Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Stock Splits Increase Authorized
On October 26, 2021, the Company effectuated
a 1 for 50 reverse stock split. The share and per share information were retroactively restated to reflect this
reverse stock split.
In July 7, 2022 the Company filed a preliminary
information statement to the stockholders of record (the “Record Date”) in connection with certain actions to be taken
by the written consent by stockholders holding a majority of the voting stock of the Company, dated as of June 28, 2022.
| |
● |
To amend the Company’s Articles
of Incorporation, (the “Articles of Incorporation”) to increase the number of authorized shares of common stock,
par value $0.00001 per share (the “Common Stock”), of the Company from 2,000,000,000 shares to 10,000,000,000
shares. This action concluded on August 11, 2022. |
| |
● |
(i) authorize the Company’s Board of Directors to effect, in its sole discretion, a reverse stock split of the Common Stock in a ratio of up to 1-for-500 (the “Reverse Stock Split”), and (ii) authorize the filing of an amendment to the Company’s Articles of Incorporation to implement the Reverse Stock Split and any other action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time prior to December 31, 2023. This action was not commenced by the Company’s board. |
Going Concern
The accompanying CFS were prepared assuming
that the Company will continue as a going concern. The Company has an accumulated deficit of $302,326,206 and
a working capital deficit of $22,055,811 as of September 30, 2022, 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 CFS 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 CFS 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 CFS and the reported amounts of revenues and expenses during the reporting
period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely
from the Company’s estimates. To the extent there are material differences between the estimates and the actual results,
future results of operations will be affected. Significant estimates in the accompanying financial statements include leases, valuation
of derivatives and valuation allowance on deferred tax assets.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Principles of Consolidation
The accompanying CFS include the accounts of
the Company and its subsidiaries; the Company’s 50% owned subsidiaries GBT Tokenize Corp; and GBT BitSpeed (currently inactive)
Corp. and the Company’s 50% owned subsidiary, Gopher Protocol Costa Rica Sociedad De Responsabilidad Limitada (currently
inactive ), a wholly owned subsidiary, AltCorp Trading LLC, a Costa Rica company (“AltCorp” currently inactive), Greenwich
International Holdings, a Costa Rica corporation (“Greenwich” currently inactive) and Mahaser Ltd., a variable interest
entity. All significant intercompany transactions and balances were eliminated in consolidation.
For entities
determined to be VIEs, an evaluation is required to determine whether the Company is the primary beneficiary. The Company evaluates
its economic interests in the entity specifically determining if the Company has both the power to direct the activities of the
VIE that most significantly impact the VIE’s economic performance (“the power”) and the obligation to absorb
losses or the right to receive benefits that could potentially be significant to the VIE (“the benefits”). When making
the determination whether the benefits received from an entity are significant, the Company considers the total economics of the
entity, and analyzes whether the Company’s share of the economics is significant. The Company utilizes qualitative factors,
and, where applicable, quantitative factors, while performing the analysis.
In addition, the Company’s
variable interests in Mahaser obligate the Company to absorb deficits and provide it with the right to receive benefits that could
potentially be significant to Mahaser. As a result of this analysis, the Company concluded it is the primary beneficiary of Mahaser
and therefore consolidates the balance sheets, results of operations and cash flows of Mahaser. The Company performs a qualitative
assessment of Mahaser on an ongoing basis to determine if it continues to be the primary beneficiary.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Cash Equivalents
For the purpose of the statement of cash flows,
cash equivalents include time deposits, certificate of deposits, and all highly-liquid debt instruments with original maturities
of three months or less. As of September 30, 2022 and December 31, 2021, the Company did not have any cash equivalents.
Funds in Escrow
Restricted cash is $375,000 as part of the
SURG settlements proceeds that needs to stay in escrow and $19,694 restricted cash that the court on January 28, 2022 awarded the
Company with injunction against RWJ defendants, where all funds generating from resale should be deposited into GBT blocked account,
and therefore RWJ defendants cannot use these funds without court order, neither the Company. According to below settlement agreement
made on September 26, 2022, these funds held in escrow and no longer restricted.
The Company entered into the Confidential Settlement
Agreement and Mutual Release (“RJW Agreement”) by and between RWJ Advanced Marketing, LLC, Robert Warren Jackson, Gregory
Bauer (collectively the “RJW Parties”) and W.L. Petrey Wholesale Company, Inc., (“Petrey”) on one hand;
and GBT Technologies Inc., on behalf of itself and its agents (collectively the GBT Parties”), on the other hand. The Company
the RJW Agreement effective September 26, 2022 with final signatures delivered to the Company on or about October 5, 2022. Among
other agreements (see Contingencies) the parties agreed and stipulated to release all funds currently being held in a blocked account
of $19,694 with 50% distributed to the RWJ Parties and 50% to the Company or its assignee.
