes			—				—				—
Loss from continued operations			(42,583,735	)			(24,717,457	)			(17,866,278	)			72.3	%
Discontinued operations			1,180,687				(122,283	)			1,302,970				-1065.5	%
Net loss		$	(41,403,048	)		$	(24,839,740	)		$	(16,563,308	)			66.7	%

 

Sales for the three months ended September 30, 2019 were $4,467,800, compared to $3,817,041 for the three months ended September 30, 2018. The increase of $650,759 or 17.0% was a result of increased sales generated from a contract from our Ugo subsidiary.

 

Our gross margins for the three months ended September 30, 2019 were 5.5%, compared to 13.8% for the same period in 2018. The change in the gross margin was due to licensing revenue generated by during the three months ended September 30, 2018 that had a very high gross margin.

 

Operating expenses for the three months ended September 30, 2019 were $122,698,340, compared to $22,088,262 for the same period in 2018. The increase of $100,610,078 was due to the fair value of warrants issued of $120,476,603 as a result of anti-dilution provisions in certain warrants previously issued; offset by a decrease in common stock issued for services that went from $1,778,500 for the three months ended September 30, 2018 to $0 for the same period in 2019.

 

Other expense for the three months ended September 30, 2019 was $79,867,648, an increase of $83,022,084 from $417,961 for the same period in 2018. The increase is principally due to an increase in the change in the fair value of the derivative liability, offset by i) amortization of debt discounts, and interest and financing costs due to the increase in new convertible notes in late 2018 and 2019, and ii) realized and unrealized loss on a marketable equity security.

 

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The operating results of our discontinued operations for ECS Prepaid, Electronic Check Services and the Central State Legal Services businesses for the three months ended September 30, 2019 and 2018 is summarized below:

 

		Three Months Ended September 30,
		2019				2018
Revenue		$	7,924,152			$	11,719,155
Cost of revenue			7,774,888				11,400,450
Gross Profit			149,264				318,705
Operating expenses			350,380				440,988
Loss from operations			(201,116	)			(122,283	)
Other income (expenses)			—				—
Net loss		$	(201,116	)		$	(122,283	)

 

Net loss for the three months ended September 30, 2019 was $41,403,048 compared to $24,839,740 for the same period in 2018 due to the factors described above.

 

Nine months Ended September 30, 2019 and September 30, 2018

 

A comparison of the statements of operations for the nine months ended September 30, 2019 and 2018 is as follows:

 

		Nine Months Ended September 30,								Change
		2019				2018				$				%
Sales		$	14,315,761			$	9,070,506			$	5,245,255				57.8	%
Cost of goods sold			13,569,709				8,136,517				5,433,192				66.8	%
Gross profit			746,052				933,989				(187,937	)			-20.1	%
Operating expenses			128,324,360				43,504,557				84,819,803				195.0	%
Loss from operations			(127,578,308	)			(42,570,568	)			(85,007,740	)			199.7	%
Other expense			(32,476,500	)			(3,771,693	)			(28,704,807	)			761.1	%
Loss before provision for income taxes			(160,054,808	)			(46,342,261	)			(113,712,547	)			245.4	%
Provision for income taxes			—				—				—
Loss from continued operations			(160,054,808	)			(46,342,261	)			(113,712,547	)			245.4	%
Discontinued operations			900,525				(100,206	)			1,000,731				-998.7	%
Net loss		$	(159,154,283	)		$	(46,442,467	)		$	(112,711,816	)			242.7	%

 

Sales for the nine months ended September 30, 2019 were $14,315,761, compared to $9,070,506 for the nine months ended September 30, 2018. The increase of $5,245,255 or 57.8% was a result of increased sales generated from a contract from our Ugo subsidiary.

 

Our gross margins for the nine months ended September 30, 2019 were 5.2%, compared to 10.3% for the same period in 2018. The change in the gross margin was due to licensing revenue generated by during the three months ended September 30, 2018 that had a very high gross margin.

 

Operating expenses for the nine months ended September 30, 2019 were $128,324,360, compared to $43,504,557 for the same period in 2018. The increase of $84,819,803 or 195.0% was due to the fair value of warrants issued of $120,476,603 as a result of anti-dilution provisions in certain warrants previously issued; offset by i) a decrease in common stock issued for services that went from $12,831,225 for the nine months ended September 30, 2018 to $235,900 for the same period in 2019; ii) a decrease in warrants issued for services that went from $7,570,668 for the nine months ended September 30, 2018 to $766,804 for the same period in 2019; iii) a decrease in a charge of $11,750,000 during 2018 related to the buyout of a profit participation agreement with Guardian LLC; iv) a decrease for a charge of $7,132,286 during 2018 related to the impairment of assets associated with the RWJ acquisition.

 

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Other expense for the nine months ended September 30, 2019 was $32,476,500, an increase of $28,704,807 from $3,771,693 for the same period in 2018. The increase is principally due to an increase in i) the change in the fair value of the derivative liability, ii) amortization of debt discounts, and interest and financing costs due to the increase in new convertible notes in late 2018 and 2019, and iii) unrealized loss on a marketable equity security.

 

The operating results of our discontinued operations for ECS Prepaid, Electronic Check Services and the Central State Legal Services businesses for the nine months ended September 30, 2019 and 2018 is summarized below:

 

		Nine Months Ended September 30,
		2019				2018
Revenue			23,901,278			$	27,836,706
Cost of revenue			23,336,163				27,179,686
Gross Profit			565,115				657,020
Operating expenses			1,046,390				757,226
Loss from operations			(481,275	)			(100,206	)
Other income (expenses)			(3	)			—
Net loss			(481,278	)		$	(100,206	)

 

Net loss for the nine months ended September 30, 2019 was $159,154,283 compared to $46,442,467 for the same period in 2018 due to the factors described above.

