As of May 27, 2020, 171,496,091 shares of common stock, $.00001
par value per share, of the registrant were outstanding.
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
OVERVIEW
GBT
Technologies Inc. (formally known as Gopher Protocol Inc., the “Company”, “Gopher”, “Gopher Protocol”
“GOPH” or “GTCH”) was incorporated on July 22, 2009 under the laws of the State of Nevada. GBT is an emerging
growth company that 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
has historically offered 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. During
the year ended December 31, 2019, 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
Company is targeting additional growing markets: development of Internet of Things (IoT) and Artificial Intelligence (AI) enabled
networking and tracking technologies, including wireless mesh network technology platform and fixed solutions, development of
an intelligent human body vitals device, prepaid services, asset-tracking IoT and wireless mesh networks.
Prepaid
services
On
September 1, 2017, the Company entered into an Asset Purchase Agreement with a third party, RWJ Advanced Marketing, LLC, a Georgia
corporation. The Company entered into this Asset Purchase Agreement to acquire terminals in approximately 9,400 locations by which,
and at which, the Company planned to deploy its IoT/asset tracking technology. The operations consist primarily of the sale of
phones and phone card products, including PINS for cell minutes, SIM cards for cell minutes, as well as gift cards and prepaid
long distance cards. The Company incorporated a wholly-owned subsidiary, UGopherServices Corp. (“UGopherServices”),
to operate the acquired assets. The assets acquired in the purchase consisted of racks that contain 9-12 items per rack that are
displayed in retail locations, mainly convenience stores; and payment terminals at those same points of sale.
On
March 16, 2018, the Company entered into and closed an asset purchase agreement dated March 1, 2018 with ECS Prepaid, LLC (“ECS”),
a Missouri limited liability company, pursuant to which the Company purchased certain assets from ECS, including, but not limited
to, the processing prepaid platform, servers, POS terminals, customer list, a processing software program and goodwill, in consideration
of $1,100,000 of which $100,000 was paid on the Closing Date and the balance is to be paid pursuant to a secured promissory note
in the amount of $1,000,000. In addition, the Company issued 500,000 shares of common stock of the Company and warrants to purchase
500,000 shares of common stock that are exercisable for a period of five years at a fixed exercise price of $1.85 per share. The
note is secured by the assets acquired by the Company from ECS and the Company is required to make ten equal principal payments
of $100,000 commencing on April 15, 2018. The Company may prepay the note at any time without penalty.
On
April 2, 2018, the Company entered into and closed an asset purchase agreement with Electronic Check Services, Inc. (“Electronic
Check”), a Missouri corporation, pursuant to which the Company purchased certain assets from Electronic Check, including,
but not limited to, assets associated with software that validates written check authenticity. The purchase price was $75,000
in cash, and the Company issued 250,000 shares of common stock of the Company and warrants to purchase 250,000 shares of common
stock that are exercisable for a period of five years at a fixed exercise price of $2.70 per share.
On
April 2, 2018, the Company entered into and closed an asset purchase agreement with Central State Legal Services, Inc. (“CSLS”),
a Missouri corporation, pursuant to which the Company purchased certain assets from CSLS, including, but not limited to, assets
associated with a system to recover funds from returned checks, for $25,000 in cash.
The
Company entered into these asset purchase agreements to acquire the software needed to process transactions for its prepaid business,
and to acquire additional terminal locations by which the Company will deploy its technology. On a combined basis, there are approximately
9,400 points of sale as a result of acquiring certain assets from both RWJ Advanced Marketing LLC and ECS.
On
or around November 10, 2017, UGopherServices experienced a suspension of operations on the terminals that the Company acquired
in its acquisition on September 1, 2017 from RWJ Advanced Marketing LLC. Management of the Company believes that this shutdown
came as a result of the decision of Paypal Holdings Inc. (“Paypal”) decision to suspend operations of TIO Networks
(“TIO”), and appears to have affected all of TIO’s customers. TIO was acquired by Paypal in or around July 2017.
Prior to the suspension, the Company received no notice from TIO, or from RWJ Advanced Marketing LLC, which sold the assets to
UGopherServices, that the suspension would be taking place. Although the Company worked diligently to contain the fallout from
the suspension of operations by TIO, the vast majority of the customers that were acquired as part of the transaction defected
as a result. The subsequent acquisition of ECS was done partly to stem the customer defections, as many of the customers of UgopherServices
sought the services of ECS. In doing so, the Company got many, though not all, of the customers back.
The
Company is currently in litigation with RWJ Advanced Marketing, LLC, its executives and other third parties, and wrote off a substantial
portion of its investment in UgopherServices from September 1, 2017. The Company’s position is that it was defrauded by
the Seller and certain third parties due to the lack of disclosure of TIO’s decision to suspend 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 and the CSLS 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.
The convertible promissory note was issued to AltCorp Trading, LLC a wholly owned subsidiary of the Company.
The
ECS Prepaid, Electronic Check and the CSLS businesses have been presented as discontinued operations on the accompanying financial
statements.
Prepaid
services products
The
racks located at the points of sale contained the following items:
|
●
|
New
and refurbished cellular handsets and SIM cards;
|
|
●
|
Prepaid
long distance cards; and,
|
|
●
|
Prepaid
wireless cards, for both foreign and domestic calls.
|
When
any of these items are brought to the counter, the customer’s method of payment is swiped into a payment terminal machine.
The Company records the revenue from the purchase and the cost of goods sold at the point of sale, and the net is booked as gross
profit by the Company. When a customer purchases a gift card, for example, a value is assigned to a digital PIN number which puts
a certain value on their gift card, to be redeemed by the purchaser at their convenience.
There
are various fees that get added to the cost of the gift card, including commissions and a transaction fee. The transaction fee
is split between the store and the Company. The volume of transactions for each customer in a given month varies, with some points
of sale more active in certain months than others.
Prepaid
services markets
After
the acquisition of certain assets from RWJ Marketing Services LLC in September 2017, the majority of the point of sale locations
held by UGopherServices were in the Southeastern US, but the geographic penetration of the locations overall is national. As discussed
above, a substantial portion of the investment in the UGopherServices investment was written off in the third fiscal quarter of
2018.
Prepaid
services competition
Given
the nature of its business (primarily gift cards, prepaid long distance and wireless calls, and selling handsets and SIM cards),
the competitors are numerous, as any company that issues gift cards, such as Starbucks and Best Buy, could potentially compete
with the gift cards that the company sells at these points of sale. Competitors that sell prepaid calling and wireless plans are
also numerous. Although its competitors do not necessarily sell their gift and calling cards at the same points of sale at which
the company sells its goods, they could, though not on the rack that the Company controls that is positioned within the store.
Asset
tracking IoT - and Artificial Intelligence (AI) enabled networking (including AI Medical Advisor platform and potential products)
The
Company plans to launch a series of software and microchip design products that integrate into strategic technology partners’
solutions and enable real-time tracking and management of IoT or connected assets. Through its investment in GBT Technologies
S.A. and its Joint Venture with Tokenize – It S.A., this platform was further developed with an Artificial Intelligence
(AI) enabled networking as well as a stand-alone AI platform. As an example, the Company’s Guardian Patch solution is a
sticky adhesive patch that is placed on an object to be tracked, and relays the location of the asset through a mesh network that
does not rely on Global System for Mobile Communications (GSM) or GPS technology,
while being “managed” by AI. Avant! AI is a revolutionary system under development for managing and controlling the
Company’s technology. It is designed to as an AI system that can detect, analyze and learn from experience. The Company
is pursuing its use in autonomous cars, drone operations, geo-tracking and controlling many other complex systems
Additionally,
GopherInsight™ allows the tracking and enhanced security of digital assets, including blockchain-based assets. The health
system is an AI based medical advisor. Users may provide symptoms, ask medical questions and describe conditions in order to get
diagnostic advice, including known medications and treatments. We believe this can provide a reliable, simple and fast medical
information for people around the world. We provide information on medical symptoms and conditions based on data and analytics
taken from The National Center for Biotechnology, CDC and other accredited resources. The service is available for adults (18+)
under a disclaimer and is not intended to replace a human physician.
Asset
tracking IoT markets and Artificial Intelligence (AI) enabled networking (including AI Medical Advisor platform and potential
products)
The
applications for the Company’s solutions include segments such as public sector, healthcare sector, banking financial
services and insurance (BFSI) sector, transport and logistics sector, retail sector, commercial sector, industrial sector, energy
and utility sector, manufacturing sector and other sectors.
Asset
tracking IoT and Artificial Intelligence (AI) enabled networking (including AI Medical Advisor platform and potential products)
competition
The
prevailing AI solutions in the marketplace currently are a combination of barcoding and RFID technologies. Existing solutions
require that the asset is near the scanner to be scanned. Further, such existing solutions are “point to point,” meaning
they require repeated scan points along a route in order to update the location of the asset. The GopherInsight platform, including
the Guardian Patch solution, is designed to be more accurate and when placed on or into the asset, has the ability to interactively
locate and update information on an asset anywhere on earth. It works through a Gopher-enabled global mesh network, does not need
GPS or GSM to locate the package, and is regularly transmitting information on the asset, meaning that there is no need to frequently
re-scan the asset to update its location. In addition, the Company’s solutions are planned to include resource and distributed
database management features which are not normally found in IoT systems.
There
are many competitors supplying AI standalone, and AI asset tracking and asset tracking IoT systems today, including companies
such as AT&T, IBM and Verizon. It is Company’s goal to offer the GopherInsight platform to some or all of these competitors
to upgrade and differentiate their solutions.
Wireless
mesh networking
Wireless
mesh networks consist of LAN/MAN/WAN solutions that are infrastructural-intensive, may rely on regulated frequencies and bandwidth,
often have so-called “last mile” problems areas where either economics or population density make it too expensive
for current solutions to cover, and difficult to manage centrally. The Company’s GopherInsight platform makes it easy to
add and manage last mile capacity. The solution is easily integrated into existing networks. The Company’s Avant! AI platform
is designed for easy integration with, and management of, additional coverage for customer networks.
Additionally,
the Company will be targeting device manufacturers as strategic technology partners and OEMs. If a mobile phone manufacturer wishes
to add GopherInsight to is devices, GopherInsight allows devices to communicate without the need for an internet service provider,
thus dramatically reducing costs.
Wireless
mesh networking markets
The
Company will target telecommunications providers, corporate entities that run LAN or wide-area networks, universities, and government
entities.
Wireless
mesh networking markets competition
The
competitors for wireless mesh networking solutions, and AI solutions, are the entities themselves that have their own capability.
The Company’s strategy is to integrate and “wrap around” those solutions to make them more efficient, less costly,
and less infrastructural-intensive, while at the same time solving last mile problems to the end user.
Mobiquity
Agreements
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
February 6, 2019, the Company entered into a letter agreement with Gopher Protocol Costa Rica Sociedad De Responsabilidad Limitada,
a Costa Rican company (“Gopher CR”) and a 50% owned subsidiary of the Company, pursuant to which the Company sold
30,000,000 shares of Mobiquity Technologies, Inc., a New York corporation (“Mobiquity”) to Gopher CR in the principal
amount of $5,000,000 secured by all of the assets of Gopher CR payable with 10% interest on the two year anniversary
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.
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.
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 December 31, 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.
GBT
Technologies, S.A. (“GBT”)
On
September 14, 2018, the Company entered into an Exclusive Intellectual Property License and Royalty Agreement (the “GBT
License Agreement”) with GBT, 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 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; collectively, the “Digital Currently Technology”).
Pursuant to the GBT License Agreement, the Company granted GBT 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.
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 during the period starting in which revenue is first generated using the licensed products and continuing
for five years thereafter. Upon signing the GBT License Agreement, GBT paid the Company $300,000, which is nonrefundable. The
Company has recognized the $300,000 as revenue during the year ended December 31, 2018. Upon GBT making available for sale (the
“Commercial Event”) an ICO (Initial Coin Offering) (the “Coin”), GBT will make a payment to the Company
in the amount of $5,000,000. Further, upon the Commercial Event, GBT 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 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 December 31, 2019 in the accompanying consolidated balance sheet. As of the date of this filing,
the Commercial Event has not yet occurred.
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.
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”), 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.
Joint
Ventures
GBT
BitSpeed
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 (valued at $17,900,000) 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.
At
December 31, 2019, the Company evaluated the carrying amount of this joint venture investment and determined that an impairment
charge of $17,900,000 was necessary.
GBT
Tokenize
On
March 6, 2020, the Company through its newly acquired wholly owned subsidiary, Greenwich International Holdings, a Costa Rica
corporation (“Greenwich”), entered into a Joint Venture and Territorial License Agreement (the “Tokenize Agreement”)
with Tokenize-It, S.A. (“Tokenize”), which is owned by a Costa Rica Trust represented by Pablo Gonzalez (“Gonzalez”).
Gonzalez also represents Gonzalez Costa Rica Trust, which holds a note in the principal amount of $10,000,000 and is also a shareholder
of the Company. Under the Tokenize Agreement, the parties formed GBT Tokenize Corp., a Nevada corporation (“GBT Tokenize”).
The purpose of GBT Tokenize is to develop, maintain and support source codes for its proprietary technologies including advanced
mobile chip technologies, tracking, radio technologies, AI core engine, electronic design automation, mesh, games, data storage,
networking, IT services, business process outsourcing development services, customer service, technical support and quality assurance
for business, customizable and dedicated inbound and outbound calls solutions, as well as digital communications processing for
enterprises and startups (“Technology Portfolio”), throughout the State of California. Upon generating any revenue
from the Technology Portfolio, the Joint Venture will earn the first right of refusal for other territories.
Tokenize
shall contribute the services and resources for the development of the Technology Portfolio to GBT Tokenize. The Company shall
contribute 100,000,000 shares of common stock of the Company (“GBT Shares”) to GBT Tokenize. Tokenize and the Company
will each own 50% of GBT Tokenize. The Company pledged its 50% ownership in GBT Tokenize and its 100% ownership of Greenwich to
Tokenize to secure its Technology Portfolio investment. The Company shall appoint two directors and Tokenize shall appoint one
director of GBT Tokenize.
In
addition, GBT Tokenize and Gonzalez entered into a Consulting Agreement in which Gonzalez is engaged to provide services in consideration
of $33,333.33 per month payable quarterly which may be paid in shares of common stock calculated by the amount owed divided by
the Company’s 10-day VWAP. Gonzalez will provide services in connection with the development of the business as well as
GBT Tokenize’s capital raising efforts. The term of the Consulting Agreement is two years. The closing of the Tokenize Agreement
occurred on March 9, 2020.
Dr.