Investment Securities
The Company accounts for investment 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 12 months
of the balance sheet date is reported as a current asset. These publicly traded equity securities are valued using quoted prices
and are included in Level 1.
Inventory
Inventory consists of electronic product ready
for sale on Amazon.com. It is stated at the lower of cost or net realizable value and all inventories were returned product from
online customers. We value our inventory using the weighted average costing method. Our Company’s policy is to include as
a part of inventory any freight incurred to ship the product from our contract vendors to our warehouses. Outbound freight costs
to our customers are considered period costs and reflected in selling, general and administrative expenses. We regularly review
inventory and consider forecasts of future demand, market conditions and product obsolescence.
Note Receivable Paid-Off
On September 18, 2020, the Company entered
into a Purchase and Sale Agreement with Mr. LightHouse LTD., an Israeli corporation (“MLH”) pursuant to which
the Company agreed to sell and assign to MLH, effective July 1, 2020 all the shares, and certain specified liabilities, of Ugopherservices
Corp. (“UGO”), a wholly owned subsidiary of the Company for $100,000 to be paid through the delivery of a promissory
note payable to the Company (the “Note”), upon the terms and subject to the limitations and conditions set forth in
the Note. At December 31, 2020, the Company determined this note was not collectible and took an impairment charge of $100,000.
During July 2021, MLH effected a $50,000 payment on the Note. During April 2022, MLH effected a second payment for additional $50,000
on the Note exhausting the Note balance.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Derivative Financial Instruments
The Company evaluates all of its agreements
to determine if they contain derivatives or have 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 “FV”
and is then re-valued at each reporting date, with changes in the FV reported in the statements of operations. For stock-based
derivative financial instruments, the Company uses a weighted-average Black-Scholes-Merton option pricing model to value the derivative
instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet date. As of September, 30, 2022 and December 31, 2021 (audited),
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 of Financial Instruments
For certain of the Company’s financial
instruments, including cash, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their
FVs due to their short maturities.
FASB ASC Topic 820, Fair Value Measurements
and Disclosures, requires disclosure of the FV 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 FV measurement that enhances
disclosure requirements for FV 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 FV 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 FV 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 FVs 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 FVs were determined 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 FV of derivatives.
At September 30, 2022 and December 31, 2021,
the Company identified the following assets and liabilities that are required to be presented on the balance sheet at FV:
| Schedule of fair value, assets and liabilities measured on recurring basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Description |
|
Fair
Value
As of
September 30, 2022 |
|
Fair
Value Measurements at
September 30, 2022
Using Fair Value Hierarchy |
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
| Conversion
feature on convertible notes |
|
$ |
5,787,760 |
|
|
$ |
— |
|
|
$ |
5,787,760 |
|
|
$ |
— |
|
| Marketable
securities |
|
$ |
40,942 |
|
|
$ |
40,942 |
|
|
$ |
— |
|
|
$ |
— |
|
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
| Description |
|
Fair
Value
As of
December 31, 2021 |
|
Fair
Value Measurements at
December 31, 2021
Using Fair Value Hierarchy |
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
| Conversion
feature on convertible notes |
|
$ |
10,192,485 |
|
|
$ |
— |
|
|
$ |
10,192,485 |
|
|
$ |
— |
|
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.
Reclassification
Certain prior years amounts have been reclassified
for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
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 this new standard.
Revenues are recognized under Topic
606 in a manner that reasonably reflects the delivery of its services to customers in return for expected consideration
and includes the following elements:
IT Consulting services:
| |
● |
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 IT
revenue category, is summarized below:
| |
● |
IT consulting services - revenue is recorded on a monthly basis as services are provided. |
These five elements, as applied to each of the Company’s license
revenue category, is summarized below:
| |
● |
License services – the one-time
related party licensing income recorded as other income upon agreement is executed and services are provided and recognized
over the term of five years. |
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
e-commerce sales –
| |
● |
Identify the contract(s) with a customer. ASC 606 defines a contract as “an agreement between two or more parties that creates enforceable rights and obligations”. Since this is an e-commerce sale on the Amazon or eBay websites, the Company just followed the general terms on Amazon or eBay websites and the customer entered into a contract with the Company based on the product listed on the Amazon or eBay websites; |
| |
|
|
| |
● |