 

Liquidity and Capital Resources

 

Our cash was $189,907 and $1,863,510 at September 30, 2019 and December 31, 2018, respectively. Cash used in operating activities during the nine months ended September 30, 2019 was $5,979,896, compared to $2,842,007 during the same period in 2018. Significant differences exist between the periods, including common stock and warrants issued for services, amortization of intangible assets, amortization of debt discount, financing costs, and unrealized loss/realized gain on marketable equity securities. Our working capital position worsened going from a working capital deficit of $3,797,666 at December 31, 2018 to a working capital deficit of $33,082,499 at September 30, 2019, principally as a result of the increase in the derivative liability, and the increase in convertible notes and notes payable. Cash flows used in investing activities were $1,148,268 during the nine months ended September 30, 2019, compared to $496,229 for the same period in 2018. The increase is due to the amount paid for an investment during the nine months ended September 30, 2019. Cash from financing activities for the nine months ended September 30, 2019 was $5,454,561, compared to $2,555,619 for the same period in 2018. The increase is due to the issuance of a convertible notes and notes payable during the nine months ended September 30, 2019.

  

We sustained net losses of $159,154,283 for the nine months ended September 30, 2019. In addition, we had a working capital deficit of $33,082,499 and accumulated deficit of $225,305,615 at September 30, 2019. We purchased the assets of RWJ Advanced Marketing, LLC in 2017, and ECS Prepaid LLC, Electronic Check Services, Inc. and Central States Legal Services, Inc. in 2018. RWJ and ECS have historically generated significant revenues which we expect to continue in the future. In addition, during the last half of 2018 and the first few months of 2019, the Company has raised approximately $9,500,000 of net proceeds through the issuance of convertible debt and notes payable (see discussion below). The Company will need to raise additional capital in the future of which there is no guarantee that the Company will be able to successfully raise such capital on acceptable terms. With the cash flow from operations from the recent acquisitions, the cash received from recent convertible debt and notes payable, the sale of marketable equity securities and additional cash anticipated to be raised in the near future, we believe we will have sufficient cash to meet our obligations for the next 12 months.

 

On December 3, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an institutional investor (the “Investor”), pursuant to which the Company issued a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $8,340,000. The Debenture has a maturity date two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal to the Wall Street Journal Prime Rate plus 2% per annum (Wall Street Journal Prime Rate plus 12% per annum upon the occurrence of a Triggering Event). Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued a Common Stock Purchase Warrant to acquire up to 225,000 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $100.00 per share with respect to 50,000 Warrant Shares, $75.00 with respect to 75,000 Warrant Shares and $50.00 with respect to 100,000 Warrant Shares. Pursuant to the terms of the SPA, the investor agreed to tender to the Company the sum of $7,500,000, of which the Company received the sum of $4,500,000 as of the closing, $1,000,000 on January 4, 2019, $1,000,000 on February 5, 2019 and $1,000,000 on March 5, 2019. As of the closing, the face value of the Debenture was $5,004,000.00; as of the first month’s anniversary of the closing, the face value of the Debenture increased to $6,116,000.00; as of the second month’s anniversary of the closing, the face value of the Debenture increased to $7,228,000.00; and as of the third month’s anniversary of the closing, the face value of the Debenture increased to $8,340,000.00. As of the closing, the number of Warrant Shares was 135,000; as of the first month’s anniversary of the closing, the number of Warrant Shares increased to 165,000; as of the second month’s anniversary of the closing, the number of Warrant Shares increased to 195,000; as of the third month’s anniversary of the closing, the number of Warrant Shares increased to 225,000.

 

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On February 27, 2019, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”), pursuant to which the Company issued a promissory note for the original principal amount of $2,325,000 (the “Note”). Iliad gave consideration of $2,025,000 for the Note. The outstanding balance of the Note is to be paid on the one-year anniversary of the issuance of the Note. Interest on the Note accrues at the rate of 10% per annum compounding daily. Subject to the terms and conditions set forth in the Note, the Company may prepay all or any portion of the outstanding balance of the Note at any time in an amount in cash equal to 120% of the amount repaid. In connection with transactions that generate less than $1,000,000 in proceeds, the Company has agreed to not issue any debt instrument or incurrence of any debt other than trade payables in the ordinary course of business, any securities or agreements to sell common stock with anti-dilution or price reset/reduction features or any securities that are or may be become convertible or exercisable into common stock with a price that varies with the market price of the common stock (collectively, “Restricted Issuance Transaction”). The outstanding balance of the Note will be increased by 5% in the event the Company enters into a Restricted Issuance Transaction that is approved by Iliad.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Critical Accounting Policies and Use of Estimates

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of our financial statements in accordance with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements, the reported amounts and classification of revenues and expenses during the periods presented, and the disclosure of contingent assets and liabilities. We evaluate our estimates and assumptions on an ongoing basis and material changes in these estimates or assumptions could occur in the future. Changes in estimates are recorded on the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances and at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily-apparent from other sources. Actual results may differ materially from these estimates if past experience or other assumptions do not turn out to be substantially accurate.

 

We believe that the accounting policies described below are critical to understanding our business, results of operations, and financial condition because they involve significant judgments and estimates used in the preparation of our financial statements. An accounting is deemed to be critical if it requires a judgment or accounting estimate to be made based on assumptions about matters that are highly uncertain, and if different estimates that could have been used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements. Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also critical to understanding our financial statements. The notes to our financial statements contain additional information related to our accounting policies and should be read in conjunction with this discussion.

 

Presentation of Financial Statements

 

The accompanying financial statements include the accounts of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Accounts Receivable

 

The Company grants credit to establishments (such as convenient stores) who sell the Company’s products under credit terms that it believes are customary in the industry and does not require collateral to support customer receivables. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 7-30 days after the issuance of the invoice and typically would be considered past due when the term expires. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.