Rittman Employment Agreement
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. An additional $70,000 shall be payable within 15 days of the end of the calendar year. 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.
Guardian
Agreements
On
September 25, 2018, the Company entered into a Joint Venture Interest Purchase Agreement with Guardian Patch 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
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%. As a result of the above
Guardian Patch LLC does not hold any securities or debts of the Company.
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 Company tracking device system consists of advanced security protocols in order to
maintain the global, private, fully-secured network. In addition, the 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 device 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.
Intellectual
Property
To
date, the Company, has filed for different patents covering certain fields of its technologies, as well as trademarks. The patents
are owned by the Company. These patents and trademarks, as well as various websites and social media platforms, comprise the Company’s
intellectual properties. On February 27, 2020 GBT Technologies, S.A., as successor in interest to Hermes Roll, LLC had notified
the Company that it was in default on its Amended and Restated Territorial License Agreement (“ARTLA”) dated June
15, 2015 and that the ARTLA had been cancelled and rescinded.
On
January 31, 2020, in the arbitration titled GBT Technologies Inc. (k/n/a Gopher Protocol, Inc. v. Discover Growth Fund, LLC (“Discover”)
(JAMS Ref. No. 1260005395), the Company was informed that a final award was entered (the “Final Award”). The Final
Award affirms that certain sections of the Senior Secured Redeemable Convertible Debenture (the “Debenture”) constitute
unenforceable liquidated damages penalties and were stricken. Further, it was determined that neither Discover nor John Kirkland,
President and General Partner of Discover, were entitled to recovery of their attorneys fees. Consequently, and consistent with
the expectations of the Company, the arbitrator awarded Discover an award of $4,034,444.46 plus interest of 7.25% accrued from
May 15, 2019 and costs in the amount of $55,613.00. On February 18, 2020, the Company filed a motion with the United States District
Court District of Nevada (the “Nevada Court”) to confirm the Final Award and a motion to consolidate Discover’s
application to confirm the Final Award filed in the U.S. District Court of the Virgin Islands (Case No: 3 :20-cv-00012-CVG-RM)
(the “Virgin Island Court”). On February 27, 2020, the Nevada Court denied the Company’s motion to confirm the
Final Award and motion to consolidate and further decided that the confirmation of the Final Award should be litigated in the
Virgin Island Court. As such, on February 27, 2020, the Company filed a Notice of Entry of Order as well as a Motion to Confirm
the Arbitration Award; Address the Outstanding issue regarding whether Discover’s rights are subordinated to other creditors
and, thereafter, oversee a commercially reasonable foreclosure sale (Case No: 3 :20-cv-00012-CVG-RM). It was the Company’s
position that the Final Award must first be confirmed and all questions regarding the rights of Discover relative to those of
other creditors must be determined before any foreclosure sale can proceed. It was further the position of the Company that the
previously disclosed foreclosure sale scheduled by Discover is being conducted in a commercially unreasonable manner and that
if Discover proceeded forward with the foreclosure sale it did so at its own risk.
Nevertheless,
on February 28, 2020, Discover advised that it conducted a sale of the Company’s assets.
On
March 6, 2020, the Company through its newly acquired wholly owned subsidiary, Greenwich International Holdings, a Costa Rica
corporation (“Greenwich”), entered into a Joint Venture and Territorial License Agreement (the “Tokenize Agreement”)
with Tokenize-It, S.A. (“Tokenize”) to develop, maintain and support source codes for its proprietary technologies
including advanced mobile chip technologies, tracking, radio technologies, AI core engine, electronic design automation, mesh,
games, data storage, networking, IT services, business process outsourcing development services, customer service, technical support
and quality assurance for business, customizable and dedicated inbound and outbound calls solutions, as well as digital communications
processing for enterprises and startups (“Technology Portfolio”),
Employees
As
of December 31, 2019, we had 14 full time employees and 0 part time employees. We also utilize outside consultants and contractors
as needed.
Clients
and Customers
After
the acquisition of certain assets from RWJ Marketing Services LLC in September 2017, the Company via its subsidiary UGopherServices
Corp. serving approximately 5,980 point of sale locations, with approximately 7,326 active members, each of which process varying
volumes of transactions per month.
ITEM
1A. RISK FACTORS
As
a Smaller Reporting Company, the Company is not required to include the disclosure under this Item 1A. Risk Factors. Despite
the fact that we are not required to provide risk factors, we consider the following factors to be risks to our continued growth
and development:
WE
HAVE A LIMITED OPERATING HISTORY IN AN EVOLVING INDUSTRY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS AND MAY INCREASE
THE RISK THAT WE WILL NOT BE SUCCESSFUL.
We
only recently started our operations in our current business in 2015. We have a limited operating history in an evolving industry
that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties
we may encounter. These risks and difficulties include our ability to:
|
●
|
accurately
forecast our revenues and plan our operating expenses;
|
|
●
|
successfully
expand our business;
|
|
●
|
assimilate
our acquisitions;
|
|
●
|
adapt
to rapidly evolving trends in the ways consumers and businesses interact with technology;
|
|
●
|
avoid
interruptions or disruptions in the offering of our products and our services;
|
|
●
|
develop
a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased usage, as well as
the deployment of new features and products;
|
|
●
|
hire,
integrate and retain talented sales, customer service, technology and other personnel; and
|
|
●
|
effectively
manage rapid growth in personnel and operations.
global
COVID-19 pandemic
|
If
the demand for our products offered through our points of sales or our products under development are not finalized, our business
will be harmed. We may not be able to successfully address these risks and difficulties, which could harm our business and results
of operations.
OUR
LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR US TO EVALUATE OUR FUTURE BUSINESS PROSPECTS AND MAKE DECISIONS BASED ON THOSE
ESTIMATES OF OUR FUTURE PERFORMANCE.
We
shifted our focus to our real-time, heuristic- (self-learning/artificial intelligence) based mobile technology in 2015 and recently
acquired point of sale terminals. We have a limited operating history and generated approximately $14.5 million in
revenue for the year ended December 31, 2018 and approximately $19.2 million for the year ended December 31, 2019. As
a consequence, it is difficult, if not impossible, to forecast our future results based upon our historical data. Reliance
on the historical results may not be representative of the results we will achieve. Because of the uncertainties related
to our limited historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases
in revenues or expenses. If we make poor budgetary decisions as a result of unreliable historical data, we could be less
profitable or continue to incur losses.
The
COVID-19 outbreak has caused disruptions in our development operations, which have resulted in delays on exiting projects and
may have additional negative impacts on our operations.
The
Company operates in a high-tech marketplace and relies on professionals and partnerships all over the world, which is impacted
by the global pandemic, causing the Company’s resources to be affected. Our business operations have been and may continue
to be materially and adversely affected by the coronavirus disease COVID-19.
An
outbreak of respiratory illness caused by COVID-19 emerged in Wuhan city, Hubei province, PRC, in late 2019 and has been expanding
globally. COVID-19 is considered to be highly contagious and poses a serious public health threat.
On
March 19, 2020, the California Governor announced the lockdown of California in an attempt to slow the spread of the virus. Since
then, other measures have been imposed in other countries and major cities in the USA, including Los Angeles, and throughout the
world in an effort to contain the COVID-19 outbreak. The World Health Organization (the “WHO”) is closely monitoring
and evaluating the situation. On March 11, 2020, the WHO declared the outbreak of COVID-19 a pandemic, expanding its assessment
of the threat beyond the global health emergency it had announced in January. Any outbreak of such epidemic illness or other adverse
public health developments in the USA or elsewhere in the world may materially and adversely affect the global economy, our markets
and our business.
In
the first quarter of 2020, the COVID-19 outbreak has caused disruptions in our development operations, which have resulted in
delays on exiting projects. A prolonged disruption or any further unforeseen delay in our operations of the development, delivery
and assembly process within any of our activities could continue to result in, increased costs and reduced revenue.
We
cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of
its impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition
may be materially and adversely affected as a result of the deteriorating market outlook for sales, the slowdown in regional and
national economic growth, weakened liquidity and financial condition of our customers and vendors or other factors that we cannot
foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment,
cause uncertainties, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business,
financial condition and results of operations
OUR
RESULTS OF OPERATIONS HAVE NOT RESULTED IN PROFITABILITY AND WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY GOING FORWARD
The
Company does not accrue or capitalize development costs (or any costs to this effect) and expense it to its profit and loss statements
as required by US GAPP. As such, the Company incurred a net loss amounting to $51,769,670 for the year ended December 31, 2018,
and $186,505,119 for the year ended December 31, 2019. If we incur additional significant operating losses, our stock
price, may decline, perhaps significantly. Our management is developing plans to alleviate the negative trends and conditions
described above. Our business plan is speculative and unproven. There is no assurance that we will be successful in
executing our business plan or that even if we successfully implement our business plan, that we will be able to curtail our losses
now or in the future. Further, as we are an emerging enterprise, we expect that net losses will continue, and our working
capital deficiency will increase.
WE
HAVE GENERATED INSIGNIFICANT POSITIVE CASH FLOW, AND OUR ABILITY TO GENERATE POSITIVE CASH FLOW IS UNCERTAIN. IF WE ARE UNABLE
TO GENERATE POSITIVE CASH FLOW OR OBTAIN SUFFICIENT CAPITAL WHEN NEEDED, OUR BUSINESS AND FUTURE PROSPECTS WILL BE ADVERSELY AFFECTED
AND WE COULD BE FORCED TO SUSPEND OR DISCONTINUE OPERATIONS.
Our
operations have generated insignificant positive cash flow for any reporting period since our inception, and we have funded our
operations primarily through the issuance of common stock and short-term and long-term debt and convertible debt. Our limited
operating history makes an evaluation of our future prospects difficult. The actual amount of funds that we will need to meet
our operating needs will be determined by a number of factors, many of which are beyond our control. These factors include the
timing and volume of sales transactions, the success of our marketing strategy, market acceptance of our products, the success
of our manufacturing and research and development efforts (including any unanticipated delays), our manufacturing and labor costs,
the costs associated with obtaining and enforcing our intellectual property rights, regulatory changes, competition, technological
developments in the market, evolving industry standards and the amount of working capital investments we are required to make.
Our
ability to continue to operate until we are able to generate sufficient our cash flow from operations will depend on our ability
to generate sufficient positive cash flow from our operations. If we are unable to generate sufficient cash flow from our operations,
our business and future prospects will be adversely affected and we could be forced to suspend or discontinue operations.
The
Company sustained net losses of $186,505,119 and our operating activities used cash flows of $6,623,463 for the year ended December
31, 2019. The Company had a working capital deficit of $11,830,572 stockholders’ deficit of $18,712,886 and an accumulated
deficit of $252,656,451 at December 31, 2019. Over the same period in 2018, the Company sustained net losses of $51,769,670, and
our operating activities used cash flows of $4,651,829. In 2018, the Company had a working capital deficit of $3,897,716 (after
excluding $4,223,011 classified as assets of discontinued operations), stockholders’ equity of $14,516,389, and an accumulated
deficit of $66,151,332.
WE
WILL REQUIRE ADDITIONAL CAPITAL TO SUPPORT BUSINESS GROWTH, AND THIS CAPITAL MIGHT NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT
ALL.
We
intend to continue to make investments to support our business growth and we will require additional funds to respond to business
challenges, including the need to develop new features and products or enhance our existing products, improve our operating infrastructure
or acquire complementary businesses and technologies. Further, we need additional capital to continue operations. Accordingly,
we need to engage in equity or debt financings to secure additional funds. We expect that we have sufficient capital to maintain
operations through the third quarter of 2020. In order to fully implement our business plan, we will need to raise $10,000,000.
If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could
suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to
those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating
to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional
financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory
to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be
impaired, and our business may be harmed.
WE
DEPEND UPON KEY PERSONNEL AND NEED ADDITIONAL PERSONNEL
Our
success depends on our inability to attract and retain key personnel including Mansour Khatib, our CEO, and Dr. Danny Rittman,
our CTO, and our inability to do so may materially and adversely affect our business operations. The loss of qualified personnel
could have a material and adverse effect on our business operations. Additionally, the success of the Company’s
operations will largely depend upon its ability to successfully attract and maintain competent and qualified key management personnel.
As with any company with limited resources, there can be no guaranty that the Company will be able to attract such individuals
or that the presence of such individuals will necessarily translate into profitability for the Company.
OUR
BUSINESS REQUIRES SUBSTANTIAL CAPITAL, AND IF WE ARE UNABLE TO MAINTAIN ADEQUATE CASH FLOWS FROM OPERATIONS OUR PROFITABILITY
AND FINANCIAL CONDITION WILL SUFFER AND JEOPARDIZE OUR ABILITY TO CONTINUE OPERATIONS
We
require substantial capital to support our operations. If we are unable to generate adequate cash flows from our operations,
maintain adequate financing or other sources of capital are not available, we could be forced to suspend, curtail or reduce our
operations, which could harm our revenues, profitability, financial condition and business prospects.
A
SINGLE STOCKHOLDER HOLDS A CONTROLLING INTEREST IN OUR COMPANY, WHICH COULD LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF ANY
STOCKHOLDER VOTE
Pablo
Gonzalez, through GBT Tokenize Corp. and the Gonzalez Trust, beneficially owns approximately 59.6% of the outstanding shares of
Common Stock. Under our Certificate of Incorporation and Nevada law, the vote of a majority of the shares outstanding is generally
required to approve most stockholder action. As a result, this stockholder will be able to significantly influence the outcome
of stockholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Certificate
of Incorporation or proposed mergers or other significant corporate transactions.
THERE
IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK. FAILURE TO FURTHER DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY
AFFECT THE VALUE OF OUR COMMON STOCK AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR STOCK.
There
is a limited public market for our Common Stock, which is traded on the OTC PINK under the symbol GTCH. We cannot give any assurances
that there will ever be a mature, developed market for our common stock. Failure to further develop or maintain an active trading
market could negatively affect the value of our shares and make it difficult for you to sell your shares or recover any part of
your investment in us. Even if a market for our common stock does develop in a material way, the market price of our common stock
may be highly volatile. In addition to the uncertainties relating to our future operating performance and the profitability of
our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of
which are beyond our control, may have a negative effect on the market price of our common stock.
IF
WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR
PREVENT FRAUD. AS A RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH WOULD HARM
OUR BUSINESS AND THE TRADING PRICE OF OUR STOCK.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide
reliable financial reports or prevent fraud, our brand and operating results could be harmed. We have in the past discovered,
and may in the future discover, areas of our internal controls that need improvement. For example, for the years ended December
31, 2018 and December 31, 2019, we reported that our disclosure controls and procedures were not effective due to the lack of
resources and the reliance on outside consultants. We intend to increase management’s review of our financials. We cannot
be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting
in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also
cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price
of our stock.