Identify the performance obligations in the contract. According to the contract, the Company is responsible for operation exclusively. The Company is entitled to all revenue which is being paid by Amazon or eBay into a designated bank account and the Company is responsible for all product acquisitions as well as shipments. The only performance obligations were the electronic products that were listed on Amazon or eBay websites and the Company determined each order is one single obligation; |
| |
|
|
| |
● |
Determine the transaction price. The transaction price set to be the listed price on the Amazon or eBay websites.; |
| |
|
|
| |
● |
Allocate the transaction price to the performance obligations in the contract.; and |
| |
|
|
| |
● |
Recognize revenue when the Company satisfies a performance obligation. Sales are being recognize upon shipment. |
Unearned revenue
Unearned revenue is the net amount received
for the purchase of products that have not seen shipped to the Company’s customers. On November 12, 2020 the Company filed
a complaint in the United States District Court – District of Nevada - Case 2:20-cv-02078 against RWJ Advanced Marketing,
LLC, Greg Bauer, and Warren Jackson and against W.L. Petrey Wholesale Company Inc (the “RWJ Defendants”) for fraud,
breach of contract, Unjust Enrichment and other claims. On January 28, 2022, the court awarded the Company with an injunction against
RWJ Defendants, where all fee funds generating from resale should be deposited into a GBT blocked account and, therefore, RWJ Defendants
cannot use these funds without court order. $19,694 been credited as unearned revenue until the court’s final decision. The
Company has $249,159 and $249,384 of unearned revenue at September 30, 2022 and December 31, 2021 (audited), respectively. The
Company entered into a Confidential Settlement Agreement and Mutual Release (“RJW Agreement”) by and between RWJ Defendants
and the Company effective September 26, 2022 (see Contingencies)
Contract liabilities
On February 22, 2022, the Company entered into
an Intellectual Property License and Royalty Agreement with Touchpoint Group Holdings, Inc. (“Touchpoint” or
“TGHI”) pursuant to which the Company granted TGHI a worldwide license for its technologies for five years in the
domains of Internet of Things (IoT) and Artificial Intelligence enabled mobile technologies pertaining to the Company’s
digital currency technology (the “Technology”). GBT will charge TGHI royalties based on actual uses by TGHI of the
Technology resulting from revenue attributable to the use, performance or other exploitation of the Technology, to the extent
applicable, after deducting any taxes that the Company may be required to collect, and deducting any international sales, goods and
services, value added taxes or similar taxes which the Company is required to pay, if any, excluding deductions for taxes on the
Company net income. TGHI agreed to issue the Company 10,000,000
shares of common stock of TGHI in the FV of $50,000
as a onetime fee in consideration of the Company entering this Intellectual Property License and Royalty Agreement, which was booked
contract liabilities and amortized over the 5 five-year term. The Company has yet to earn any royalty income in relation to this
agreement as of September 30, 2022. The contract liabilities as of September 30, 2022 and December 31, 2021 (audited) was $43,944
and $0, respectively (See Footnote 4).
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Variable Interest Entity
On February 18, 2022,
the Company, effective March 1, 2022 entered into a Revenue Sharing Agreement (“RSA”) with Mahaser LTD. (“Mahaser”)
pursuant to which the Company shares in revenues generated by Mahaser e-commerce sales through the online retail platform in the
United States of America. Mahaser owns an e-commerce platform as a store which is the legal, exclusive owner of Ravenholm Electronics.
The Company will operate the e-commerce platform and entitled to 95% for all revenue generated by and received by Mahaser from
March 1, 2022 through December 31, 2022. The RSA provides that the Company will be entitled to appoint a manager to Mahaser. As
consideration, the Company will pay Mahaser $100,000 no later than March 1, 2022 and issue Mahaser 1,000,000 shares
of the Company’s restricted common stock. The Company shall have no obligations to make any further payments to Mahaser.
For any further extensions, the Company will have the option to extend the RSA for annual payment of $200,000, which can be payable
with the Company’s shares of common stock payable based on 20 days VWAP prior to issuance. On March 16, 2022 the parties
entered into Amendment No. 1 to the to the RSA, where all consideration to be paid or issued to Mahaser will be deferred until
such time where the e-commerce platform generated in cumulative revenue of $1,000,000. On March 31, 2022, the parties entered into
Amendment No. 2 to the RSA, where Mahaser agreed to pay the Company 100% per year for all revenue generated by and received by
seller from the sales by Amazon within the United States of America as follows from March 1, 2022 through December 31, 2022. The
Company will be responsible for 100% of the cost of goods sold as well. In addition, the Company is entitled to earn 100% revenues
and cost of goods sold of the period from February 1, 2022 to February 28, 2022.
The Company evaluated
whether it has a variable interest in Mahaser, whether Mahaser is a VIE and whether the Company has a controlling financial interest
in Mahaser. The Company concluded that it has variable interests in Mahaser on the basis of GBT has 100% control over the JV/revenue
sharing, and as such should consolidate the JV into its books and records as it assigned 100% financial responsibility. Mahaser’s
equity at risk, as defined by GAAP, is considered to be insufficient to finance its activities without additional support, and,
therefore, Mahaser is considered a VIE.