 

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Marketable Equity Securities

 

The Company accounts for marketable equity securities in accordance with ASC Topic 321, Investments – equity securities. Marketable equity securities are reported at fair value based on quotations available on securities exchanges with any unrealized gain or loss being reported as a component of other income (expense) on the statement of operations. The portion of marketable equity security expected to be sold within twelve months of the balance sheet date is reported as a current asset.

 

Revenue Recognition

 

ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily from IT services, sale of phones, phone card products, prepaid cellular phone minutes and cellular activation, and the Company has no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.

 

Revenue from providing IT services, sale of phones, phone card products, prepaid cellular phone minutes and cellular activation services are recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:

 

·

executed contracts with the Company’s customers that it believes are legally enforceable;

·

identification of performance obligations in the respective contract;

·

determination of the transaction price for each performance obligation in the respective contract;

·

allocation the transaction price to each performance obligation; and

·

recognition of revenue only when the Company satisfies each performance obligation.

 

These five elements, as applied to each of the Company’s revenue category, is summarized below:

 

·

IT services - revenue is recorded on a monthly basis as services are provided;

·

Sale of phones, phone card products, prepaid cellular phone minutes and cellular activation – revenue is recognized at the time of sale to the customer; and

·

License fees and Royalties – revenue is recognized based on the terms of the agreement with its customer.

 

Derivative Financial Instruments

 

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of September 30, 2019 and December 31, 2018, the Company’s only derivative financial instrument was an embedded conversion feature associated with convertible notes payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company’s stock price at the date of conversion.

 

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Fair Value Measurements

 

The Company applies the provisions of ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:

 

·

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

·

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

·

Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement.

 

For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

 

The Company uses Level 2 inputs for its valuation methodology for derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

 

Dividends

 

The Company has not yet adopted any policy regarding payment of dividends. No cash dividends have been paid or declared since the Date of Inception.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, our Chief Executive Officer have concluded that our disclosure controls and procedures were not effective as of the end of the applicable period to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosures.

 

As a smaller reporting company, with revenues stemming from recent acquisitions and a lack of profitability, the Company does not have the resources to install dedicated staff with deep expertise in all facets of SEC disclosure and GAAP compliance, and does not employ enough accounting staff to have proper separation of duties. As is the case with many smaller reporting companies, the Company will continue to consult with its external auditors and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. In order to correct this material weakness, the Company engaged a consultant with expertise in SEC disclosure and GAAP compliance. The Company has found that this approach worked well in the past and believes it to be the most cost-effective solution available for the foreseeable future. The Company will conduct a review of existing sign-off and review procedures as well as document control protocols for critical accounting spreadsheets. The Company will also increase management’s review of key financial documents and records.

 

As a smaller reporting company, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of, financial statements on a monthly basis, and the Company’s external auditor conducts reviews on a quarterly basis. These actions, in addition to the improvements identified above, will minimize any risk of a potential material misstatement occurring.

 

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Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2019, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Legal Proceedings

 

From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business.  There is currently no litigation that management believes will have a material impact on the financial position of the Company.

 

On December 3, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with Discover Growth Fund, LLC (“DGF”) pursuant to which the Company issued a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $8,340,000. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued a Common Stock Purchase Warrant to acquire up to 225,000 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $100.00 per share with respect to 50,000 Warrant Shares, $75.00 with respect to 75,000 Warrant Shares and $50.00 with respect to 100,000 Warrant Shares. DGF may not exercise any portion of the Warrants to the extent that DGF would own more than 4.99% of the Company’s outstanding common stock immediately after exercise. The outstanding principal amount may be converted at any time into shares of the Company’s common stock at a conversion price equal to 95% of the Market Price less $5.00 (The conversion price is lowered by 10% upon the occurrence of each Triggering Event – the current conversion price is 75% of the Market Price less $5.00). The Market Price is the average of the 5 lowest individual daily volume weighted average prices during the period the Debenture is outstanding. On May 28, 2019, DGF delivered to the Company a “Notice of Default and Notice of Sale of Collateral” (the “Notice”). In the Notice, the Investor declared that the Company was in default of the terms of the SPA. On May 30, 2019, in a letter to DGF the Company disputed each of the purported “Trigger Events” and demanded the Investor retract the Notice. It is the Company’s position that the Notice is a further attempt by DGF to mask its issues surrounding its recent conversion notice and resulting affiliate status and the investors ownership position in the Company as set forth above. DGF responded that the Notice will not be withdrawn. In the Notice, DGF declared all obligations under the SPA immediately due and payable. In the Notice, DGF purported to establish 10:00 a.m. Eastern Time on Monday, June 24, 2019, as the date on which it intended to sell and dispose of the collateral securing the Debentures and said the sale would take place in St. Thomas, The Virgin Islands. On June 20, 2019, the United States District Court District of Nevada (the “Court”) granted an Order Granting Ex Parte Application for Temporary Restraining Order (Case Number: 2:19-cv-01039) in favor of the Company temporarily restraining the Investor from selling, foreclosing upon, encumbering, dissipating, or otherwise transferring any of the collateral referenced in the Notice and from conducting the sale currently referenced in the Notice.

 

The Company obtained injunction retraining DGF from proceeding with the Sale of Collateral, (District Court District of Nevada - Case Number: 2:19-cv-01039) and filed its arbitration demand on Friday, June 7, 2019. On July 2, 2019, Honorable Philip Pro (Ret.) was appointed as Arbitrator in Gopher Protocol, Inc. vs. Discover Growth Fund, LLC (JAMS Ref# 1260005395). 