Additional
Risks Related to Our Common Stock
Because
we are quoted on the OTC PINK marketplace instead of a national securities exchange, our investors may experience significant
volatility in the market price of our stock and have difficulty selling their shares.
Our
Common Stock is currently quoted on the OTC Market Group’s OTC PINK marketplace under the ticker symbol “GTCH”
((prior year under the symbol: “GOPH”). The OTC is a regulated quotation service that displays real-time quotes and
last sale prices in over-the-counter securities. Trading in shares quoted on the OTC PINK is often thin and characterized by volatility.
This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of
consistent administrative supervision of bid and ask quotations, lower trading volume and market conditions. As a result, there
may be wide fluctuations in the market price of the shares of our Common Stock for reasons unrelated to operating performance,
and this volatility, when it occurs, may have a negative effect on the market price for our securities. Moreover, the OTC PINK
is not a stock exchange, and trading of securities on this platform is more sporadic than the trading of securities listed on
a national quotation system or stock exchange. Accordingly, our stockholders may not be able to realize a fair price from their
shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our Common
Stock improves.
Our
stock price and trading volume may be volatile, which could result in substantial losses for our stockholders.
The
equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of
equity securities. The market price of our Common Stock could change in ways that may or may not be related to our business, our
industry or our operating performance and financial condition. In addition, the trading volume in our Common Stock has been low
and may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of
our stock. In addition, the stock markets in general can experience considerable price and volume fluctuations.
We
have not paid dividends in the past and have no immediate plans to pay cash dividends.
We
plan to reinvest all of our earnings, to the extent we have earnings, in order to develop and deliver our products and cover operating
costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities
in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available
for distribution to the holders of our Common Stock as a dividend. Therefore, you should not expect to receive cash dividends
on our Common Stock.
Shares
eligible for future sale may adversely affect the market for our Common Stock.
Of
the 171,496,091 shares of our Common Stock outstanding as of the date of this Annual Report, approximately 61,389,407 shares are
held by “non-affiliates,” and about 48,371,849 shares are freely tradable without restriction pursuant to Rule 144.
Any substantial sale of our Common Stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse
effect on the market price of our Common Stock.
You
may experience future dilution as a result of future equity offerings.
In
order to raise additional capital, we may in the future offer additional shares of our Common Stock or other securities convertible
into or exchangeable for our Common Stock at prices that may not be the same as the price per share in this offering. We may sell
shares or other securities in any future offering at a price per share that is lower than the price per share paid by investors
in this offering, which would result in those newly issued shares being dilutive. In addition, investors purchasing shares or
other securities in the future could have rights superior to existing stockholders, which could impair the value of your shares.
The price per share at which we sell additional shares of our Common Stock, or securities convertible or exchangeable into shares
of our Common Stock, in future transactions may be higher or lower than the price per share paid by investors in this offering.
The Company filed Form S-1 registration statement with the SEC on or around February 8, 2019 for potentially 225,000 dilutive
common shares (post reverse split) issued potentially be issued from the exercise of certain warrants in connection with a transaction
with an unaffiliated third party institutional investor. The S-1 will become effective either after the filing of this report,
or at the same time. There can be no assurance that the investor that holds the warrants will exercise those warrants. The warrants
have varying exercise prices, the lowest of which is $50 (post reverse split).
Our
charter documents and Nevada law may inhibit a takeover that stockholders consider favorable.
Provisions
of our certificate of incorporation and bylaws and applicable provisions of Nevada law may delay or discourage transactions involving
an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise
receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.
The provisions in our certificate of incorporation and bylaws:
|
☐
|
limit
who may call stockholder meetings;
|
|
☐
|
do
not provide for cumulative voting rights; and
|
|
☐
|
provide
that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
|
There
are limitations on director/officer liability.
As
permitted by Nevada law, our certificate of incorporation limits the liability of our directors for monetary damages for breach
of a director’s fiduciary duty except for liability in certain instances. As a result of our charter provision and Nevada
law, shareholders may have limited rights to recover against directors for breach of fiduciary duty. In addition, our certificate
of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law.
Penny
stock regulations may impose certain restrictions on marketability of our securities.
The
SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price
of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. A security listed
on a national securities exchange is exempt from the definition of a penny stock. Our Common Stock is not currently listed on
a national security exchange. Our Common Stock is therefore subject to rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those
with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by such rules, the broker-dealer must make a special suitability determination for the purchase of such securities and
have received the purchaser’s written consent to the transaction prior to the purchase.
Additionally,
for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose the commission
payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker dealer must disclose this fact and the broker-dealer’s presumed control over the market.
Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information
on the limited market in penny stocks. Broker-dealers must wait two business days after providing buyers with disclosure materials
regarding a security before effecting a transaction in such security. Consequently, the “penny stock” rules restrict
the ability of broker-dealers to sell our securities and affect the ability of investors to sell our securities in the secondary
market and the price at which such purchasers can sell any such securities, thereby affecting the liquidity of the market for
our Common Stock.
Stockholders
should also be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud
and abuse. Such patterns include:
|
●
|
control
of the market for the security by one or more broker-dealers that are often related to the promoter or issuer ;
|
|
●
|
manipulation
of prices through prearranged matching of purchases and sales and false and misleading press releases ;
|
|
●
|
“boiler
room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons
;
|
|
●
|
excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers ; and
|
|
●
|
the
wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent investor losses.
|
FINRA
sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The
Financial Industry Regulatory Authority (referred to as FINRA) has adopted rules requiring that, in recommending an investment
to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced
securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities,
they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which
may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the market for
and price of our common stock.
ITEM
1B. UNRESOLVED STAFF COMMENTS
As
a Smaller Reporting Company, the Company is not required to include the disclosure under this Item 1B. Unresolved Staff Comments.
At this time, there are no unresolved staff comments.
ITEM
2. PROPERTIES
During
2017, the Company relocated its headquarters to 2500 Broadway, Suite F-125, Santa Monica, California. During the year ended December
31, 2018, and 2019 the Company paid approximately $2,800 per month in rent for this office space during 2018 and approximately
$2,470 per month during 2019. The Company paid a security deposit of approximately $2,000. The Company believes its current facilities
will be adequate for the foreseeable future. Due to the global COVID-19 pandemic, the Company has maintained its address but only
as virtual office space with minimum administrative services, while all employees and consultants work remotely.
ITEM
3. 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
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.
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.
On
December 23, 2019, in the pending arbitration between the Company and the Investor, an Interim Award was entered in favor of the
Investor. On January 31, 2020, the Company was informed that a final award was entered (the “Final Award”). The Final
Award affirms that certain sections of the Senior Secured Redeemable Convertible Debenture (the “Debenture”) constitute
unenforceable liquidated damages penalties and were stricken. Further, it was determined that the Investor was entitled to recovery
of their attorney’s fees. Consequently, the arbitrator awarded Investor an award of $4,034,444 plus interest of 7.25% accrued
from May 15, 2019 and costs in the amount of $55,613.
On
January 31, 2020, in the arbitration, GBT Technologies Inc. (k/n/a Gopher Protocol, Inc. v. Discover Growth Fund, LLC (“Discover”)
(JAMS Ref. No. 1260005395), the Company was informed that a final award was entered (the “Final Award”). The Final
Award affirms that certain sections of the Senior Secured Redeemable Convertible Debenture (the “Debenture”) constitute
unenforceable liquidated damages penalties and were stricken. Further, it was determined that neither Discover nor John Kirkland,
President and General Partner of Discover, were entitled to recovery of their attorneys fees. Consequently, and consistent with
the expectations of the Company, the arbitrator awarded Discover an award of $4,034,444.46 plus interest of 7.25% accrued from
May 15, 2019 and costs in the amount of $55,613.00.
On
February 18, 2020, the Company filed a motion with the United States District Court District of Nevada (the “Nevada Court”)
to confirm the Final Award and a motion to consolidate Discover’s application to confirm the Final Award filed in the U.S.
District Court of the Virgin Islands (Case No: 3 :20-cv-00012-CVG-RM) (the “Virgin Island Court”). On February 27,
2020, the Nevada Court denied the Company’s motion to confirm the Final Award and motion to consolidate and further decided
that the confirmation of the Final Award should be litigated in the Virgin Island Court. As such, on February 27, 2020, the Company
filed a Notice of Entry of Order as well as a Motion to Confirm the Arbitration Award; Address the Outstanding issue regarding
whether Discover’s rights are subordinated to other creditors and, thereafter, oversee a commercially reasonable foreclosure
sale (Case No: 3 :20-cv-00012-CVG-RM). It is the Company’s position that the Final Award must first be confirmed and all
questions regarding the rights of Discover relative to those of other creditors must be determined before any foreclosure sale
can proceed. It is further the position of the Company that the previously disclosed foreclosure sale scheduled by Discover is
being conducted in a commercially unreasonable manner and that if Discover proceeded forward with the foreclosure sale it did
so at its own risk.
Nevertheless,
on February 28, 2020, Discover advised that it conducted a sale of the Company’s assets. As the date of this report Discover
failed to present a deed of sale for the alleged sale that allegedly took place as noticed. The Company filed with Virgin Island
Court the motions disputing the validity of said alleged sale.
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.
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 December 31, 2019 and 2018 in the accompanying consolidated balance
sheet.
ITEM
4. MINE SAFERY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company is authorized to issue 100,000,000,000
of its $0.00001 par value common stock and 20,000,000 shares of its $0.00001 par value preferred stock Series B and 10,000 shares
of its $0.00001 par value preferred stock Series C, 100,000 shares of its $0.00001 par value preferred Series D shares, 2,000,000
of its $0.00001 par value preferred Series G shares and 40,000 of its $0.00001 par value preferred Series H shares. As of December
31, 2019, 16,536,351 shares of common stock, as well as 45,000 shares of preferred stock Series B, 700 shares of preferred stock
Series C, zero shares of preferred stock Series D, zero shares of preferred stock Series G and 20,000 shares of preferred stock
Series H were issued and outstanding. As of May 27_2020, 171,496,091 shares of common stock, as well as 45,000 shares of preferred
stock Series B, 700 shares of preferred stock Series C, zero shares of preferred stock Series D, zero shares of preferred stock
Series G and 20,000 shares of preferred stock Series H are issued and outstanding. The Board of Directors reserves the right to
issue shares of preferred stock in the future indicating preference or rights as appropriate.
Market
Information
Our
common stock commenced quotation on the OTC PINK under the symbol “GTCH”. The Company’s subsequent symbol was
“GOPH”. The following table sets forth the range of high and low prices per share of our common stock for each period
indicated (after given effect to reverse split of1 for 100 split.)
Quarters Ended
|
|
Mar 31
|
|
|
Jun 30
|
|
|
Sept 30
|
|
|
Dec 31
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
2018
|
|
$
|
272
|
|
|
$
|
110
|
|
|
$
|
449
|
|
|
$
|
148
|
|
|
$
|
262
|
|
|
$
|
64
|
|
|
$
|
97
|
|
|
$
|
30
|
|
2019
|
|
$
|
38.3
|
|
|
$
|
65
|
|
|
$
|
46.2
|
|
|
$
|
7.20
|
|
|
$
|
13.5
|
|
|
$
|
1.5
|
|
|
$
|
1.7
|
|
|
$
|
0.63
|
|
Record
Holders
The
number of holders of record for our common stock as of April 10, 2020 was 88.
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.
Securities
Authorized for Issuance Under Equity Compensation Plans
We
presently do not have equity compensation plans authorized.
Transfer
agent change
On
or around March 19, 2019, the Company changed transfer agents, replacing Empire Stock Transfer, Inc., located in Henderson, Nevada,
with West Coast Stock Transfer with a business address at 721 N. Vulcan Ave. Ste. 205, Encinitas, CA 92024. On or around September
19, 2019, the Company changed transfer agents, replacing West Coast Stock Transfer, located in Encinitas, CA with Nevada Agency
and Transfer Company (“NATCO”) with a business address at 50 West Liberty Street, Suite 880, Reno NV 89501; NATCO’s
website is www.natco.com, and their phone number is (775) 322-0626.
Penny
Stock
Our
common stock is considered “penny stock” under the rules the Securities and Exchange Commission (the “SEC”)
under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with
transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and
volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document
prepared by the Commission, that:
-
|
contains
a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
|
-
|
contains
a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the
customer with respect to a violation to such duties or other requirements of Securities’ laws; contains a brief, clear,
narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread
between the bid and ask price;
|
-
|
contains
a toll-free telephone number for inquiries on disciplinary actions;
|
|
|
-
|
defines
significant terms in the disclosure document or in the conduct of trading in penny stocks; and
|
-
|
contains
such other information and is in such form, including language, type, size and format, as the Commission shall require by
rule or regulation.
|
The
broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
-
|
bid
and offer quotations for the penny stock;
|
-
|
the
compensation of the broker-dealer and its salesperson in the transaction;
|
-
|
the
number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity
of the marker for such stock; and
|
-
|
monthly
account statements showing the market value of each penny stock held in the customer’s account.
|
In
addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules;
the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written suitably statement.
These
disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
Recent
Issuances of Unregistered Securities
Authorized
Shares-Common stock
The
Company currently has authorized 100,000,000,000 shares of common stock, par value $0.00001.
Authorized
Shares-Preferred stock
The
Company has authorized 20,000,000 Preferred Stock Series B shares, par value $0.00001; 10,000 Preferred Stock Series C shares
authorized, par value $0.00001; 100,000 Preferred Stock Series D shares, par value $0.00001, 2,000,000 Preferred Stock Series
G shares, par value $0.00001 and 40,000 Preferred Stock Series H shares, par value $0.00001 .