The following table
summarizes the carrying amount of the assets and liabilities of Mahaser included in the Company’s consolidated balance sheets
at September 30, 2021(after elimination of intercompany transactions and balances):
| Condensed financial statements | |
| | |
| Assets
of consolidated variable interest entity (“VIE”) included in the consolidated balance sheets above (after elimination
of intercompany transactions and balances) consist of: | |
|
| Current
assets: | |
| | |
| Cash
and equivalents | |
$ | 89,962 | |
| Inventory | |
| 7,158 | |
| Due
From related party | |
| 30,049 | |
| Total
current assets | |
$ | 127,169 | |
| | |
| | |
| Liabilities
of consolidated VIE included in the consolidated balance sheets above (after elimination of intercompany transactions and balances)
consist of: | |
| | |
| Current
liabilities | |
| | |
| Total
current liabilities | |
$ | — | |
| | |
| | |
| Statements
of operations of consolidated VIE included in the consolidated statements of operations above (after elimination of intercompany
transactions and balances) consist of: | |
| | |
| Statements of operations | |
| | |
| Sales | |
$ | 771,446 | |
| Cost
of goods sold | |
| 530,003 | |
| Gross
profit | |
| 241,443 | |
| General
and administrative expenses | |
| 206,743 | |
| Net
income | |
$ | 34,700 | |
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
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 and its current on
all its tax filings federal and state until 2021 inclusive.
Basic and Diluted Earnings Per Share
Earnings (loss) 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 three and nine months.
| Schedule of anti dilutive securities excluded from computation of earnings per share |
|
|
|
|
|
|
|
|
| |
|
September 30,
2022 |
|
September 30,
2021* |
| Series B preferred stock |
|
|
45,000 |
|
|
|
— |
|
| Series C preferred stock |
|
|
700 |
|
|
|
— |
|
| Series H preferred stock |
|
|
20,000 |
|
|
|
— |
|
| Warrants |
|
|
70,770 |
|
|
|
— |
|
| Convertible notes |
|
|
4,088,958,514 |
|
|
|
— |
|
| Total |
|
|
4,089,094,984 |
|
|
|
— |
|
| * |
No dilution for the loss periods ended
September 30, 2021. |
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Recent Accounting Pronouncements
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 have adopted this ASU on the CFS in the year ended December 31, 2021. The
adoption had no material impact on the CFS for the periods ended September 30, 2022.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces
the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with
conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging,
or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are
separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope
exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and
clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the
disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is
effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting
companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal
years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim
periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020,
including interim periods within those fiscal years. The Company adopted this ASU on the CFS in the year ended December 31, 2021.
The adoption had no material impact on the CFS for the periods ended September 30, 2022.
On April 2021, the FASB issued ASU 2021-04,
“Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU
2021-04”) to clarify the accounting by issuers for modifications or exchanges of equity-classified warrants. The new
ASU is available here and effective for all entities in fiscal years starting after December 15, 2021. Early adoption is permitted.
The Company adopted this ASU on the CFS in the year ended December 31, 2021. The adoption had no material impact on the CFS for
the periods ended September 30, 2022.
Management does not believe that any recently
issued, but not yet effective, accounting standards could have a material effect on the accompanying CFS. As new accounting pronouncements
are issued, we will adopt those that are applicable under the circumstances.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Note 3 – Cash, Restricted Cash, and
Cash held in Trust
Cash consist of amounts
held as bank deposits, amounts held in escrow and highly liquid debt instruments purchased with an original maturity of three months
or less.
From time to time,
we may maintain bank balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit
Insurance Corporation for interest bearing accounts (there is currently no insurance limit for deposits in noninterest bearing
accounts). We have not experienced any losses with respect to cash. Management believes our Company is not exposed to any significant
credit risk with respect to its cash.
Restricted cash is $375,000 as part of the
SURG settlements proceeds that needs to stay in escrow and $19,694 restricted cash that the court on January 28, 2022 awarded the
Company with injunction against RWJ defendants, where all funds generating from resale should be deposited into GBT blocked account,
and therefore RWJ defendants cannot use these funds without court order, neither the Company. According to below settlement agreement
made on September 26, 2022, these funds held in escrow and no longer restricted.
The Company entered into a Confidential Settlement
Agreement and Mutual Release (“RJW Agreement”) by and between RWJ Defendants and the Company effective September 26,