 

The Court (Gopher Protocol, Inc, a Nevada corporation, Plaintiff, vs. Discover Growth Fund, LLC, a US Virgin Islands limited liability company, Defendant; Case Number: 2:19-cv-01039) granted the motion of the Company for a Preliminary Injunction against (DGF, continuing in effect the Court’s previously granted Temporary Restraining Order that enjoined DGF from selling, foreclosing upon, encumbering, dissipating, or otherwise transferring any of the Company’s assets (the “Preliminary Injunction”).

 

Since the issuance of the Preliminary Injunction, the Company believes that DGF (in a series of its own actions that included Notices to increase reserves and a Notice of Conversion) has again violated the Preliminary Injunction. The most recent example is DGF’s October 24, 2019 delivery to the Company of a purported “Notice of Default and Notice of Sale of Collateral” (the “Most Recent Notice”). In the Most Recent Notice, DGF again declared that the Company was in default of the terms of the SPA between the Company and DGF. In the Most Recent Notice, DGF purported to declare all of the Company’s obligations under the SPA immediately due and payable. In the Most Recent Notice, DGF purported to establish 10:00 a.m. Eastern Time on Monday, December 2, 2019, as the date on which DGF intended to sell and dispose of the collateral securing the Debenture that were the subject of the SPA and that the sale would take place in St. Thomas, The Virgin Islands.

 

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The Company disputes the fundamental basis for any such sale as set forth in the Most Recent Notice, including the purported basis for DGF’s claims that the Company is in default under the SPA.  Among other issues, the Company continues to maintain that the SPA is void and that DGF’s actions thereunder are legally unsupportable. The Company will seek to have the purported sale terminated and to have DGF held in contempt by the Court.  The Company will also seek to recover all of its associated fees and costs relative to its pursuit of this matter.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

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

 

On July 8, 2019, the Company entered a Consulting Agreement with Glen Eagles Glen Eagles Acquisition LP (“Glen”) as consultant to provide services in connection with the Company’s acquisition of 25% of GBT Technologies, S.A., a Costa Rican corporation (“GBT-CR”). Consultant will provide analysis, interaction with related professional and other services as requested by the Company to integrate and expand capabilities between GBT-CR and the Company. The Company shall pay Glen $1,000,000 through the issuance of a 6% Convertible Note. At the election of Glen, the Convertible Note can be converted into a maximum of 2,000 shares of Series H Preferred Stock. Each share of Series H Preferred Stock is convertible, at the option of the holder but subject to the Company increasing its authorized shares of common stock, into such number of shares of common stock of the Company as determined by dividing the Stated Value ($500 per share) by the conversion price ($10.00 per share).  The Series H Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series H Preferred Stock shall be entitled to one vote for each share of common stock that the Series H Preferred Stock may be convertible into. In addition, the Company enter into an Amendment of a Common Stock Purchase Warrant held by Glen to acquire nine million shares of common stock that had been assigned to Glen by Guardian Patch LLC. Pursuant to the amendment, the Company agreed to provide that the Common Stock Purchase Warrant may be exercised on a cashless basis and provided a beneficial ownership limitation of 4.99%.

 

During the nine months ended September 30, 2019, the Company had the following transactions in its common stock:

 

·

issued an aggregate of 9,500 shares to employees and board members as part of their compensation agreements with the Company;

 

·

issued 74,762 shares to an investor for the conversion of $1,357,200 in convertible notes and $62,934 in accrued interest;

 

·

issued 59,820 shares to an investor for disputed penalties on a convertible debenture; and

 

·

issued 200,267 shares to Latinex in order to provide that Latinex may maintain its required regulatory capital as

 

·

issued 660,000 shares in connection with the conversion of 66,000 shares of Series D Preferred Stock;

 

·

issued 20,000 shares in connection with the conversion of 2,000,000 shares of Series G Preferred Stock;

 

·

issued 2,500 shares to a consultant for professional services rendered valued at $123,725;

 

·

issued an aggregate of 18,000 shares to employees and board members as part of their agreements with the Company;

 

·

issued 30,000 to a consultant for services related to assisting the Company with the acquisition of the RWJ assets.

 

·

issued aggregate of 12,500 shares to a consultant for services rendered valued at $2,715,000;

 

·

issued 5,000 shares for the acquisition of the ECS assets valued at $1,010,000;

 

·

issued ,2500 shares for the acquisition of the Electronic Check valued at $695,000;

 

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·

issued aggregate of 100,000 shares in connection with its equity interest in Mobiquity valued at $9,980,000;

 

·

issued aggregate of 10,000 shares to a consultant for services rendered valued at $998,000;

 

·

issued aggregate of 125,000 shares to Guardian LLC in connection the termination of its 50% interest in the profits of certain of the Company’s products; and

 

·

issued 12,727 shares of common stock to an investor for cash proceeds of $1,500,000.required by various regulators.

 

The offer, sale and issuance of the above securities was made to accredited investors and the Company relied upon the exemptions contained in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated thereunder with regard to the sale. No advertising or general solicitation was employed in offering the securities. The offer and sales were made to accredited investors and transfer of the common stock will be restricted by the Company in accordance with the requirements of the Securities Act of 1933, as amended.

 

Item 3. Defaults Upon Senior Securities

 

On May 28, 2019, the Investor delivered to the Company a “Notice of Default and Notice of Sale of Collateral” (the “Notice”). In the Notice, the Investor declared that the Company was in default of the terms of the SPA.

 

The Company obtained injunction retraining the Investor from proceeding with the Sale of Collateral, (District Court District of Nevada - Case Number: 2:19-cv-01039) and filed its arbitration demand on Friday, June 7, 2019. On July 2, 2019, Honorable Philip Pro (Ret.) was appointed as Arbitrator in Gopher Protocol, Inc. vs. Discover Growth Fund, LLC (JAMS Ref# 1260005395). 