Common
Stock
During
the year ended December 31, 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;
|
|
●
|
issued
10,000,000 shares in connection with a joint venture with BitSpeed. The value of the
common stock of $17,900,000 was based on the closing price of the Company’s common
stock on the closing date;
|
|
●
|
issued
4,566,214 shares in connection with the cashless exercise of 6,120,000 warrants; and
|
|
●
|
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 year ended December 31, 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
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 3,000,000 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 1,2,500 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
2,500 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
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
an additional 100,000 shares to Mobiquity valued at $3,90,000 for payment of the exercise
price for 20,000,000 warrants previously granted to the Company. (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 date of issuance;
|
|
●
|
issued
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
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;
|
|
●
|
issued
3,245 shares to Bellridge for the conversion of $275,000 in convertible notes and $17,075
in accrued interest;
|
|
●
|
issued
94,992 shares to an investor for the conversion of $2,000,000 in convertible notes and
$6,521 in accrued interest;
|
|
●
|
issued
3,186 shares to Bellridge pursuant to the limited price protection. The shares were valued
at $213,451 which was charged to financing cost was determined based on the closing stock
price of the Company’s common stock on the date of issuance;
|
|
●
|
issued
20,000 shares to a consultant for services rendered in connection with the issuance of
the Company’s common stock as payment of the exercise price for the Mobiquity warrants
valued at $780,000. The value of the common stock was determined based on the closing
stock price of the Company’s common stock on the date of issuance;
|
|
●
|
issued
20,000 shares to a consultant for services rendered in connection with the issuance of
the Company’s common stock as payment of the exercise price for the Mobiquity warrants
valued at $780,000.
|
|
●
|
issued
20,000 shares to Eagle Equities LLC as a result of the Company issuing shares of common
stock for less than $30.00 pursuant to an agreement with Eagle Equities. (see below).
The shares were valued at $670,000 which was charged to financing cost was determined
based on the closing stock price of the Company’s common stock on the date the
Company issued shares for less than $30.00;
|
|
●
|
issued
937 shares to a consultant for services rendered valued at $30,000. The value of the
common stock was determined based on the closing stock price of the Company’s common
stock on the date of issuance;
|
|
●
|
issued
12,727 shares of common stock to an investor for cash proceeds of $1,500,000 (See discussion
below); and
|
|
●
|
canceled
500 shares pursuant to the settlement of a legal matter.
|
Eagle
Equities, LLC
On
December 29, 2017, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant
to which Eagle agreed to purchase up to 20,000 shares of the Company’s common stock for a purchase price of $1,500,000 or
$75.00 per share. The closing occurred on December 29, 2017 with respect to the funding of $1,000,000 resulting in the issuance
of 13,333 shares of common stock (the “First Closing Shares”). Eagle agreed to potentially purchase an additional
6,667 shares of common stock (the “Second Closing Shares”) on or before March 31, 2018 for a purchase price of $500,000
subject to various closing conditions. On March 21, 2018, Eagle purchased an additional 6,667 shares of common stock for a purchase
price of $500,000.
The
Company placed an aggregate of 20,000 shares of common stock (the “Escrow Shares”) in escrow to be utilized for the
purpose of limited price protection. If, beginning on the seventh month anniversary of the issuance of the First Closing Shares
and Second Closing Shares, Eagle has sold any of the First Closing Shares or the Second Closing Shares at a sales price of less
than $72.00 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a limited make whole which
shall be determined by using the following formula:
($72.00
– Closing Price) / Closing Price) * number of shares sold at a price less than $72.00.
Closing
Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly
until the earlier of January 31, 2019 or until all shares are sold).
The
Company shall deposit an additional 20,000 shares of common stock into escrow which shares shall only be released to Eagle, if,
prior to January 31, 2019 (while Eagle continues to hold shares), the Company issues shares at an issue price of less than $30.00
per share.
The
Company also issued Eagle a Common Stock Purchase Warrant to acquire 6,667 shares of common stock exercisable for three years
at an exercise price of $200.00 per share (the “Eagle Warrant”). Unless otherwise agreed in writing by both the Company
and Eagle, at no time will Eagle exercise any amount of the Eagle Warrant to purchase common stock that would result in Eagle
owning more than 9.9% of the common stock outstanding of the Company. The Eagle Warrant contains standard anti-dilution protections.
On
May 4, 2018, the Company entered into a Securities Purchase Agreement with Eagle pursuant to which Eagle agreed to purchase up
to 12,121 shares of the Company’s common stock for an aggregate purchase price of $2,000,000 or $165.00 per share. The closing
occurred on May 4, 2018 with respect to the funding of $500,000 resulting in the issuance of 3,030 shares of common stock and
on May 25, 2018 with respect to the funding of $500,000 resulting in the issuance of an additional 3,030 shares of common stock.
Additional closings of $500,000 for 303,030 shares are scheduled to close on June 15, 2018 and July 5, 2018 each. The additional
closings on June 15, 2018 and July 5, 2018 have not occurred.
The
Company agreed to place 3,030 shares of common stock each tranche (the “Escrow Shares”) in escrow to be utilized for
the purpose of limited price protection. If, beginning on the seventh month anniversary of the closing of each tranche, Eagle
has sold any of its shares of common stock at a sales price of less than $165.00 per share, then that number of Escrow Shares
shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following formula:
($165.00
– Closing Price) / Closing Price) * number of shares sold at a price less than $165.00.
Closing
Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly
until the earlier of June 4, 2019 or until all shares are sold.
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 December 31, 2019 and 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 December 31, 2019 and 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 December 31, 2019 and 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.
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 December 31, 2019 and 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 December 31, 2019 and 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 December 31, 2019, there are 20,000 shares of Series H Preferred Shares outstanding.
Warrants
The
following is a summary of warrant activity.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Warrants
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
Outstanding, December 31, 2017
|
|
|
227,605
|
|
|
$
|
55.00
|
|
|
|
4.67
|
|
|
$
|
13,640,000
|
|
Granted
|
|
|
192,500
|
|
|
|
69.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(938
|
)
|
|
|
225.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
419,167
|
|
|
$
|
61.00
|
|
|
|
3.48
|
|
|
$
|
-
|
|
Granted
|
|
|
25,355,000
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,120,000
|
)
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
19,654,167
|
|
|
$
|
1.57
|
|
|
|
2.76
|
|
|
$
|
1,111,600
|
|
Exercisable, December 31, 2019
|
|
|
19,650,167
|
|
|
$
|
1.57
|
|
|
|
2.76
|
|
|
$
|
1,111,600
|
|
The
exercise price for warrant outstanding and exercisable at December 31, 2019:
Outstanding
|
|
|
Exercisable
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
15,880,000
|
|
|
$
|
0.50
|
|
|
|
15,880,000
|
|
|
$
|
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
|
|
|
19,654,167
|
|
|
|
|
|
|
|
19,650,167
|
|
|
|
|
|
The
fair value of the warrants listed above was determined using the Black-Scholes option pricing model with the following assumptions:
|
|
December
31,
|
|
December
31,
|
|
|
2019
|
|
2018
|
Risk-free
interest rate
|
|
1.55%
|
|
2.65%
|
Expected
life of the options
|
|
3.1
to 3.6 years
|
|
5
years
|
Expected
volatility
|
|
185%
|
|
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.
During
the years ended December 31, 2018, the Company issued:
|
●
|
10,000
warrants in connection with two convertible notes payable;
|
|
●
|
5,000
warrants as consideration for the acquisition of the ECS assets (see Note 3) valued at
$992,958;
|
|
●
|
250,000
warrants as consideration for the acquisition of the Electronic Check assets (see Note
3) valued at $682,919;
|
|
●
|
22,500
warrants to shares to employees and board members as part of their agreements with the
Company valued at $5,443,039;
|
|
●
|
17,500
warrants to a consultant for services rendered. 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) valued at $3,661,791;
|
|
●
|
135,000
warrants in connection with a convertible note issued to investor; and
|
|
●
|
canceled
938 warrants pursuant to the settlement of a legal matter.
|
The
shares of common stock described above have not been registered under the Securities Act of 1933, as amended (the “Securities
Act”) and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder. Each of the parties is an accredited investor as defined by Rule 501
under the Securities Act.
ITEM
6. SELECTED FINANCIAL DATA
As
a Smaller Reporting Company, the Company is not required to include the disclosure under this Item 6. Selected Financial Data.
ITEM
7. 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
Annual Report on Form 10-K 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. The audited statements of operations
for the years ended December 31, 2019 and 2018 are compared in the sections below.
General
Overview
GBT
Technologies Inc (f/k/a Gopher Protocol Inc., the “Company”, “we”, “us”, “our”,
“Gopher”, “Gopher Protocol” , “GOPH”, “GTCH”, or “GBT”) was incorporated
on July 22, 2009 under the laws of the State of Nevada and is headquartered in Santa Monica, California. 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 has historically 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.
On
March 16, 2018 ( “Closing Date”), the Company entered into and closed an Asset Purchase Agreement dated March 1, 2018
(the “ECS Purchase Agreement”) with ECS Prepaid LLC (“ECS”), a Missouri limited liability company, pursuant
to which the Company purchased certain assets from ECS, including, but not limited to, the processing prepaid platform, servers,
POS terminals, customer list, a processing software program and goodwill, in consideration of $1,100,000 of which $100,000 was
paid on the Closing Date and the balance is to be paid pursuant to a secured promissory note in the amount of $1,000,000 (the
“ECS Note”). In addition, the Company issued 500,000 shares of common stock of the Company (the “ECS Shares”)
and warrants to purchase 500,000 shares of common stock (the “ECS Warrants”). The ECS Warrants were assigned by ECS
to Dennis Winfrey. The ECS Warrants are exercisable for a period of five years at a fixed exercise price of $1.85 per share and
contain standard anti-dilution protection. Under the ESC Note, which is secured by the assets acquired by the Company from ECS,
the Company is required to make ten equal payments of $100,000 commencing on April 15, 2018. The Company may prepay the ECS Note
at any time without penalty. The ECS Note is a short-term debt obligation that is material to the Company.
On
April 2, 2018 (“Closing Date”), the Company entered into and closed an Asset Purchase Agreement (the “Electronic
Purchase Agreement”) with Electronic Check Services Inc. (“Electronic Check”), a Missouri corporation, pursuant
to which the Company purchased certain assets from Electronic Check, including, but not limited to, assets associated with software
that validates written check authenticity, in consideration of $75,000 paid on the Closing Date. In addition, the Company issued
250,000 shares of common stock of the Company (the “Electronic Shares”) and warrants to purchase 250,000 shares of
common stock (the “Electronic Warrants”). The Electronic Warrants were assigned by Electronic Check to Dennis Winfrey,
the shareholder of Electronic Check. The Electronic Warrants are exercisable for a period of five years at a fixed exercise price
of $2.70 per share and contain standard anti-dilution protection.
On
April 2, 2018, the Company entered into and closed an Asset Purchase Agreement (the “Central Purchase Agreement”)
with Central State Legal Services Inc. (“Central”), a Missouri corporation, pursuant to which the Company purchased
certain assets from Central, including, but not limited to, assets associated with the a system to recover funds from returned
checks, in consideration of $25,000 paid on the Closing Date. Derron Winfrey, the COO of the Company, is a director and President
of Electronic Check and Central. Derron Winfrey’s parents are the shareholders of Check and Central.
On
or around November 10, 2017, UGopherServices experienced a suspension of operations on the terminals that the Company acquired
in its acquisition on September 1, 2017 from RWJ Advanced Marketing LLC. Management of the Company believes that this shutdown
came as a result of the decision of Paypal Holdings Inc. (“Paypal”) decision to suspend operations of TIO Networks
(“TIO”), and appears to have affected all of TIO’s customers. TIO was acquired by Paypal in or around July 2017.
Prior to the suspension, the Company received no notice from TIO, or from RWJ Advanced Marketing LLC, which sold the assets to
UGopherServices, that the suspension would be taking place. Although the Company worked diligently to contain the fallout from
the suspension of operations by TIO, the vast majority of the customers that were acquired as part of the transaction defected
as a result. The subsequent acquisition of ECS was done partly to stem the customer defections, as many of the customers of UgopherServices
sought the services of ECS. In doing so, the Company got many, though not all, of the customers back. On a combined basis, there
were approximately 9,400 points of sale as a result of acquiring certain assets from both RWJ Advanced Marketing LLC and ECS.
The
Company is currently in litigation with RWJ Advanced Marketing, LLC, its executives and other third parties, and wrote off a substantial
portion of its investment in UgopherServices from September 1, 2017. The Company’s position is that it was defrauded by
the Seller and certain third parties due to the lack of disclosure of TIO’s decision to suspend 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. The ECS Prepaid, Electronic Check Services and the Central State Legal Services businesses have
been presented as discontinued operations on the accompanying financial statements.
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
February 6, 2019, the Company entered into a letter agreement with Gopher Protocol Costa Rica Sociedad De Responsabilidad Limitada,
a Costa Rican company (“Gopher CR”) and a 50% owned subsidiary of the Company, pursuant to which the Company sold
30,000,000 shares of Mobiquity Technologies, Inc., a New York corporation (“Mobiquity”) to Gopher CR in the principal
amount of $5,000,000 secured by all of the assets of Gopher CR payable with 10% interest on the two-year anniversary.
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.
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.
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 December 31, 2019, the
Company owned no shares of Mobiquity common stock.
GBT
Technologies, S.A. (“GBT”)
On
September 14, 2018, the Company entered into an Exclusive Intellectual Property License and Royalty Agreement (the “GBT
License Agreement”) with GBT, 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 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; collectively, the “Digital Currently Technology”).
Pursuant to the GBT License Agreement, the Company granted GBT 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.
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 during the period starting in which revenue is first generated using the licensed products and continuing
for five years thereafter. Upon signing the GBT License Agreement, GBT paid the Company $300,000, which is nonrefundable. The
Company has recognized the $300,000 as revenue during the year ended December 31, 2018. Upon GBT making available for sale (the
“Commercial Event”) an ICO (Initial Coin Offering) (the “Coin”), GBT will make a payment to the Company
in the amount of $5,000,000. Further, upon the Commercial Event, GBT 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 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 December 31, 2019 in the accompanying consolidated balance sheet. As of the date of this filing,
the Commercial Event has not yet occurred.
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.
At
December 31, 2019, the Company evaluated the carrying amount of this equity investment and determined that an impairment charge
of $31,239,517 was necessary.
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”), 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.
GBT
Bitspeed
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 (valued at $17,900,000) 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.
At
December 31, 2019, the Company evaluated the carrying amount of this joint venture investment and determined that an impairment
charge of $17,900,000 was necessary.
GBT
Tokenize Joint Venture
On
March 6, 2020, the Company through its newly acquired wholly owned subsidiary, Greenwich International Holdings, a Costa Rica
corporation (“Greenwich”), entered into a Joint Venture and Territorial License Agreement (the “Tokenize Agreement”)
with Tokenize-It, S.A. (“Tokenize”), which is owned by a Costa Rica Trust represented by Pablo Gonzalez (“Gonzalez”).
Gonzalez also represents Gonzalez Costa Rica Trust, which holds a note in the principal amount of $10,000,000 and is also a shareholder
of the Company. Under the Tokenize Agreement, the parties formed GBT Tokenize Corp., a Nevada corporation (“GBT Tokenize”).