2022. Said RJW Agreement will remove restriction on cash and cash held in escrow (see Footnote 17 Contingencies).
Note 4 – Marketable Securities
TGHI Agreement
On January 28, 2022, the Company entered
into a Stock Purchase Agreement with Marko Radisic (the “Seller”) and Touchpoint Group Holdings, Inc. (“TGHI”)
pursuant to which the Company acquired 10,000 shares of Series A Convertible Preferred Stock (the “Touchpoint Preferred”)
from the Seller for $125,000. The Touchpoint Preferred is convertible into 10,000,000 shares of common stock of Touchpoint. On
February 22, 2022, the Company entered into an Intellectual Property License and Royalty Agreement with TGHI pursuant
to which the Company granted TGHI a worldwide license for its technologies for five years in the domains of Internet of Things
(IoT) and Artificial Intelligence enabled mobile technologies pertaining to the Company’s digital currency technology (the
“Technology”). GBT will charge TGHI earned royalties based on actual uses by TGHI of the Technology resulting from
revenue attributable to the use, performance or other exploitation of the Technology, to the extent applicable, after deducting
any taxes that the Company may be required to collect, and deducting any international sales, goods and services, value added taxes
or similar taxes which the Company is required to pay, if any, excluding deductions for taxes on the Company net income. TGHI agreed
to issue the Company 10,000,000 shares of common stock of TGHI in the FV of $50,000 as a one-time fee in consideration of the Company
entering this Intellectual Property License and Royalty Agreement, which was booked contract liabilities and amortized over the
five-year term. The Company has yet to earn any royalty income order to this agreement as of September 30, 2022.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
TGHI converted the Touchpoint Preferred into
10,000,000 shares of common stock of Touchpoint on February 23,2022 resulting in the Company owning 20,000,000 shares of common
stock of Touchpoint in total FV of $6,000 as of September 30, 2022 based on level 1 stock price in OTC markets.
MetAlert (prior name) GTX Agreement
On April 12, 2022, GBT Tokenize Corp (“GBT
Tokenize”), a Nevada corporation which the Company owns 50% of the outstanding shares of common stock, entered into a series
of agreements with GTX Corp (“GTX”) and various note holders of GTX pursuant to which Tokenize acquired a convertible promissory note of GTX of $100,000 (the “GTX Notes”). In addition, GBT Tokenize acquired 76,923 (GBT acquired 5,000,000
in the original deal, where GTX to perform a corporate action of 1:65 reverse split on September 20, 2022) shares of common stock
of GTX for $150,000 - in total FV of $28,462 as of September 30, 2022 based on level 1 stock price in OTC markets.
The GTX Notes bear 10% interest and 50% of
the principal may be converted into shares of common stock on a one-time basis at a conversion price of $0.01 per share. The remaining
50% of the principal must be paid in cash. The closing occurred on April 12, 2022.
GTX changed its name into Metalert Inc. on
or about September 20, 2022.
On September 30, 2022, GBT Tokenize, loaned
MetAlert Inc., a Nevada corporation (f/k/a GTX Corp.) (“MetAlert”) $90,000. For such loan, MetAlert provided Tokenize
a promissory note of $90,000 which is due and payable together with interest of 5% upon the earlier of September 19, 2023 or when
declared by Tokenize.
MetAlert
designs, manufactures and sells various interrelated and complementary products and services in the wearable technology and IoMT
(Internet of Medical Things) marketplace.
As of September, 30,
2022, the notes had an outstanding balance of $190,000 and accrued interest of $4,821.
As of September, 30, 2022 and December 31,
2021, the marketable security had a FV of $28,462 and $0, respectively.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Note 5 – Investment in Surge Holdings,
Inc.
Surge Holdings, Inc.
On September 30, 2019,
GBT Technologies Inc. (the “Company”) entered into an Asset Purchase Agreement (“APA”) 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
for $5,000,000 to be paid through the issuance of 3,333,333 shares of SURG’s common stock (the “SURG
Common Stock”) and a convertible promissory note in favor of the Company of $4,000,000 (the “SURG Note”),
convertible into SURG’s shares of common stock. On January 7, 2022, the Company received payments from Surge pays Inc. (formerly
known as Surge Holdings, Inc.) of $3,750,000 pursuant to the terms of the Settlement Agreement dated December 22, 2021.
On June 23, 2020,
SURG entered into an Exchange Agreement (the “AltCorp Exchange Agreement”) with AltCorp Trading LLC (“AltCorp”)
with such AltCorp Exchange Agreement being consented and agreed to by the Company, the parent of AltCorp. At the expiration of
the lock-up period, in the event the VWAP for the SURG Common Stock was, during the preceding 20-day trading period, less than
$0.50 per share, AltCorp retained the right to reserve additional shares of SURG Common Stock equal to the True-Up Value as
defined in the AltCorp Exchange Agreement.
On March 8, 2020,
SURG filed a lawsuit against its transfer agent from transferring millions of SURG stock that is currently in possession by the
Company and assigned to Stanley Hills, LLC. On January 1, 2021, SURG, AltCorp and Stanley Hills, LLC (“Stanley”) entered
into a Mutual Release and Settlement Agreement (“Settlement Agreement”). Pursuant to the terms of the Settlement Agreement,
SURG agreed to amend the AltCorp Exchange Agreement where SURG acknowledged a debt of $3,300,000 (the “Debt”)
to be paid in 33 monthly payments of $100,000 payable in shares of common stock of SURG at a per share price equal the VWAP
of Surg’s common stock during the 10 trading days immediately preceding the issuance. SURG paid $400,000 in cash and
$800,000 by shares. The SURG common stock issued to Altcorp have been pledged since August 12, 2020 for the benefit of Stanley
to secure Stanley’s note payable by the Company. Accordingly, the SURG Common Stock issued to AltCorp as a result of the
Settlement Agreement were pledged to Stanley. As of December 31, 2021 there were no surge shares pledges after the final settlement
signed on December 22, 2021 and that replaced all prior settlement agreement. The final settlement SURG agreed to make total payments
of $4,200,000 to the Company’s trust account on or prior to January 7, 2022. This $4.2 million consists of $450,000
paid by SURG in November and December 2021, $100,000 to be paid on or about January 4, 2022, and $3,650,000 to be paid on or prior
to January 7, 2022 of which $375,000 will be held in escrow as described before. The $3,750,000 was recorded as other receivable
as of December 31, 2021. As of December 31, 2021, the Company recorded an outstanding payable to Stanley of $1,862,928 recorded
under accrued expenses.