 

Since the issuance of the Preliminary Injunction, the Company believes that DGF (in a series of its own actions that included Notices to increase reserves and a Notice of Conversion) has again violated the Preliminary Injunction. The most recent example is DGF’s October 24, 2019 delivery to the Company of a purported “Notice of Default and Notice of Sale of Collateral” (the “Most Recent Notice”). In the Most Recent Notice, DGF again declared that the Company was in default of the terms of the December 3, 2018 Securities Purchase Agreement (“SPA”) between the Company and DGF. In the Most Recent Notice, DGF purported to declare all of the Company’s obligations under the SPA immediately due and payable. In the Most Recent Notice, DGF purported to establish 10:00 a.m. Eastern Time on Monday, December 2, 2019, as the date on which DGF intended to sell and dispose of the collateral securing the Senior Secured Redeemable Convertible Debenture that were the subject of the SPA and that the sale would take place in St. Thomas, The Virgin Islands.

 

The Company disputes the fundamental basis for any such sale as set forth in the Most Recent Notice, including the purported basis for DGF’s claims that the Company is in default under the SPA.  Among other issues, the Company continues to maintain that the SPA is void and that DGF’s actions thereunder are legally unsupportable. The Company will seek to have the purported sale terminated and to have DGF held in contempt by the United States District Court for the District of Nevada.  The Company will also seek to recover all of its associated fees and costs relative to its pursuit of this matter.

 

Item 4.  Mine Safety Disclosures

 

Not Applicable.

 

Item 5.  Other Information  

 

On October 10, 2019, the Company entered into a Joint Venture Agreement (the “BitSpeed Agreement”) with BitSpeed LLC, which is owned by Douglas Davis, the Company’s Chief Executive Officer, to form GBT BitSpeed Corp., a Nevada company (“GBT BitSpeed”). The purpose of GBT BitSpeed is to develop, maintain and support its proprietary Extreme Transfer Software Application Concurrency, a software application to transfer secure, accelerated transmission of large file data over networks, and connection to cloud storage, Network-Attached Storage (NAS) and Storage Area Networks (SANs) (“Concurrency”). BitSpeed shall contribute the services and resources for the development of Concurrency to GBT BitSpeed. The Company shall contribute 10 million shares of common stock of the Company to GBT BitSpeed. BitSpeed and the Company will each own 50% of GBT BitSpeed. The Company shall appoint two directors and BitSpeed shall appoint one director of GBT BitSpeed. In addition, GBT BitSpeed and Mr. Davis entered into a Consulting Agreement in which Mr. Davis is engaged to provide services in consideration of $10,000 per month payable quarterly which may be paid in shares of common stock calculated by the amount owed divided by the Company’s 20-day VWAP. Mr. Davis will provide services in connection with the development of the business as well as GBT BitSpeed’s capital raising efforts. The term of the Consulting Agreement is two years. The closing of the BitSpeed Agreement occurred on October 14, 2019.

 

On November 14,2019, the Company pledged its 3,333,333 shares in SURG to a third party to secure working capital of up to $500,000 which has been provided.

 

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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibit No.		Description
3.1		Certificate of Incorporation of Forex International Trading Corp. (6)
3.2		Bylaws of Forex International Trading Corp. (6)
3.3		Certificate of Designation for Series A Preferred Stock (14)
3.4		Certificate of Designation for Series B Preferred Stock (21)
3.5		Certificate of Designation – Series C Preferred Stock (22)
3.6		Amendment to the Certificate of Designation for the Series B Preferred Stock (25)
3.7		Amendment to the Certificate of Designation for the Series C Preferred Stock(25)
3.8		Certificate of Change filed pursuant to NRS 78.209 (31)
3.9		Articles of Merger filed pursuant to NRS 92.A.200 (31)
3.10		Certificate of Amendment to the Articles of Incorporation of Gopher Protocol Inc. (34)
3.11		Certificate of Change dated July 10, 2019 (67)
3.12		Articles of Merger by and between Gopher Protocol Inc. and GBT Technologies Inc. dated July 10, 2019(67)
3.13		Certificate of Correction to the Certificate of Change (68)
3.14		Certificate of Correction to the Articles of Merger by and between Gopher Protocol Inc. and GBT Technologies Inc. dated July 10, 2019 (68)
3.15		Certificate of Amendment to the Articles of Incorporation of GBT Technologies Inc. dated September 23, 2019 (72)
4.1		Convertible Promissory Note issued by the Company to ATL dated July 8, 2010 (3)
4.2		Secured and Collateralized Promissory Note issued by ATL to the Company dated July 8, 2010 (3)
4.3		Collateral and Security Agreement by and between Forex International Trading Group and ATL dated July 7, 2010 (3)
4.4		Promissory Note issued to Rasel Ltd. Dated October 6, 2009(7)
4.5		Promissory Note issued to Rasel Ltd. Dated October 20, 2009 (7)
4.6		Letter Agreement between Rasel Ltd. and Forex International Trading Corp. dated January 22, 2011 (8)
4.7		Letter Agreement by and between Forex International Trading Group and ATL dated November 8, 2010 (9)
4.8		6% Convertible Note issued to APH (11)
4.9		6% Convertible Debenture issued to HAM dated April 5, 2011 (14)
4.10		Promissory Note dated November 30, 2011 issued to Cordellia dioxo. in the amount of $1,000,000 (18)
4.11		$500,000 Convertible Promissory Note issued by Forex International Trading Corp. (23)
4.12		$400,000 Secured and Collateralized Promissory Note issued by Vulcan Oil & Gas Inc. (23)
4.13		Securities Purchase Agreement dated July 24, 2013 entered with Asher Enterprise Inc. (26)
4.14		Convertible Promissory Note issued to Asher Enterprises Inc. (26)
4.15		10% Convertible Debenture issued to GV Global Communications Inc. (30)
4.16		Amendment to 10% Convertible Promissory Debenture held by GV Global Communications, Inc. (32)