The purpose of GBT Tokenize is to develop, maintain and support source codes for its proprietary technologies including advanced
mobile chip technologies, tracking, radio technologies, AI core engine, electronic design automation, mesh, games, data storage,
networking, IT services, business process outsourcing development services, customer service, technical support and quality assurance
for business, customizable and dedicated inbound and outbound calls solutions, as well as digital communications processing for
enterprises and startups (“Technology Portfolio”), throughout the State of California. Upon generating any revenue
from the Technology Portfolio, the Joint Venture will earn the first right of refusal for other territories.
Tokenize
shall contribute the services and resources for the development of the Technology Portfolio to GBT Tokenize. The Company shall
contribute 100,000,000 shares of common stock of the Company (“GBT Shares”) to GBT Tokenize. Tokenize and the Company
will each own 50% of GBT Tokenize. The Company pledged its 50% ownership in GBT Tokenize and its 100% ownership of Greenwich to
Tokenize to secure its Technology Portfolio investment. The Company shall appoint two directors and Tokenize shall appoint one
director of GBT Tokenize.
In
addition, GBT Tokenize and Gonzalez entered into a Consulting Agreement in which Gonzalez is engaged to provide services in consideration
of $33,333.33 per month payable quarterly which may be paid in shares of common stock calculated by the amount owed divided by
the Company’s 10-day VWAP. Gonzalez will provide services in connection with the development of the business as well as
GBT Tokenize’s capital raising efforts. The term of the Consulting Agreement is two years. The closing of the Tokenize Agreement
occurred on March 9, 2020.
COVID-19
Pandemic
The
Company operates in a high-tech marketplace and relies on professionals and partnerships all over the world, which is impacted
by the global pandemic, causing the Company’s resources to be affected. Our business operations have been and may continue
to be materially and adversely affected by the coronavirus disease COVID-19.
An
outbreak of respiratory illness caused by COVID-19 emerged in Wuhan city, Hubei province, PRC, in late 2019 and has been expanding
globally. COVID-19 is considered to be highly contagious and poses a serious public health threat.
On
March 19, 2020, the California Governor announced the lockdown of California in an attempt to slow the spread of the virus. Since
then, other measures have been imposed in other countries and major cities in the USA, including Los Angeles, and throughout the
world in an effort to contain the COVID-19 outbreak. The World Health Organization (the “WHO”) is closely monitoring
and evaluating the situation. On March 11, 2020, the WHO declared the outbreak of COVID-19 a pandemic, expanding its assessment
of the threat beyond the global health emergency it had announced in January. Any outbreak of such epidemic illness or other adverse
public health developments in the USA or elsewhere in the world may materially and adversely affect the global economy, our markets
and our business.
In
the first quarter of 2020, the COVID-19 outbreak has caused disruptions in our development operations, which have resulted in
delays on exiting projects. A prolonged disruption or any further unforeseen delay in our operations of the development, delivery
and assembly process within any of our activities could continue to result in, increased costs and reduced revenue.
We
cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of
its impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition
may be materially and adversely affected as a result of the deteriorating market outlook for sales, the slowdown in regional and
national economic growth, weakened liquidity and financial condition of our customers and vendors or other factors that we cannot
foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment,
cause uncertainties, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business,
financial condition and results of operations
Results
of Operations:
Year
Ended December 31, 2019 and December 31, 2018
A
comparison of the statements of operations for the year ended December 31, 2019 and 2018 is as follows:
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
19,277,058
|
|
|
$
|
14,507,869
|
|
|
$
|
4,769,189
|
|
|
|
32.9
|
%
|
Cost of goods sold
|
|
|
18,259,955
|
|
|
|
13,377,761
|
|
|
|
4,882,194
|
|
|
|
36.5
|
%
|
Gross profit
|
|
|
1,017,103
|
|
|
|
1,130,108
|
|
|
|
(113,005
|
)
|
|
|
-10.0
|
%
|
Operating expenses
|
|
|
178,067,794
|
|
|
|
46,539,037
|
|
|
|
131,528,757
|
|
|
|
282.6
|
%
|
Loss from operations
|
|
|
(177,050,691
|
)
|
|
|
(45,408,929
|
)
|
|
|
(131,641,762
|
)
|
|
|
289.9
|
%
|
Other expense
|
|
|
(10,354,953
|
)
|
|
|
(5,969,340
|
)
|
|
|
(4,385,613
|
)
|
|
|
73.5
|
%
|
Loss before provision for income taxes
|
|
|
(187,405,644
|
)
|
|
|
(51,378,269
|
)
|
|
|
(136,027,375
|
)
|
|
|
264.8
|
%
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Loss from continued operations
|
|
|
(187,405,644
|
)
|
|
|
(51,378,269
|
)
|
|
|
(136,027,375
|
)
|
|
|
264.8
|
%
|
Discontinued operations
|
|
|
900,525
|
|
|
|
(391,401
|
)
|
|
|
1,291,926
|
|
|
|
-330.1
|
%
|
Net loss
|
|
$
|
(186,505,119
|
)
|
|
$
|
(51,769,670
|
)
|
|
$
|
(134,735,449
|
)
|
|
|
260.3
|
%
|
Sales
for the year ended December 31, 2019 were $19,277,058, compared to $14,507,869 for the year ended December 31, 2018. The increase
of $4,769,189 or 32.9% was a result of increased sales generated from a new contract from our Ugo subsidiary.
Our
gross margins for the year ended December 31, 2019 were 5.3%, compared to 7.8% for the same period in 2018. The change in the
gross margin was due to licensing revenue generated during the year ended December 31, 2018 that had a very high gross margin.
Operating
expenses for the year ended December 31, 2019 were $177,067,794, compared to $46,539,037 for the same period in 2019. The increase
of $131,528,757 or 282.6% 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 and a charge $48,631,534 related to the impairment of assets during the year ended December
31, 2019 compared to a charge of $7,132,286 during 2018; offset by i) a decrease in common stock issued for services that went
from $13,641,225 for the year ended December 31, 2018 to $235,900 for the same period in 2019; ii) a decrease in warrants issued
for services that went from $7,881,028 for the year ended December 31, 2018 to $766,804 for the same period in 2019; and iii)
a decrease in a charge of $11,750,000 during 2018 related to the buyout of a profit participation agreement with Guardian LLC.
Other
expense for the year ended December 31, 2019 was $10,354,953, an increase of $4,385,613 from $5,969,340 for the same period in
2018. The increase is principally due to an increase in unrealized loss on marketable equity security, as well as an increase
in the change in fair value of the derivative liability, offset by realized gains on settlement of debt.
Net
loss for the year ended December 31, 2019 was $186,505,119 compared to $51,769,670 for the same period in 2018 due to the factors
described above.
Liquidity
and Capital Resources
Our
cash was $59,634 and $1,863,510 at December 31, 2019 and 2018, respectively. Cash used in operating activities during the year
ended December 31, 2019 was $6,623,463, compared to cash provided by operating activities of $4,651,829 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, impairment of assets and unrealized 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 $11,830,572 at December 31, 2019, principally as a result of the decrease in marketable equity securities;
an increase in accounts payable and accrued expenses; an increase in accrued settlement and an increase in note payable. Cash
flows used in investing activities were $1,152,418 during the year ended December 31, 2019, compared to $479,979 for the same
period in 2018. The increase is due to the amount paid for an investment during the year ended December 31, 2019. Cash from financing
activities for the year ended December 31, 2019 was $5,972,005, compared to $5,690,256 for the same period in 2018. The increase
is due to the issuance of a convertible notes and the sale of common stock in 2019.
We
sustained net losses of $186,505,119 for the year ended December 31, 2019. In addition, we had a working capital deficit of $11,830,572
and accumulated deficit of $252,656,451 at December 31, 2019. In September of 2017 we purchased the assets of RWJ Advanced Marketing,
LLC , and then after 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 do not expect to continue in the future, as the Company divested
its investment in ECS Prepaid LLC, Electronic Check Services, Inc. and Central States Legal Services, Inc. on or around September
2019, left only with the acquired assets from RWJ Advanced Marketing, LLC which in litigation, as disclosed in this report. 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). We intend to continue to make investments
to support our business growth and we will require additional funds to respond to business challenges, including the need to develop
new features and products or enhance our existing products, improve our operating infrastructure or acquire complementary businesses
and technologies. Further, we need additional capital to continue operations. Accordingly, we need to engage in equity or debt
financings to secure additional funds. We expect that we have sufficient capital to maintain operations through the third quarter
of 2020. In order to fully implement our business plan, we will need to raise $10,000,000. 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 received from recent convertible debt and notes payable, the future sale of our marketable equity securities,
the conversion of the convertible notes receivable into marketable equity securities and ultimately into cash, 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.
$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. The holders of the note notify the Company about legal procedure they commenced
against the company in Costa Rica with regard this note. The company was not served with any lawsuit.
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%.
RWJ
Acquisition Note -In connection with the acquisition of RWJ in September 2017, the Company issued a $2,600,000 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.
This note has not been repaid and in litigation bbetweenn the Company, RWJ and third parties (see Item 3 – Legal Proceedings).
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.
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. On January 31, 2020, in the arbitration
titled GBT Technologies Inc. (k/n/a Gopher Protocol, Inc. v. Discover Growth Fund, LLC (“Discover”) (JAMS Ref. No.
1260005395), the Company was informed that a final award was entered (the “Final Award”). The Final Award affirms
that certain sections of the Senior Secured Redeemable Convertible Debenture (the “Debenture”) constitute unenforceable
liquidated damages penalties and were stricken. Further, it was determined that neither Discover nor John Kirkland, President
and General Partner of Discover, were entitled to recovery of their attorneys fees. Consequently, and consistent with the expectations
of the Company, the arbitrator awarded Discover an award of $4,034,444.46 plus interest of 7.25% accrued from May 15, 2019 and
costs in the amount of $55,613.00. On February 18, 2020, the Company filed a motion with the United States District Court District
of Nevada (the “Nevada Court”) to confirm the Final Award and a motion to consolidate Discover’s application
to confirm the Final Award filed in the U.S. District Court of the Virgin Islands (Case No: 3 :20-cv-00012-CVG-RM) (the “Virgin
Island Court”). On February 27, 2020, the Nevada Court denied the Company’s motion to confirm the Final Award and
motion to consolidate and further decided that the confirmation of the Final Award should be litigated in the Virgin Island Court.
As such, on February 27, 2020, the Company filed a Notice of Entry of Order as well as a Motion to Confirm the Arbitration Award;
Address the Outstanding issue regarding whether Discover’s rights are subordinated to other creditors and, thereafter, oversee
a commercially reasonable foreclosure sale (Case No: 3 :20-cv-00012-CVG-RM). It was the Company’s position that the Final
Award must first be confirmed and all questions regarding the rights of Discover relative to those of other creditors must be
determined before any foreclosure sale can proceed. It was further the position of the Company that the previously disclosed foreclosure
sale scheduled by Discover is being conducted in a commercially unreasonable manner and that if Discover proceeded forward with
the foreclosure sale it did so at its own risk.
Nevertheless,
on February 28, 2020, Discover advised that it conducted a sale of the Company’s assets.
On
February 18, 2020, 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”)
in the aggregate principal amount of $183,600 for a purchase price of $153,000. The Power Note has a maturity date of May 15,
2021 and the Company has agreed to pay interest on the unpaid principal balance of the Power Note at the rate of six percent (6%)
per annum from the date on which the Power Note is issued (the “Issue Date”) 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 it makes a payment including a prepayment to Power Up as set forth in the Power Note. The transactions described above
closed on February 19, 2020. The outstanding principal amount of the Power Note may not be converted prior to the period beginning
on the date that is 180 days following the Issue Date. Following the 180th day, Power Up may convert the Power Note
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), the Power Note 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.
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.
On
February 27, 2020, the Company and Iliad entered to an Amendment to the Iliad Note pursuant to which the maturity date of the
Iliad Note was extended to August 27, 2020, provided that the Debt may be converted into shares of common stock of the Company
at a conversion price equal to 80% multiplied by the lowest trading daily VWAP for the common stock during the 20 trading day
period ending on the latest complete trading day prior to the conversion date, provided for the payment by the Company to Iliad
of an extension fee equal to 7.5% of the outstanding balance of the Iliad Note resulting in a new balance of the Iliad Note of
$2,765,983 and provided that the Company’s failure to deliver shares of common stock within three trading days of a conversion
would result in an event of default. Iliad has agreed to restrict its ability to convert the Iliad Note and receive shares
of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or
exercise does not exceed 9.99% of the then issued and outstanding shares of common stock.
The
Company entered into a series of loan agreements with Stanley Hills LLC (“Stanley”) pursuant to which it received
more than $1,000,000 in loans (the “Debt”) since May 2019 up to December 2019. On February 26, 2020, in order to induce
Stanley to continue to provide funding, the Company and Stanley entered into a letter agreement providing that the Debt may be
converted into shares of common stock of the Company at a conversion price equal to 85% multiplied by the lowest one trading price
for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date.
Stanley has agreed to restrict its ability to convert the Debt and receive shares of common stock such that the number of
shares of common stock held by it and its affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock. The Stanley Debt is secured via a pledge agreement on the SURG
shares. The Company agreed that Stanley will hold title to the SURG shares which was completed on or about April 16, 2020 where
the 3,333,333 SURG shares been vested under Stanley name.
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.
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.
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 revenue categories, 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 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.
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, 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 are unobservable and 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. Our Board do considering for the near future potential divest of UGopherServices in form of a none-cash dividend.
ITEM
7A. 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
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information required by Item 8 appears at Page F-1, which appears after the signature page to this report.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. 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 and Chief Financial 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 and Chief Financial 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 and Chief Financial 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 Chief Financial Officer 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.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2019,
that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
Not
applicable
The accompanying footnotes
are an integral part of these consolidated financial statements
The accompanying footnotes are an integral part
of these consolidated financial statements
The accompanying footnotes are an integral part
of these consolidated financial statements
The accompanying footnotes are an integral part
of these consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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 targeting growing markets such as development of Internet of Things (IoT) and Artificial Intelligence
(AI) enabled networking and tracking technologies, including wireless mesh network technology platform and fixed solutions, development
of an intelligent human body vitals device, prepaid services, asset-tracking IoT, and wireless mesh networks. 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.
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. (Also see Note 17 for a 1 for 50 stock split awaiting approval)
Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated
deficit of $252,656,451 and has a working capital deficit of $11,830,572 as of December 31, 2019, and is in default on a note payable
and other obligations, which raises substantial doubt about its ability to continue as a going concern.