Subsequently, SURG
was a party to two lawsuits in state District Court, the Eighth Judicial District Court for Clark County, Nevada involving AltCorp,
Stanley and Glen Eagles Acquisition LP (the “AltCorp Parties.”). Each of these lawsuits were ultimately disputes relating
to the total consideration SURG was to pay the Company under the APA.
On October 18, 2021,
the AltCorp Parties, the Company, and SURG entered into a Memorandum of Understanding (the “MOU”) to set up a framework
for an attempt to settle the two lawsuits.
On December 22, 2021
(the “Effective Date”), pursuant to the framework in the MOU, the AltCorp Parties (and an additional third party),
the Company, ECS, and SURG, Kevin Brian Cox (SURG’s Chief Executive Officer) - in his individual capacity, entered into a
Resolution of Purchase, Mutual Release, and Settlement Agreement (the “Final Settlement Agreement”) to settle the two
lawsuits and resolve all disputes related to the consideration paid by SURG to the Company in connection with the APA.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
The Final Settlement
Agreement, among other resolutions, essentially provides the following:
(i) From the total
consideration of the Final Settlement Agreement, $375,000 (“Escrow Amount”) will be deposited by SURG in escrow.
SURG has acquired the Company’s rights to a certain Master Distribution and Service Agreement (“MDA”). Under
certain circumstances, if the result of the Company’s lawsuit against a third party (the “GBT Lawsuit”) is a
monetary judgment without the assignment or legal decree of ownership of the MDA, the Company shall be entitled to receive the
Escrow Amount and shall assign to SURG the first $1,000,000 the Company recovers from the defendants in the GBT Lawsuit. In
the event that the Company does not prevail in the GBT Lawsuit then it shall be entitled to release of the Escrow Amount but shall
be responsible for any fees and costs obligation sought by the defendants in the GBT Lawsuit.
(ii) Potential payments
to third parties.
The Final Settlement
Agreement replaces all prior agreements between the parties. In addition, within three trading days of the last payment of the
$4.2 million payment to Stanley being made, the parties shall make filings with the state District Court in Clark County,
Nevada to dismiss both lawsuits, including, regarding the lawsuit filed by AltCorp Trading, LLC, the dismissal of the lawsuit as
to VStock Transfer, LLC. The parties agreed to a full mutual release of any disputes or claims between the parties.
The final settlement
of $3,750,000 was received by the Company in January 2022 and paid out $3,750,000 to the third parties before September
30, 2022.
As
the Company committed to assign certain revenue share agreement to SURG as part of the Company’s settlement with RWJ Agreement,
on October 5, 2022 and as cumulation of all settlement agreements the Company issued a request to the SURG regarding release of
certain escrow funds and the execution of an assignment of rights as contemplated in the aforereferenced agreement (See Footnote
17 Contingencies).
Note 6 – Impaired Investments
| |
1. |
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 or 25% of its issued and outstanding shares of common stock from Gonzalez for 20,000 shares of Series H Convertible
Preferred Stock of the Company and a Convertible Note 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 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 Technologies, Inc. (“Mobiquity”) and 60,000,000 restricted
shares of common stock of Mobiquity.
The Gopher Convertible
Note bears interest of 6% and was payable at maturity on December 31, 2021. At the election of Gonzalez, the Gopher Convertible
Note 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 ($500 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 Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
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 accounted for its investment in
GBT-CR using the equity method of accounting; however, in 2020, the Company owned less than 20% after GBT-CR issued additional
shares to other investors therefore exercised no control over GBT-CR; therefore, this investment is currently accounted for under
the cost method. Moreover, on March 19, 2020, California Governor Gavin Newsom issued a stay-at-home order to protect the health
and well-being of all Californians and to establish consistency across the state in order to slow the spread of COVID-19. California
was therefore under strict quarantine control and travel has been severely restricted, resulting in disruptions to work, communications,
and access to files (due to limited access to facilities). The stay-at-home order was lifted in California only on January 25,
2021. As such, the Company was unable to access or to contact GBT-CR on an on-going basis, and cannot get information about GBT-CR.
| |
2. |
Investment in Joint Venture – GBT Tokenize Corp |
On March 6, 2020, the Company through 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 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.