 

40

 

 

4.17		Series D Preferred Stock Certificate of Designation (32)
4.18		Common Stock Purchase Warrant (40)
4.19		6% Convertible Promissory Note issued by the Company to Guardian Patch LLC dated May 23, 2017 (41)
4.20		Securities Purchase Agreement entered with Crown Bridge Partners, LLC dated June 9, 2017 (42)
4.21		Convertible Promissory Note dated June 9, 2017 issued to Crown Bridge Partners LLC (42)
4.22		Convertible Promissory Note Back End Note dated June 9, 2017 issued to Crown Bridge Partners LLC (42)
4.23		Collateralized Secured Promissory Note Back End Note dated June 9, 2017 issued to Crown Bridge Partners LLC (42)
4.24		Securities Purchase Agreement entered with Eagle Equities, LLC dated June 9, 2017 (42)
4.25		Convertible Promissory Note issued to Eagle Equities, LLC dated June 9, 2017 (42)
4.26		Convertible Promissory Note issued to Eagle Equities, LLC dated June 9, 2017 (Back End Note) (42)
4.27		Form of Collateralized Secured Promissory Note dated June 9, 2017 issued by Eagle Equities, LLC (42)

4.28		Convertible Promissory Note dated June 7, 2017 issued to JSJ Investments Inc. (42)
4.29		Convertible Promissory Note dated June 29, 2017 issued to JSJ Investments Inc. (44)
4.30		Form of Warrant issued to Robert Warren Jackson, Gregory Bauer, Michael Murray and Guardian Patch, LLC dated September 1, 2017 (45)
4.31		Balloon Note payable by Gopher Protocol Inc. to RWJ Advanced Marketing, LLC dated September 1, 2017 (45)
4.32		Securities Purchase Agreement entered with Eagle Equities, LLC dated September 13, 2017 (46)
4.33		Convertible Promissory Note issued to Eagle Equities, LLC dated September 13, 2017(46)
4.34		Convertible Promissory Note issued to Eagle Equities, LLC dated September 13, 2017 (Back End Note) (46)
4.35		Form of Collateralized Secured Promissory Note dated September 13, 2017 issued by Eagle Equities, LLC(46)
4.36		Securities Purchase Agreement dated October 2, 2017 between Gopher Protocol Inc. and Power Up Lending Group Ltd. (47)

 

41

 

 

4.37		Convertible Promissory Note dated October 2, 2017 issued to Power Up Lending Group Ltd. (47)
4.38		Securities Purchase Agreement entered with Labrys Fund, LP dated October 26, 2017 (49)
4.39		Convertible Promissory Note issued to Labrys Fund, LP dated October 26, 2017 (49)
4.40		Rescission Agreement entered between Gopher Protocol Inc. and Crown Bridge Partners, LLC dated October 23, 2017 (49)
4.41		Securities Purchase Agreement by and between Gopher Protocol Inc. and Eagle Equities, LLC dated December 29, 2017 (50)
4.42		Common Stock Purchase Warrant issued to Eagle Equities, LLC dated December 29, 2017 (50)
4.43		Certificate of Designation of the Preferences, Rights and Limitations of the Series G Convertible Preferred Stock (51)
4.44		Form of Securities Purchase Agreement entered with Bellridge Capital, LLC (52)
4.45		10% Convertible Debenture issued to Bellridge Capital, LLC dated March 2, 2018 (52)
4.46		Common Stock Purchase Warrant issued to Bellridge Capital, LLC dated March 2, 2018 (52)
4.47		Form of Warrant issued to Derron Winfrey, Dennis Winfrey, Mark Garner and JIL Venture dated March 1, 2018 (53)

4.48		Note payable by Gopher Protocol Inc. to ECS, LLC dated March 1, 2018 (53)
4.49		10% Convertible Debenture issued to Bellridge Capital, LP dated April 9, 2018 (54)
4.50		Common Stock Purchase Warrant issued to Bellridge Capital, LP dated April 9, 2018 (54)
4.51		Stock Option issued to Kevin Pickard dated April 16, 2018 (55)
4.52		Stock Option issued to Muhammad Khilji dated April 25, 2018 (56)
4.53		Securities Purchase Agreement by and between Gopher Protocol Inc. and Eagle Equities, LLC dated May 4, 2018 (57)
4.54		Series H Convertible Preferred Stock Certificate of Designation (65)
4.55		6% Convertible Note payable to Pablo Gonzalez dated June 17, 2019 (65)
4.56		Convertible Note payable to Glen Eagles Acquisition LP (66)
4.57		Amendment to Common Stock Purchase Warrant between Gopher Protocol Inc. and Glen Eagles Acquisition LP (66)
10.1		Software Licensing Agreement dated April 12, 2010, by and between Forex International Trading Corp and Triple (1)
10.2		Employment Agreement dated April 23, 2010, by and between Forex International Trading Corp and Darren Dunckel (2)
10.3		Letter Agreement by and between Forex International Trading Corp. and Anita Atlas, dated July 29, 2010 (4)
10.4		Letter Agreement by and between Forex International Trading Corp. and Stewart Reich, dated July 29, 2010 (4)
10.5		Letter Agreement by and between Forex International Trading Corp. and Mr. William Glass, dated August 6, 2010 (5)
10.6		Share Exchange Agreement by and between Forex International Trading Corp. and APH (10)

 

42

 

 