The Company's ability to continue as a going
concern is dependent upon its ability to generate profitable operations in the future and/or obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has plans
to seek additional capital through some private placement offerings of debt and equity securities. These plans, if successful,
will mitigate the factors which raise substantial doubt about the Company's ability to continue as a going concern. These
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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 consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, UGopherServices Corp. GBT BitSpeed Corp. and Gopher Protocol
UK Limited (currently inactive); the Company’s 50% owned subsidiary, Gopher Protocol Costa Rica Sociedad De Responabilidad
Limitada (currently inactive), and Altcorp Trading LLC, a Costa Rica company. All significant intercompany transactions and balances
have been eliminated.
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’s allowance for doubtful accounts was $0 and $0 at December 31, 2019 and 2018, respectively.
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 December 31, 2019 and 2018, the Company believes there was no impairment of its long-lived
assets.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
Intangible Assets
The Company’s intangible assets were
acquired with the acquisition of certain RWJ assets in 2017, and the acquisition of certain ECS, Electronic Check and CSLS assets
in 2018 are being amortized over 60-120 months. The Company performs a test for impairment annually. As of December 31, 2018, the
Company performed the required impairment analysis. During the year ended December 31, 2018, the Company determined that the intangible
assets associated with the acquisition of certain RWJ assets was impaired and took a charge to earnings of $5,916,667. These
intangible assets are being presented as assets of discontinued operations in the accompanying consolidated financial statements.
The intangibles assets of ECS, Electronic Check and CSLS are being presented as part of discontinued operations.
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.
Goodwill
Goodwill represents the excess of purchase
price over the underlying book value of the net assets of the businesses that were acquired. Under accounting requirements, goodwill
is not amortized, but is subject to annual impairment tests. The Company recorded goodwill of $950,619 related to its acquisition
of certain RWJ assets in 2017, and $646,291, $254,586 and $25,000, respectively, related to its acquisition of certain ECS, Electronic
Check and CSLS assets in 2018. During the year ended December 31, 2018, the Company determined that the goodwill associated with
the acquisition of certain RWJ assets was impaired and took a charge to earnings of $950,619. The goodwill of ECS, Electronic
Check and CSLS are being presented as part of discontinued operations.
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 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. During the
year ended December 31, 2019, the convertible notes with embedded conversion features were settled.
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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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 us 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 December 31, 2019 and 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
|
|
December 31, 2019
|
Description
|
|
December 31, 2019
|
|
Using Fair Value Hierarchy
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Marketable equity security - Surge Holdings, Inc.
|
$
|
1,000,000
|
$
|
-
|
$
|
1,000,000
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Conversion feature on convertible notes
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
-
|
|
|
|
|
|
|
|
|
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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. At December 31, 2019, the Company wrote off the accrued interest income as Latinex did not perform any payment
and the Company has no mean to enforce this payment. Latinex agreed in principal to return the pledged 200,267 restricted shares
to the Company for cancellation. The 200,267 restricted shares has not yet been returned to the Company.
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.
|
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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
Unearned revenue
Unearned revenue represents the net 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 December 31, 2018, unearned revenue related
to this pre-sales campaign was $57,848. In addition, during 2018, the Company received $200,000 in connection with an intellectual
property license and royalty agreement (see Note 15). At December 31, 2019, the Company determined that the unearned revenue would
not likely result in the recognition of revenue; therefore, $249,094 of unearned revenue was reclassified to accrued expenses.
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.
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Series B preferred stock
|
|
|
30
|
|
|
|
30
|
|
Series C preferred stock
|
|
|
8
|
|
|
|
8
|
|
Series G preferred stock
|
|
|
—
|
|
|
|
—
|
|
Series H preferred stock
|
|
|
1,000,000
|
|
|
|
—
|
|
Warrants
|
|
|
19,654,167
|
|
|
|
419,167
|
|
Convertible notes
|
|
|
1,100,000
|
|
|
|
43,166
|
|
Total
|
|
|
21,754,205
|
|
|
|
462,371
|
|
|
|
|
|
|
|
|
|
|
Management’s Evaluation of Subsequent
Events
The Company evaluates
events that have occurred after the balance sheet date of December 31, 2019, through the date which the consolidated financial
statements are issued. Based upon the review, other than described in Note 17 – 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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede
nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining
revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or
services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments
and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual
periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after
December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively
or as a cumulative-effect adjustment as of the date of adoption. The Company adopted this ASU beginning on January 1, 2018
and used the modified retrospective method of adoption. The adoption of this ASU did not have a material impact on the Company’s
financial statements and disclosures.
In December 2019, the FASB issued ASU
2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update
is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending
existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December
15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others
on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on
the Company’s consolidated financial statements and related disclosures.
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 - Acquisitions
On March 16, 2018, the Company entered into
and closed an asset purchase agreement dated March 1, 2018 with ECS, a Missouri limited liability company, pursuant to which the
Company purchased certain assets from ECS, including, but not limited to, the processing prepaid platform, servers, POS terminals,
customer list, a processing software program and goodwill, in consideration of $1,100,000 of which $100,000 was paid on the Closing
Date and the balance is to be paid pursuant to a secured promissory note in the amount of $1,000,000. In addition, the Company
issued 500,000 shares of common stock of the Company and warrants to purchase 500,000 shares of common stock that are exercisable
for a period of five years at a fixed exercise price of $1.85 per share. The note is secured by the assets acquired by the Company
from ECS and the Company is required to make ten equal principal payments of $100,000 commencing on April 15, 2018. The Company
may prepay the note at any time without penalty. The note has been repaid in full.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
On April 2, 2018, the Company entered into
and closed an asset purchase agreement with Electronic Check, a Missouri corporation, pursuant to which the Company purchased certain
assets from Electronic Check, including, but not limited to, assets associated with software that validates written check authenticity.
The purchase price was $75,000 in cash, and the Company issued 250,000 shares of common stock of the Company and warrants to purchase
250,000 shares of common stock that are exercisable for a period of five years at a fixed exercise price of $2.70 per share.
On April 2, 2018, the Company entered into
and closed an asset purchase agreement with CSLS, a Missouri corporation, pursuant to which the Company purchased certain assets
from CSLS, including, but not limited to, assets associated with a system to recover funds from returned checks, for $25,000 in
cash.
The Company entered into these asset purchase
agreements to acquire the software needed to process transactions for its prepaid business, and to acquire additional terminal
locations by which the Company will deploy its technology.
A summary of the purchase price and the purchase
price allocations at fair value is shown below.
|
|
|
|
|
|
Electronic
|
|
|
|
|
|
|
|
|
ECS
|
|
|
|
Check
|
|
|
|
CSLS
|
|
Total
|
Purchase price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
75,000
|
|
|
|
|
|
|
$
|
25,000
|
|
|
$
|
200,000
|
|
Shares of common stock
|
|
|
1,010,000
|
|
|
|
a
|
|
|
|
695,000
|
|
|
|
c
|
|
|
|
—
|
|
|
|
1,705,000
|
|
Secured promissory note
|
|
|
960,000
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
960,000
|
|
Warrants
|
|
|
992,958
|
|
|
|
b
|
|
|
|
682,919
|
|
|
|
d
|
|
|
|
—
|
|
|
|
1,675,877
|
|
|
|
$
|
3,062,958
|
|
|
|
|
|
|
$
|
1,452,919
|
|
|
|
|
|
|
$
|
25,000
|
|
|
$
|
4,540,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of purchase price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
50,000
|
|
|
|
|
|
|
$
|
15,000
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
65,000
|
|
Technology
|
|
|
826,667
|
|
|
|
|
|
|
|
413,333
|
|
|
|
|
|
|
|
—
|
|
|
|
1,240,000
|
|
Tradename
|
|
|
546,667
|
|
|
|
|
|
|
|
273,333
|
|
|
|
|
|
|
|
—
|
|
|
|
820,000
|
|
Customer relationships
|
|
|
993,333
|
|
|
|
|
|
|
|
496,667
|
|
|
|
|
|
|
|
—
|
|
|
|
1,490,000
|
|
Goodwill
|
|
|
646,291
|
|
|
|
|
|
|
|
254,586
|
|
|
|
|
|
|
|
25,000
|
|
|
|
925,877
|
|
Purchase price
|
|
$
|
3,062,958
|
|
|
|
|
|
|
$
|
1,452,919
|
|
|
|
|
|
|
$
|
25,000
|
|
|
$
|
4,540,877
|
|
at the date of acquisition.
a. the fair value of the 500,000 shares of
common stock was calculated based on the closing market price of the Company’s common stock at the date of acquisition.
b. the fair value of the 500,000 warrants was
determined using the Black-Scholes option pricing model with the following assumptions:
|
·
|
Expected life of 5.0 years
|
|
·
|
Risk free interest rate of 2.65%
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
c. the fair value of the 250,000 shares of
common stock was calculated based on the closing market price of the Company’s common stock at the date of acquisition.
d. the fair value of the 250,000 warrants was
determined using the Black-Scholes option pricing model with the following assumptions:
|
·
|
Expected life of 5.0 years
|
|
·
|
Risk free interest rate of 2.65%
|
Note 4 – 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.
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 years ended December 31, 2019 and 2018 as discontinued operations and are summarized below:
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
23,901,278
|
|
|
$
|
37,061,736
|
|
Cost of revenue
|
|
|
23,336,163
|
|
|
|
36,299,003
|
|
Gross Profit
|
|
|
565,115
|
|
|
|
762,733
|
|
Operating expenses
|
|
|
1,046,390
|
|
|
|
1,159,304
|
|
Loss from operations
|
|
|
(481,275
|
)
|
|
|
(396,571
|
)
|
Other income (expenses)
|
|
|
(3
|
)
|
|
|
5,170
|
|
Net loss
|
|
$
|
(481,278
|
)
|
|
$
|
(391,401
|
)
|
|
|
|
|
|
|
|
|
|
The assets and liabilities of the discontinued
operations at September 30, 2019 and December 31, 2018 are summarized below:
|
|
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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
Note 5 - Property and Equipment, Net
Property and equipment consisted of the following as of December
31, 2019 and 2018:
|
|
2019
|
|
2018
|
|
|
|
|
|
Furniture
|
|
$
|
33,739
|
|
|
$
|
33,739
|
|
Computers and equipment
|
|
|
23,316
|
|
|
|
23,316
|
|
POSA machines
|
|
|
287,895
|
|
|
|
270,424
|
|
|
|
|
344,950
|
|
|
|
327,479
|
|
Less accumulated depreciation
|
|
|
(227,264
|
)
|
|
|
(136,385
|
)
|
Property and equipment, net
|
|
$
|
117,686
|
|
|
$
|
191,094
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2019 and 2018
was $107,095 and $106,602, respectively.
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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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.
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 December 31, 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 17 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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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.
At December 31, 2019, the Company evaluated
the carrying amount of this equity investment and determined that this investment was full impaired and as a result an impairment
charge of $30,731,534 was taken.
Information regarding GBT-CR as of and for
the year ended December 31, 2019 is below:
Current assets
|
|
$
|
979,389
|
|
Total assets
|
|
|
7,013,772
|
|
Current liabilities
|
|
|
359,040
|
|
Total liabilities
|
|
|
2,645,706
|
|
Total stockholders' equity
|
|
|
4,368,066
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,138,496
|
|
Operating expenses
|
|
|
3,103,691
|
|
Other expenses
|
|
|
398,501
|
|
Net income
|
|
|
636,304
|
|
Note 7 – Investment in Joint Venture
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
former 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 (valued at $17,900,000)
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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
At December 31, 2019, the Company evaluated
the carrying amount of this joint venture investment and determined that an impairment charge of $17,900,000 was necessary.
Note 8 – Convertible Notes Payable
Convertible notes payable at December 31, 2019 and 2018 consist
of the following:
|
|
2019
|
|
2018
|
Convertible notes payable to Power Up
|
|
$
|
—
|
|
|
$
|
427,200
|
|
Convertible notes payable to Investor
|
|
|
—
|
|
|
|
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
|
|
|
11,000,000
|
|
|
|
3,431,200
|
|
Unamortized debt discount
|
|
|
—
|
|
|
|
(3,233,124
|
)
|
Convertible notes payable
|
|
|
11,000,000
|
|
|
|
198,076
|
|
Less current portion
|
|
|
—
|
|
|
|
(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.
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 180th 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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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 December 31, 2019 and 2018, the principal
amount outstanding under the Power Note No. 2 was $0 and $243,600. During the year ended December 31, 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 180th 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 December 31, 2019 and 2018, the principal
amount outstanding under the Power Note No. 3 was $0 and $183,600. During the year ended December 31, 2019, the entire principal
balance of $183,600 and accrued interest of $4,590 was converted into 15,685 shares of common stock.
Bellridge Capital LLC
On March 2, 2018, the Company entered into
and closed a Securities Purchase Agreement with Bellridge Capital, LLC (“Bellridge”) pursuant to which Bellridge invested
$750,000 into the Company in consideration of a 10% Convertible Debenture (the “Bellridge Debenture”) and common stock
purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise
price of $2.35 per share. The Bellridge Debenture bears interest of 10% and is payable March 1, 2019. The Bellridge Debenture is
convertible into shares of common stock at $0.90 per share subject to antidilution protection. During an event of default, the
conversion price in effect on any conversion date means, as of any conversion date or other date of determination, shall be 35%
of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding the delivery
of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise its
Common Stock Purchase Warrants and receive shares of common stock such that the number of shares of common stock held by it and
its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares
of common stock.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
On March 2, 2018, the Company delivered 1,000,000
shares of Common Stock to an escrow agent. The 1,000,000 escrow shares are to be utilized for the purpose of limited price protection.
If, beginning on the 7th monthly anniversary of the issuance of the 1,000,000 escrow shares, Bellridge has sold shares
issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares shall
be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price
on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing
monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold
at a price less than $1.10.
As long as the Company is not in default of
the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge
Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge
Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume
for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered
a material breach by Bellridge.
In connection with the Bellridge Debenture,
the Company issued 500,000 warrants to purchase shares of the Company’s common stock with an exercise price of $2.35. 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 $827,428 and was determined using the Black-Scholes option pricing model
with the following assumptions:
|
·
|
Expected life of 5.0 years
|
|
·
|
Risk free interest rate of 2.65%
|
The face amount of the convertible note of
$750,000 was proportionately allocated to the convertible note and the warrant in the amount of $356,593 and $393,407, respectively.
The amount allocated to the warrants of $393,407 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, which
amounted to $0 and $356,593, respectively. The combined total discount is $750,000 and will be amortized over the year life of
the convertible note.