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.
Tokenize shall contribute the services and
resources for the development of the Technology Portfolio to GBT Tokenize. The Company shall contribute 2,000,000 shares of common
stock of the Company (“GBT Shares”) to GBT Tokenize. Tokenize and the Company will each own 50% of GBT Tokenize. The
shares were valued at FV of $5,500,000.
In addition, GBT Tokenize and Gonzalez entered
into a Consulting Agreement in which Gonzalez is engaged to provide services for $33,333 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. During year ended December 31, 2021, Gonzalez assigned all his accrued balances of $424,731
to Stanley Hills in a private transaction that the Company is not part to. The closing of the Tokenize Agreement occurred on March
9, 2020.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Through this Joint Venture the parties commenced
development of an intelligent human vital signs’ device, which we currently refer to as the qTerm. The platform is an expansion
of the existing license agreement with GBT Tokenize Corp., which provided GBT Tokenize Corp. with an exclusive territory of California
to develop certain of the Company’s technology. As the nature of the platform cannot be restricted only to California, the
Company’s joint venture GBT Tokenize Corp. will be compensated with additional 200,000,000 shares of the Company to strengthen
its funding, subject to board approval. A provisional patent application for the qTerm Medical Device was filed on March 30, 2020
with the USPTO. The application assigned serial number 63001564. The Joint Venture completed successfully the first prototype.
There is no guarantee the Company will be successful in researching, developing or implementing this product into the market. In
order to successfully implement this concept, the Company will need to raise adequate capital to support its research and, if successfully
researched, developed and granted regulatory approval, the Company would need to enter into a strategic relationship with a third
party that has experience in manufacturing, selling and distributing this product. There is no guarantee the Company will be successful
in any or all of these critical steps.
On May 28, 2021, the parties agreed to amend
the Tokenize Agreement to expand territory granted for the Technology Portfolio under the license to GBT Tokenize to include the
entire continental United States. The Company further agreed to issue GBT Tokenize an additional 14,000,000 shares of common stock
of the Company. The shares were valued at $15,400,000.
At March 31, 2020, the Company evaluated the
carrying amount of this joint venture investment and determined it was fully impaired and as a result an impairment charge of $5,500,000
was taken. At December 31, 2021, the Company evaluated the carrying amount of this joint venture investment and determined that
this investment was fully impaired and as a result an impairment charge of $15,400,000 was taken.
Although the investment was impaired, the product
development is still ongoing. The carrying amount of this investment at September 30, 2022 and December 31, 2021 (audited), was
$0 and $0, respectively.
Note 7 – Inventory
Inventory consists of electronic product ready
for sale on Amazon. It is stated at the lower of cost or net realizable value and all inventories were returned product from online
customers. We value our inventory using the weighted average costing method. Our Company’s policy is to include as a part
of inventory any freight incurred to ship the product from our contract vendors to our warehouses. Outbound freights costs related
to shipping costs to our customers are considered period costs and reflected in selling, general and administrative expenses. We
regularly review inventory and consider forecasts of future demand, market conditions and product obsolescence.
If the estimated realizable value of our inventory
is less than cost, we make provisions in order to reduce it carrying value to its estimated market value. No write down to net
realizable value was necessary for the periods ended September 30, 2022 and December 31, 2021.
Note 8 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at September 30, 2022 and
December 31, 2021 (audited) consist of the following:
| Schedule of accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
| |
|
2022 |
|
2021 |
| Accounts payable |
|
$ |
1,089,143 |
|
|
$ |
670,127 |
|
| Accounts payable – related party |
|
|
530,000 |
|
|
|
440,000 |
|
| Accrued liabilities |
|
|
660,665 |
|
|
|
1,170,088 |
|
| Accrued liabilities – related party |
|
|
660,735 |
|
|
|
1,862,928 |
|
| Accrued interest |
|
|
2,914,922 |
|
|
|
2,746,793 |
|
| Accrued interest – related party |
|
|
46,198 |
|
|
|
6,327 |
|
| Total accounts payable and accrued expenses |
|
$ |
5,901,663 |
|
|
$ |
6,896,263 |
|
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Note 9 – Unearned Revenue
Unearned revenue is the net amount received
for the purchase of products that have not seen shipped to the Company’s customers. On January 28, 2022, the court awarded
the Company an injunction against RWJ Defendants, where all funds generating from resale should be deposited into a GBT blocked
account and, therefore, RWJ Defendants cannot use these funds without a court order. $19,694 was credited as unearned revenue until
the court’s final decision. The Company entered into a Confidential Settlement Agreement and Mutual Release (“RJW Agreement”)
by and between RWJ Defendants and the Company effective September 26, 2022. Said RJW Agreement entitled the RWJ Defendants to 50%
of the amounts deposited into blocked account (see Footnote 17 Contingencies).