10.7		Letter Agreement by and between Forex International Trading Corp., APH, Medirad Inc. and Rasel Ltd. (11)
10.8		Letter Amendment by and between Forex International Trading Corp. and William Glass, dated March 4, 2011 (13)
10.9		Letter Amendment by and between Forex International Trading Corp. and Stewart Reich, dated March 4, 2011 (13)
10.10		Employment Agreement by and between Forex International Trading Corp. and Liat Franco, dated March 7, 2011 (13)
10.11		Agreement between Forex International Trading Corp. and APH dated April 5, 2011 (14)
10.12		Conversion Agreement between MP and Forex International Trading Corp. dated April 5, 2011 (14)
10.13		Share Exchange Agreement between Forex International Trading Corp. and dated April 5, 2011 (14)
10.14		Agreement to Unwind and Mutual Release dated as of July 11, 2011 by and between Forex International Trading Corp., Forex NYC and Wheatley Investment Agreement by and between Forex International Trading Corp. and Centurion Private Equity, LLC dated June 27, 2011 (16)
10.15		Registration Rights Agreement with Centurion by and between Forex International Trading Corp. and Centurion Private Equity, LLC dated June 27, 2011 (16)
10.16		Intentionally Left Blank
10.17		Settlement Agreement by and between Forex International Trading Corp., A.T. Limited, Watford Holding Inc. and James Bay Holdings, Inc. dated November 1, 2011 (17)
10.18		Settlement and Foreclosure Agreement between Forex International Trading Corp., AP Holdings Limited, H.A.M Group Limited and Cordellia d.o.o.(18)
10.19		Annulment of Share Purchase Agreement dated December 5, 2011 between Triple 8 Limited, AP Holdings Limited, H.A.M Group Limited and 888 Markets (Jersey) Limited (18)
10.20		Promissory Note issued to Forex International Trading Corp. dated December 13, 2011 (19)
10.21		Stock Pledge Agreement executed by Fortune Market Media Inc. dated December 13, 2011 (19)
10.22		Conversion Agreement between the Company and GV Global Communications, Inc. (22)
10.23		Agreement by and between and Direct JV Investments Inc., Forex International Trading Corporation and Vulcan Oil & Gas Inc. dated January 7, 2013 (23)
10.24		Evaluation License Agreement dated September 2, 2013, by and between Forex International Trading Corp and Micrologic Design Automation, Inc. (27)
10.25		Letter Agreement dated January 2, 2014, by and between Forex International Trading Corp and Micrologic Design Automation, Inc. (28)
10.26		Settlement Agreement by and between Forex International Trading Corp. and Leova Dobris dated November 14, 2014 (29)
10.27		Exchange Agreement by and between Forex International Trading Corp. and Vladimir Kirish dated January 22, 2015 (30)
10.28		Exchange Agreement by and between Forex International Trading Corp. and GV Global Communications Inc. dated January 22, 2015 (30)

 

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10.29		Agreement by and between Forex International Trading Corp. and Fleming PLLC dated January 22, 2015 (30)
10.30		Territorial License Agreement dated March 4, 2015, by and between Gopher Protocol Inc. and Hermes Roll LLC (32)
10.31		Amended and Restated Territorial License Agreement dated June 16, 2015 by and between Gopher Protocol Inc. and Hermes Roll LLC (35)
10.32		Letter Agreement dated August 20, 2015 by and between Gopher Protocol Inc. and Dr. Danny Rittman (36)
10.33		Consulting Agreement dated August 11, 2015, by and between Gopher Protocol Inc. and Michael Korsunsky (37)
10.34		Letter Agreement dated March 14, 2016 by and between Gopher Protocol Inc. and Dr. Danny Rittman. (38)
10.35		Amended and Restated Employment Agreement by and between Gopher Protocol Inc. and Dr. Danny Rittman dated April 19, 2016 (39)
10.36		Consulting Agreement dated September 10, 2016, by and between Gopher Protocol Inc. and Waterford Group LLC (40)
10.37		Conversion Agreement between the Company and Guardian Patch LLC dated May 23, 2017 (41)
10.38		Lock-Up and Leak-Out Agreement between the Company and Guardian Patch LLC dated June 26, 2017 (43)
10.39		Lock-Up and Leak-Out Agreement between the Company and Stanley Hills LLC dated June 29, 2017 (43)
10.40		Letter Agreement between the Company and Danny Rittman dated June 29, 2017 (43)
10.41		Asset Purchase Agreement between Gopher Protocol Inc. and RWJ Advanced Marketing, LLC dated September 1, 2017 (45)
10.42		Addendum to Asset Purchase Agreement between Gopher Protocol Inc. and RWJ Advanced Marketing, LLC dated September 1, 2017 (45)
10.43		Employment Agreement between Gopher Protocol Inc. and Gregory Bauer dated September 1, 2017 (45)

  

44

 

 

10.44		Consulting Agreement between Gopher Protocol Inc. and Guardian Patch, LLC dated September 1, 2017 (45)
10.45		Rescission Agreement between Gopher Protocol Inc. and Eagle Equities LLC dated December 31, 2017 (51)
10.46		Amendment of Lock-Up and Leak-Out Agreement between Gopher Protocol Inc. and Stanley Hills, LLC dated December 29, 2017(51)
10.47		Amendment of Lock-Up and Leak-Out Agreement between Gopher Protocol Inc. and Guardian Patch, LLC dated December 29, 2017(51)
10.48		Asset Purchase Agreement between Gopher Protocol Inc. and ECS Prepaid LLC dated March 1, 2018 (53)
10.49		Employment Agreement between Gopher Protocol Inc. and Derron Winfrey dated March 1, 2018(53)
10.50		Employment Agreement between Gopher Protocol Inc. and Mark Garner dated March 1, 2018(53)
10.51		Consulting Agreement between Gopher Protocol Inc. and J.I.L. Venture LLC dated March 1, 2018(53)
10.52		Executive Retention Agreement by and between Gopher Protocol Inc. and Kevin Pickard dated April 16, 2018 (55)
10.53		Indemnification Agreement by and between Gopher Protocol Inc. and Kevin Pickard dated April 16, 2018 (55)
10.54		Director Agreement by and between Gopher Protocol Inc. and Muhammad Khilji dated April 25, 2018 (56)
10.55		Indemnification Agreement by and between Gopher Protocol Inc. and Muhammad Khilji dated April 25, 2018 (56)
10.56		Director Agreement by and between Gopher Protocol Inc. and Robert Yaspan dated May 17, 2018 (58)
10.57		Director Agreement by and between Gopher Protocol Inc. and Judit Nagypal dated May 17, 2018 (58)
10.58		Director Agreement by and between Gopher Protocol Inc. and Ambassador Siegel dated May 17, 2018 (58)
10.59		Director Agreement by and between Gopher Protocol Inc. and Eva Bitter dated June 18, 2018 (59)
10.60		Employment Agreement by and between Gopher Protocol Inc. and Douglas L. Davis dated July 23, 2018 (60)
10.61		Director Agreement by and between Gopher Protocol Inc. and Mitchell K. Tavera dated July 31, 2018 (61)
10.62		Agreement between Gopher Protocol Inc. and Mobiquity Technologies, Inc. dated September 4, 2018 (62)
10.63		Consulting Agreement between Gopher Protocol Inc. and Consul Group RE 2021, SRL dated September 5, 2018 (62)