On April 9, 2018, Bellridge elected to exercise
the Bellridge Option, and as such the Company and Bellridge closed the second financing as contemplated by the Securities Purchase
Agreement entered with Bellridge pursuant to which Bellridge invested an additional $750,000 into the Company in consideration
of a 10% Convertible Debenture (the “Second Bellridge Debenture” and together with the First Bellridge Debenture, the
“Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock
exercisable for a period of five years at an exercise price of $2.35 per share (the “Second Bellridge Warrant” and
together with the First Bellridge Warrant, the “Bellridge Warrant”) The Bellridge Debenture bears interest of 10% and
is payable one year from issuance. The First Bellridge Debenture and the Second Bellridge Debenture are convertible into shares
of common stock at $0.90 per share and $1.00 per share, respectively, subject to limited antidilution protection.
During an event of default, the conversion
price for the Bellridge Debenture in effect on any conversion date means, as of any conversion date or other date of determination,
shall be 35% of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding
the delivery of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise
the Bellridge Warrant and receive shares of common stock such that the number of shares of common stock held by it and
its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares
of common stock.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
In connection with both closings, the Company
delivered 1,000,000 shares of common stock to an escrow agent. The escrow shares are to be utilized for the purpose of limited
price protection. If, beginning on the 7th monthly anniversary of the issuance of the escrow shares, Bellridge has sold
shares issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares
shall be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price
on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing
monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold at a
price less than $1.10.
As long as the Company is not in default of
the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge
Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge
Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume
for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered
a material breach by Bellridge.
In connection with the Second Bellridge Debenture,
the Company issued 500,000 warrants to purchase shares of the Company’s common stock with an exercise price of $2.35. 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 $2,037,713 and was determined using the Black-Scholes option pricing model
with the following assumptions:
|
·
|
Expected life of 5.0 years
|
|
·
|
Risk free interest rate of 2.60%
|
The face amount of the convertible note of
$750,000 was proportionately allocated to the convertible note and the warrant in the amount of $201,778 and $548,222, respectively.
The amount allocated to the warrants of $548,222 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, which
amounted to $0 and $201,778, respectively. The combined total discount is $750,000 and will be amortized over the year life of
the convertible note.
In October 2018, Bellridge converted $275,000
in principal and $17,075 in accrued interest into 324,528 shares of common stock. In addition, in November 2018, Bellridge was
issued an additional 318,583 shares of common stock pursuant to the limited price protection described above.
On November 28, 2018, the Company entered into
a letter agreement with Bellridge acknowledging that no event of default exists under the Bellridge Debentures as a result of the
issuance of certain convertible securities, that the Company may prepay the Bellridge Debentures in the full amount by making a
payment in the amount of $2,450,000 by December 17, 2018 (the “Repayment Date”) and Bellridge will not submit further
conversion notices until after the Repayment Date. In the event the Bellridge Debentures are not paid off as of the Repayment Date
(i) the outstanding principal amount (principal balance) of the First Bellridge Debenture shall be increased to $1,022,510 and
the outstanding principal amount (principal balance) of the Second Bellridge Debenture shall be increased to $1,427,490 and (ii)
the Conversion Price of the Bellridge Debentures shall be adjusted to equal 35% of the lowest trading price for the Company’s
common stock during the twenty trading days immediately preceding the delivery by Bellridge of a Notice of Conversion. On December
17, 2018, the Bellridge Debentures were repaid in full, and there are no further obligations owed with respect to the Bellridge
Debentures.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
$8,340,000 Senior Secured Redeemable Convertible
Debenture
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
|
|
·
|
Risk free interest rate of 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 December 31, 2019 and 2018, the principal
amount outstanding under the Debenture was $0 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 9 and 15 for further discussions of
this matter)
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
On December 23, 2019, in the pending arbitration
between the Company and the Investor, an Interim Award was entered in favor of the Investor. On January 31, 2020, the Company was
informed that a final award was entered (the “Final Award”). The Final Award affirms that certain sections of the Senior
Secured Redeemable Convertible Debenture (the “Debenture”) constitute unenforceable liquidated damages penalties
and were stricken. Further, it was determined that the Investor was entitled to recovery of their attorney’s fees. Consequently,
the arbitrator awarded Investor an award of $4,034,444 plus interest of 7.25% accrued from May 15, 2019 and costs in the amount
of $55,613. (See Note 9 and 15)
$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 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 $3,740,794 during the year ended December 31, 2019 and 2018, respectively, related to the amortization of the debt
discount on convertible notes. The unamortized debt discount at December 31, 2019 was $0.
A roll-forward of the convertible note from December 31, 2017 to
December 31, 2019 is below:
Convertible notes, December 31, 2017
|
|
$
|
25,623
|
|
Issued for cash
|
|
|
6,356,000
|
|
Original issue discount
|
|
|
575,200
|
|
Repayment in cash
|
|
|
(1,305,000
|
)
|
Conversion to common stock
|
|
|
(2,275,000
|
)
|
Debt discount related to new convertible notes
|
|
|
(6,919,541
|
)
|
Amortization of debt discounts
|
|
|
3,740,794
|
|
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
|
)
|
Reduction in convertible note due to legal settlement
|
|
|
(5,410,000
|
)
|
Amortization of debt discounts
|
|
|
6,569,124
|
|
Convertible notes, December 31, 2019
|
|
$
|
11,000,000
|
|
|
|
|
|
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
Note 9 – Accrued Settlement
In connection with a legal matter filed by
the Investor of the $8,340,000 Senior Secured Redeemable Convertible Debenture, on December 23, 2019, in the pending arbitration
between the Company and the Investor, an Interim Award was entered in favor of the Investor. On January 31, 2020, the Company was
informed that a final award was entered (the “Final Award”). The Final Award affirms that certain sections of the Senior
Secured Redeemable Convertible Debenture (the “Debenture”) constitute unenforceable liquidated damages penalties
and were stricken. Further, it was determined that the Investor was entitled to recovery of their attorney’s fees. Consequently,
the arbitrator awarded Investor an award of $4,034,444 plus interest of 7.25% accrued from May 15, 2019 and costs in the amount
of $55,613. (See Note 8 and 15). In connection with this settlement, the Company recognized a gain on the settlement of debt of
$1,375,556 as the difference between the carrying amount of the debt and the amount awarded by the arbitrator.
Note 10 - Derivative Liability
Certain of the convertible notes payable discussed
in Note 8 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
option pricing model with the following assumptions to measure the fair value of derivative liability at December 31, 2019 and
2018:
|
|
2019
|
|
2018
|
|
|
|
|
|
Stock price
|
|
$
|
3.080
|
|
|
$
|
0.32
|
|
Risk free rate
|
|
|
1.75
|
%
|
|
|
2.63
|
%
|
Volatility
|
|
|
650
|
%
|
|
|
150
|
%
|
Conversion/ Exercise price
|
|
$
|
0.800
|
|
|
$
|
0.21 to 0.25
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The following table represents the Company’s
derivative liability activity for the years ended December 31, 2018 and 2019:
Derivative liability balance, December 31, 2017
|
|
$
|
95,164
|
|
Issuance of derivative liability during the period
|
|
|
6,000,244
|
|
Fair value of beneficial conversion feature of debt repaid
|
|
|
(2,996,442
|
)
|
Change in derivative liability during the period
|
|
|
734,540
|
|
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
|
|
|
(7,290,867
|
)
|
Derivative liability balance, December 31, 2019
|
|
$
|
—
|
|
|
|
|
|
|
Note 11- Note Payable
Notes payable at December 31, 2019 and 2018 consist of the following:
|
|
2019
|
|
2018
|
RWJ acquisition note
|
|
$
|
2,600,000
|
|
|
$
|
2,600,000
|
|
ECS acquisition note
|
|
|
—
|
|
|
|
100,000
|
|
Promissory note to investor
|
|
|
2,325,000
|
|
|
|
—
|
|
Promissory note to investor
|
|
|
1,046,261
|
|
|
|
—
|
|
Total notes payable
|
|
|
5,971,261
|
|
|
|
2,700,000
|
|
Unamortized debt discount
|
|
|
(47,671
|
)
|
|
|
(744
|
)
|
Notes payable
|
|
$
|
5,923,590
|
|
|
$
|
2,699,256
|
|
|
|
|
|
|
|
|
|
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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. This note has not been repaid (See Note 15).
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, of which $25,000 was paid for legal expenses. 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 $1,046,261
to a third party for funds received as working capital during the year ended December 31, 2019. The notes accrue interest at 10%
per annum, are due on February 9, 2020 and are secured by a pledge agreement lien on the SURG shares.
For extending maturities and adding conversion
feature to these notes, see Note 17.
Discounts on Promissory Note
The Company recognized interest expense of
$252,329 and $0 during the years ended December 31, 2019 and 2018, respectively, related to the amortization of the debt discount
on promissory notes. The unamortized debt discount at December 31, 2019 was $47,671.
A roll-forward of the promissory notes from December 31, 2017 to
December 31, 2019:
Notes payable, December 31, 2017
|
|
$
|
2,600,000
|
|
Issued for acquisition
|
|
|
960,000
|
|
Repayment of note payable
|
|
|
(860,744
|
)
|
Notes payable, December 31, 2018
|
|
|
2,699,256
|
|
Issued for cash
|
|
|
3,071,261
|
|
Original issue discount
|
|
|
300,000
|
|
Repayment of note payable
|
|
|
(99,256
|
)
|
Debt discount related to new convertible notes
|
|
|
(300,000
|
)
|
Amortization of debt discounts
|
|
|
252,329
|
|
Notes payable, December 31, 2019
|
|
$
|
5,923,590
|
|
|
|
|
|
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
Note 12- Stockholders’ Equity
Common Stock
During the year ended December 31, 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;
|
|
·
|
issued 10,000,000 shares in connection with a joint venture with BitSpeed. The value of the common stock of $17,900,000 was based on the closing price of the Company’s common stock on the closing date;
|
|
·
|
issued 4,566,214 shares in connection with the cashless exercise of 6,120,000 warrants; and
|
|
·
|
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.
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
During the year ended December 31, 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 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 2,500 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 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 an additional 100,000 shares to Mobiquity valued at $3,90,000 for payment of the exercise price for 20,000,000 warrants previously granted to the Company. (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 date of issuance;
|
|
·
|
issued 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;
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
|
·
|
issued 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;
|
|
·
|
issued 3,245 shares to Bellridge for the conversion of $275,000 in convertible notes and $17,075 in accrued interest;
|
|
·
|
issued 94,992 shares to an investor for the conversion of $2,000,000 in convertible notes and $6,521 in accrued interest;
|
|
·
|
issued 3,186 shares to Bellridge pursuant to the limited price protection. The shares were valued at $213,451 which was charged to financing cost was determined based on the closing stock price of the Company’s common stock on the date of issuance;
|
|
·
|
issued 20,000 shares to a consultant for services rendered in connection with the issuance of the Company’s common stock as payment of the exercise price for the Mobiquity warrants valued at $780,000. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the date of issuance;
|
|
·
|
issued 20,000 shares to a consultant for services rendered in connection with the issuance of the Company’s common stock as payment of the exercise price for the Mobiquity warrants valued at $780,000.
|
|
·
|
issued 20,000 shares to Eagle Equities LLC as a result of the Company issuing shares of common stock for less than $30.00 pursuant to an agreement with Eagle Equities. (see below). The shares were valued at $670,000 which was charged to financing cost was determined based on the closing stock price of the Company’s common stock on the date the Company issued shares for less than $30.00;
|
|
·
|
issued 937 shares to a consultant for services rendered valued at $30,000. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the date of issuance;
|
|
·
|
issued 12,727 shares of common stock to an investor for cash proceeds of $1,500,000 (See discussion below); and
|
|
·
|
canceled 500 shares pursuant to the settlement of a legal matter.
|
Eagle Equities, LLC
On December 29, 2017, the Company entered into
a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant to which Eagle agreed to purchase up to
20,000 shares of the Company’s common stock for a purchase price of $1,500,000 or $75.00 per share. The closing occurred
on December 29, 2017 with respect to the funding of $1,000,000 resulting in the issuance of 13,333 shares of common stock (the
“First Closing Shares”). Eagle agreed to potentially purchase an additional 6,667 shares of common stock (the “Second
Closing Shares”) on or before March 31, 2018 for a purchase price of $500,000 subject to various closing conditions. On March
21, 2018, Eagle purchased an additional 6,667 shares of common stock for a purchase price of $500,000.
The Company placed an aggregate of 20,000
shares of common stock (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection.
If, beginning on the seventh month anniversary of the issuance of the First Closing Shares and Second Closing Shares, Eagle has
sold any of the First Closing Shares or the Second Closing Shares at a sales price of less than $72.00 per share, then that number
of Escrow Shares shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following
formula:
($72.00 – Closing Price) / Closing Price) * number
of shares sold at a price less than $72.00.
Closing Price is price on the first day of
each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of January 31, 2019
or until all shares are sold).
The Company shall deposit an additional 20,000
shares of common stock into escrow which shares shall only be released to Eagle, if, prior to January 31, 2019 (while Eagle continues
to hold shares), the Company issues shares at an issue price of less than $30.00 per share.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
The Company also issued Eagle a Common Stock
Purchase Warrant to acquire 6,667 shares of common stock exercisable for three years at an exercise price of $200.00 per share
(the “Eagle Warrant”). Unless otherwise agreed in writing by both the Company and Eagle, at no time will Eagle exercise
any amount of the Eagle Warrant to purchase common stock that would result in Eagle owning more than 9.9% of the common stock outstanding
of the Company. The Eagle Warrant contains standard anti-dilution protections.
On May 4, 2018, the Company entered into a
Securities Purchase Agreement with Eagle pursuant to which Eagle agreed to purchase up to 12,121 shares of the Company’s
common stock for an aggregate purchase price of $2,000,000 or $165.00 per share. The closing occurred on May 4, 2018 with respect
to the funding of $500,000 resulting in the issuance of 3,030 shares of common stock and on May 25, 2018 with respect to the funding
of $500,000 resulting in the issuance of an additional 3,030 shares of common stock. Additional closings of $500,000 for 303,030
shares are scheduled to close on June 15, 2018 and July 5, 2018 each. The additional closings on June 15, 2018 and July 5, 2018
have not occurred.
The Company agreed to place 3,030 shares of
common stock each tranche (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection.
If, beginning on the seventh month anniversary of the closing of each tranche, Eagle has sold any of its shares of common stock
at a sales price of less than $165.00 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a
limited make whole which shall be determined by using the following formula:
($165.00 – Closing Price) /
Closing Price) * number of shares sold at a price less than $165.00.