 

45

 

  

10.64		Exclusive Intellectual Property License and Royalty Agreement between Gopher Protocol Inc. and GBT Technologies, S.A. dated September 14, 2018 (63)
10.65		Letter Agreement between Gopher Protocol Inc. and Dr. Danny Rittman dated September 14, 2018 (63)
10.66		Exchange Agreement entered into between Gopher Protocol Inc., Altcorp Trading LLC, GBT Technologies, S.A., a Costa Rica company  and Pablo Gonzalez dated June 17, 2019 (65)
10.67		Consulting Agreement entered into between Gopher Protocol Inc. and Glen Eagles Acquisition LP (66)
10.68		Letter Agreement between Mobiquity Technologies, Inc. and GBT Technologies Inc. executed August 2, 2019 Delivered August 6, 2019 (69)
10.69		Stock Purchase Agreement between Mobiquity Technologies, Inc. and GBT Technologies Inc. Dated September 10, 2019 (71)
1070		Stock Purchase Agreement between Marital Trust GST Subject U/W/O Leopold Salkind and GBT Technologies Inc. dated September 10, 2019 (71)
10.71		Stock Purchase Agreement between Dr. Gene Salkind and GBT Technologies Inc. dated September 10, 2019 (71)
10.72		Stock Purchase Agreement between Deepanker Katyal and GBT Technologies Inc. dated September 10, 2019 (71)
10.73		Joint Venture Agreement by and between GBT Technologies Inc. and BitSpeed LLC dated October 10, 2019 (73)
10.74		Consulting Agreement by and between Douglas L. Davis and GBT BitSpeed Corp. dated October 10, 2019 (73)
16.1		Letter from Alan R. Swift, CPA, P.A. (33)
16.2		Letter from Anton & Chia, LLP (48)
21.1		List of Subsidiaries (70)
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 20, 2010
(2)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 28, 2010
(3)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 13, 2010
(4)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 3, 2010
(5)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 9, 2010
(6)		Incorporated by reference to the Form S-1 Registration Statement filed with the SEC on September 9, 2009.
(7)		Incorporated by reference to the Form S-1 Registration Statement filed with the SEC on November 2, 2009.
(8)		Incorporated by reference to the Form S-1 Registration Statement filed with the SEC on January 29, 2010.
(9)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 22, 2010

 

46

 

  

(10)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 17, 2010
(11)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 3, 2011
(12)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 2, 2011
(13)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 9, 2011
(14)		Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on April 6, 2011
(15)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on May 20, 2011
(16)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 29, 2011
(17)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 9, 2011
(18)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 12, 2011
(19)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 16, 2011
(20)		Incorporated by referenced to the Form 10-K Annual Report filed with the Securities and Exchange Commission on April 13, 2012
(21)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on May 14, 2012
(22)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 27, 2012.
(23)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 9, 2013.
(24)		Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on April 15, 2013.
(25)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on November 20, 2012.
(26)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 1, 2013.
(27)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 4, 2013.
(28)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 3, 2014.

 

47

 

 

(29)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 20, 2014
(30)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 27, 2015
(31)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 18, 2015
(32)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 12, 2015
(33)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 24, 2015
(34)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 1, 2015
(35)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 16, 2015
(36)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 21, 2015
(37)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 28, 2015
(38)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 20, 2016
(39)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 20, 2016
(40)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 13, 2016
(41)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 26, 2017
(42)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 13, 2017
(43)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 30, 2017
(44)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2017
(45)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 7, 2017
(46)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 22, 2017
(47)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2017
(48)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 27, 2017
(49)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 30, 2017
(50)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 2, 2018

 

48

 

 

(51)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 3, 2018
(52)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 6, 2018
(53)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 21, 2018
(54)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 13, 2018
(55)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 18, 2018
(56)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 26, 2018.
(57)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 8, 2018.
(58)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 22, 2018.
(59)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 22, 2018.
(60)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 24, 2018.
(61)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 31, 2018.
(62)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 9, 2018.
(63)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 18, 2018.
(64)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on November 13, 2018.
(65)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on June 19, 2019.
(66)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on July 12, 2019.
(67)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on July 15, 2019.
(68)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 5, 2019.
(69)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 7, 2019.
(70)		Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on May 15, 2019.
(71)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 16, 2019.
(72)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 25, 2019.
(73)		Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 16, 2019.

 

 

49

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

	GOPHER PROTOCOL INC.  (Registrant)
Date: November 19, 2019	By:	/s/ Douglas Davis
		Douglas Davis
	Chief Executive Officer  (Principal Executive, Financial and Accounting Officer)

  

 

50