Closing Price is price on the first day of
each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of June 4, 2019
or until all shares are sold.
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 December 31, 2019 and 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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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 December 31, 2019 and 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 December 31, 2019 and 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.
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 December 31, 2019 and 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 December 31, 2019 and 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.)
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
As of December 31, 2019, there are 20,000 shares
of Series H Preferred Shares outstanding.
Warrants
The following is a summary of warrant
activity.
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Warrants
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
Outstanding
|
|
Price
|
|
Life
|
|
Value
|
|
Outstanding, December 31, 2017
|
|
|
|
227,605
|
|
|
$
|
55.00
|
|
|
|
4.67
|
|
|
$
|
13,640,000
|
|
|
Granted
|
|
|
|
192,500
|
|
|
|
69.00
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
(938
|
)
|
|
|
225.00
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
|
419,167
|
|
|
$
|
61.00
|
|
|
|
3.48
|
|
|
$
|
—
|
|
|
Granted
|
|
|
|
25,355,000
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(6,120,000
|
)
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
|
19,654,167
|
|
|
$
|
1.57
|
|
|
|
2.76
|
|
|
$
|
1,111,600
|
|
|
Exercisable, December 31, 2019
|
|
|
|
19,650,167
|
|
|
$
|
1.57
|
|
|
|
2.76
|
|
|
$
|
1,111,600
|
|
The exercise price for warrant outstanding
and exercisable at December 31, 2019:
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
Number of
|
|
Exercise
|
|
Number of
|
|
Exercise
|
Warrants
|
|
Price
|
|
Warrants
|
|
Price
|
15,880,000
|
$
|
0.50
|
|
15,880,000
|
$
|
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
|
19,654,167
|
|
|
|
19,650,167
|
|
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
The fair value of the warrants listed above
was determined using the Black-Scholes option pricing model with the following assumptions:
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Risk-free interest rate
|
|
1.55%
|
|
2.65%
|
Expected life of the options
|
|
3.1 to 3.6 years
|
|
5 years
|
Expected volatility
|
|
185%
|
|
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.
During the years ended December 31, 2018, the
Company issued:
|
·
|
10,000 warrants in connection with two convertible notes payable;
|
|
·
|
5,000 warrants as consideration for the acquisition of the ECS assets (see Note 3) valued at $992,958;
|
|
·
|
2,500 warrants as consideration for the acquisition of the Electronic Check assets (see Note 3) valued at $682,919;
|
|
·
|
22,500 warrants to shares to employees and board members as part of their agreements with the Company valued at $5,443,039;
|
|
·
|
17,500 warrants to a consultant for services rendered. 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) valued at $3,661,791;
|
|
·
|
135,000 warrants in connection with a convertible note issued to investor; and
|
|
·
|
canceled 938 warrants pursuant to the settlement of a legal matter.
|
Note 13 - Income Taxes
At December 31, 2019 and 2018, the significant components of
the deferred tax assets are summarized below:
|
|
2019
|
|
2018
|
|
|
|
|
|
Deferred income tax asset
|
|
|
|
|
|
|
|
|
Net operation loss carryforwards
|
|
$
|
7,424,074
|
|
|
$
|
5,753,319
|
|
Book to tax differences in intangible assets
|
|
|
—
|
|
|
|
64,600
|
|
Total deferred income tax asset
|
|
|
7,424,074
|
|
|
|
5,817,920
|
|
Less: valuation allowance
|
|
|
(7,424,074
|
)
|
|
|
(5,817,920
|
)
|
Total deferred income tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
The valuation allowance increased by $1,606,154
in 2019 as a result of the Company generating additional net operating losses. The valuation allowance increased by $3,414,266
in 2018 of which $4,030,588 was a result of the Company generating additional net operating losses offset by $616,322 as a result
of the change in the corporate tax rate from 34% to 21%. The Company’s net operating loss carryforward of approximately $25,600,000
begin to expire in 2024.
Income tax expense reflected in the consolidated
statements of income consist of the following for 2019 and 2018:
|
|
|
2019
|
|
|
|
2018
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
The reconciliation of the effective income tax rate to the federal
statutory rate for the years ended December 31, 2019 and 2018 is as follows:
|
|
2019
|
|
2018
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Federal statutory rates
|
|
$
|
(39,166,075
|
)
|
|
|
75.7
|
%
|
|
$
|
(10,871,631
|
)
|
|
|
21.0
|
%
|
State income taxes
|
|
|
(14,920,410
|
)
|
|
|
28.8
|
%
|
|
|
(4,141,574
|
)
|
|
|
8.0
|
%
|
Permanent differences
|
|
|
52,480,331
|
|
|
|
-101.4
|
%
|
|
|
10,982,617
|
|
|
|
-21.2
|
%
|
Valuation allowance against net deferred tax assets
|
|
|
1,606,154
|
|
|
|
-3.1
|
%
|
|
|
4,030,587
|
|
|
|
-7.8
|
%
|
Effective rate
|
|
$
|
—
|
|
|
|
0.0
|
%
|
|
$
|
—
|
|
|
|
0.0
|
%
|
The Company periodically evaluates the likelihood
of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by the valuation allowance
to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers
many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings
experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company
for tax reporting purposes, and other relevant factors.
Future changes in the unrecognized tax benefit
will have no impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized
tax benefit will not change significantly within the next twelve months. The Company will continue to classify income tax penalties
and interest as part of general and administrative expense in its consolidated statements of operations. There were no interest
or penalties accrued as of December 31, 2019 and 2018.
Note 14 - 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 years ended December 31, 2019 and 2018, $180,000 and $180,000, 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 or its affiliates that is classified as Due to Guardian LLC in the accompanying consolidated balance
sheet. As of December 31, 2019 there are no balances between the Company and Guardian LLC.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
For the years ended December 31, 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 15 - 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. (See Note 17)
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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 (valued at $17,900,000)
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.
Note 15 - 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 and multiple third and related parties 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.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
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”). On December 23, 2019, in the pending
arbitration between the Company and the Investor, an Interim Award was entered in favor of the Investor. On January 31, 2020, the
Company was informed that a final award was entered (the “Final Award”). The Final Award affirms that certain sections
of the Senior Secured Redeemable Convertible Debenture (the “Debenture”) constitute unenforceable liquidated damages
penalties and were stricken. Further, it was determined that the Investor was entitled to recovery of their attorney’s fees.
Consequently, the arbitrator awarded Investor an award of $4,034,444 plus interest of 7.25% accrued from May 15, 2019 and costs
in the amount of $55,613. (See Notes 6, 9 and 17)
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.
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 December 31, 2018 and reclassified to accrued expense at December 31, 2019.
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
Note 16 – 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 December 31, 2019.
Note 17 - Subsequent Events
Management has evaluated events that occurred
subsequent to the end of the reporting period shown herein:
On February 18, 2020, 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”) in the aggregate principal amount of
$183,600 for a purchase price of $153,000. The Power Note has a maturity date of May 15, 2021 and the Company has agreed to pay
interest on the unpaid principal balance of the Power Note at the rate of six percent (6%) per annum from the date on which the
Power Note is issued (the “Issue Date”) 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 it makes a payment including
a prepayment to Power Up as set forth in the Power Note. The transactions described above closed on February 19, 2020. The outstanding
principal amount of the Power Note may not be converted prior to the period beginning on the date that is 180 days following the
Issue Date. Following the 180th day, Power Up may convert the Power Note 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), the Power Note
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
On February 27, 2020, the Company and Iliad
entered to an Amendment to the Iliad Note pursuant to which the maturity date of the Iliad Note was extended to August 27, 2020,
provided that the Debt may be converted into shares of common stock of the Company at a conversion price equal to 80% multiplied
by the lowest trading daily VWAP for the common stock during the 20 trading day period ending on the latest complete trading day
prior to the conversion date, provided for the payment by the Company to Iliad of an extension fee equal to 7.5% of the outstanding
balance of the Iliad Note resulting in a new balance of the Iliad Note of $2,765,983 and provided that the Company’s failure
to deliver shares of common stock within three trading days of a conversion would result in an event of default. Iliad has
agreed to restrict its ability to convert the Iliad Note and receive shares of common stock such that the number of shares of common stock
held by it and its affiliates after such conversion or exercise does not exceed 9.99% of the then issued and
outstanding shares of common stock.
The Company entered into a series of loan agreements
with Stanley Hills LLC (“Stanley”) pursuant to which it received more than $1,000,000 in loans (the “Debt”)
since May 2019 up to December 2019. On February 26, 2020, in order to induce Stanley to continue to provide funding, the Company
and Stanley entered into a letter agreement providing that the Debt may be converted into shares of common stock of the Company
at a conversion price equal to 85% multiplied by the lowest one trading price for the common stock during the 20 trading day period
ending on the latest complete trading day prior to the conversion date. Stanley has agreed to restrict its ability to convert
the Debt and receive shares of common stock such that the number of shares of common stock held by it and its affiliates
after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The
Stanley Debt is secured via a pledge agreement on the SURG shares. The Company agreed that Stanley will hold title to the SURG
shares which was completed on or about April 16, 2020 where the 3,333,333 SURG shares been vested under Stanley name.
On February 27, 2020 GBT Technologies, S.A.,
as successor in interest to Hermes Roll, LLC had notified the Company that it was in default on its Amended and Restated Territorial
License Agreement (“ARTLA”) dated June 15, 2015 and that the ARTLA had been cancelled and rescinded
GBT TECHNOLOGIES INC. (FORMERLY GOPHER PROTOCOL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
On March 6, 2020, the Company through its newly
acquired wholly owned subsidiary, Greenwich International Holdings, a Costa Rica corporation (“Greenwich”), entered
into a Joint Venture and Territorial License Agreement (the “Tokenize Agreement”) with Tokenize-It, S.A. (“Tokenize”),
which is owned by a Costa Rica Trust represented by Pablo Gonzalez (“Gonzalez”). Gonzalez also represents Gonzalez
Costa Rica Trust, which holds a note in the principal amount of $10,000,000 and is also a shareholder of the Company. Under the
Tokenize Agreement, the parties formed GBT Tokenize Corp., a Nevada corporation (“GBT Tokenize”). The purpose of GBT
Tokenize is to develop, maintain and support source codes for its proprietary technologies including advanced mobile chip technologies,
tracking, radio technologies, AI core engine, electronic design automation, mesh, games, data storage, networking, IT services,
business process outsourcing development services, customer service, technical support and quality assurance for business, customizable
and dedicated inbound and outbound calls solutions, as well as digital communications processing for enterprises and startups (“Technology
Portfolio”), throughout the State of California. Upon generating any revenue from the Technology Portfolio, the Joint Venture
will earn the first right of refusal for other territories.
Tokenize shall contribute the services and
resources for the development of the Technology Portfolio to GBT Tokenize. The Company shall contribute 100,000,000 shares of common
stock of the Company (“GBT Shares”) to GBT Tokenize. Tokenize and the Company will each own 50% of GBT Tokenize. The
Company pledged its 50% ownership in GBT Tokenize and its 100% ownership of Greenwich to Tokenize to secure its Technology Portfolio
investment. The Company shall appoint two directors and Tokenize shall appoint one director of GBT Tokenize.
In addition, GBT Tokenize and Gonzalez entered
into a Consulting Agreement in which Gonzalez is engaged to provide services in consideration of $33,333.33 per month payable quarterly
which may be paid in shares of common stock calculated by the amount owed divided by the Company’s 10-day VWAP. Gonzalez
will provide services in connection with the development of the business as well as GBT Tokenize’s capital raising efforts.
The term of the Consulting Agreement is two years. The closing of the Tokenize Agreement occurred on March 9, 2020.
On February 18, 2020, the Company filed a motion
with the United States District Court District of Nevada (the “Nevada Court”) to confirm the Final Award and a motion
to consolidate Discover’s application to confirm the Final Award filed in the U.S. District Court of the Virgin Islands (Case
No: 3 :20-cv-00012-CVG-RM) (the “Virgin Island Court”). On February 27, 2020, the Nevada Court denied the Company’s
motion to confirm the Final Award and motion to consolidate and further decided that the confirmation of the Final Award should
be litigated in the Virgin Island Court. As such, on February 27, 2020, the Company filed a Notice of Entry of Order as well as
a Motion to Confirm the Arbitration Award; Address the Outstanding issue regarding whether Discover’s rights are subordinated
to other creditors and, thereafter, oversee a commercially reasonable foreclosure sale (Case No: 3 :20-cv-00012-CVG-RM). It is
the Company’s position that the Final Award must first be confirmed and all questions regarding the rights of Discover relative
to those of other creditors must be determined before any foreclosure sale can proceed. It is further the position of the Company
that the previously disclosed foreclosure sale scheduled by Discover is being conducted in a commercially unreasonable manner and
that if Discover proceeded forward with the foreclosure sale it did so at its own risk. Nevertheless, on February 28, 2020, Discover
advised that it conducted a sale of the Company’s assets. As the date of this report Discover failed to present a deed of
sale for the alleged sale that allegedly took place as noticed. The Company filed with Virgin Island Court the motions disputing
the validity of said alleged sale.
On April 11, 2020, Douglas Davis resigned as
Chief Executive Officer of the Company so that he may fully devote all of his efforts to GBT Tokenize Corp., the Company’s
joint venture, which intends to develop a new product. Mr. Davis’ resignation was not the result of any disagreements with
management or board of directors of the Company.
The Board of Directors of the Company approved,
on April 13, 2020, a reverse stock split of all of the Company’s Common Stock, pursuant to which every 50 shares of Common
Stock of the Company shall be reverse split, reconstituted and converted into one (1) share of Common Stock of the Company (the
“Reverse Stock Split”). The Company submitted an Issuer Company Related Action Notification regarding the Reverse Stock
Split to FINRA on April 14, 2020. FINRA has not yet declared an effective date for the Reverse Stock Split. To
effectuate the Reverse Stock Split, the Company filed on April 21, 2020 a Certificate of Change Pursuant to Nevada Revised Statutes
(“NRS”) Section 78.209 (the “Certificate of Change”) with the Secretary of State of the State of Nevada
subject to FINRA approval. Since this reverse stock split has not yet been approved by the State of Nevada, the financial statements
have not been be retroactively restated to reflect this reverse stock split.
On April 13, 2020, the Company’s Board
of Directors appointed Mansour Khatib, who has served as the Chief Marketing Officer and a director of the Company as Chief Executive
Officer. Mr. Khatib has also previously served as Interim Chief Executive Officer from May 2018 to July 2018.