Note 10 – 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 attorney’s fees. Consequently,
the arbitrator awarded Investor $4,034,444 plus interest of 7.25% accrued from May 15, 2019 (presented separately in
accounts payable and accrued expenses) and costs $55,613. In connection with this settlement, the Company recognized a gain on
the settlement of debt of $1,375,556 in 2019 as the difference between the carrying amount of the debt and the amount awarded
by the arbitrator. As of September, 30, 2022, the award had not been paid. The Company recorded accrued settlement of $4,090,057
at September 30, 2022 and December 31, 2021 (audited), respectively, not including accrued interest.
Note 11 – Convertible Notes Payable, Non-related Partied
and Related Party
Convertible notes payable – nonrelated parties at September
30, 2022 and December 31, 2021 (audited) consist of the following:
| Schedule of rollfoward of convertible note |
|
|
|
|
|
|
|
|
| |
|
September 30,
2022 |
|
December 31,
2021 |
| Convertible note payable to IGOR 1 CORP |
|
$ |
6,458,431 |
|
|
$ |
8,055,400 |
|
| Convertible notes payable to Sixth Street |
|
|
— |
|
|
|
124,200 |
|
| Convertible notes payable to Redstart Holdings |
|
|
— |
|
|
|
244,500 |
|
| Convertible notes payable to 1800 Diagonal Lending |
|
|
360,700 |
|
|
|
— |
|
| Total convertible notes payable, non-related parties |
|
|
6,819,131 |
|
|
|
8,424,100 |
|
| Unamortized debt discount |
|
|
(269,297 |
) |
|
|
(278,867 |
) |
| Convertible notes payable – nonrelated parties |
|
|
6,574,631 |
|
|
|
8,145,233 |
|
| Less current portion |
|
|
(6,574,631 |
) |
|
|
(8,109,436 |
) |
| Convertible notes payable – nonrelated parties, long-term portion |
|
$ |
— |
|
|
$ |
35,797 |
|
$10,000,000 for Igor 1 Corp (Prior year
- GBT Technologies S. A.)
In accordance with
the acquisition of GBT-CR the Company issued a convertible note of $10,000,000. The convertible Note bears interest of 6% was 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 ($500.00 share). This convertible note may convert into
shares of the Company’s common stock at a conversion price equal to 85% of the lowest trading price with a 20-day look back
immediately preceding the date of conversion and therefore recorded as derivative liability.
GBT Technologies,
Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
On May 19, 2021, the
Company, Gonzalez, GBT-CR and IGOR 1 Corp entered into a Mutual Release and Settlement Agreement and Irrevocable Assignment of
outstanding balance plus accrued interest (the “Gonzalez Agreement”). Pursuant to the Gonzalez Agreement, without any
party admission of liability and to avoid litigation, the parties has agreed to (i) extend the GBT convertible note maturity date
to December 31, 2022, (ii) amend the GBT convertible note terms to include a beneficial ownership blocker of 4.99% and a modified
conversion feature to the GBT convertible note with 15% discount to the market price during the 20 trading day period ending on
the latest complete trading day prior to the conversion date and (iii) provided for an assignment of the GBT convertible note by
Gonzalez to a third party. As a result of the change in terms of this convertible note, the Company took a charge related to the
modification of debt of $13,777,480 during the year ended December 31, 2021. This convertible note is recorded as derivative
liability because of the discounted price on conversion.
During the year ended
December 31, 2021, IGOR 1 converted $1,284,600 of the convertible note into 4,185,650 shares of the Company’s common
stock. Also, on June 24, 2021, the Company transferred 5,500,000 SURG shares received as repayment of $660,000 of this convertible
note.
As of September, 30,
2022, the note had an outstanding balance of $6,458,431 including accrued interest of $1,877,901.
Redstart Holdings
Corp
On September 21, 2021,
the Company entered into a Securities Purchase Agreement with Redstart pursuant to which the Company issued to Redstart a Convertible
Promissory Note (the “Redstart Note No. 7”) of $244,500 for $203,750. The Redstart Note No. 7 has a maturity date of December
22, 2022 and the Company agreed to pay interest on the unpaid principal balance of the Redstart Note No. 7 at 2.5% from the
date on which the Redstart Note No. 7 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 Redstart Note No.
7, provided it makes a payment including a prepayment to Redstart as set forth in the Redstart Note No. 7. The transactions described
above closed on September 28, 2021. The outstanding principal amount of the Redstart Note No. 7 may not be converted prior to the
period beginning on the date that is 180 days following the Issue Date. Following the 180th day, Redstart may convert
the Redstart Note No. 7 into shares of the Company’s common stock at a conversion price equal to 85% of the
lowest trading price with a 20-day look back immediately preceding the date of conversion. Since the conversion price will vary
based on the Company’s stock price, the beneficial conversion feature associated with this note is accounted for as a derivative
liability. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the Redstart Note
No. 7), the Redstart Note No. 7 shall become immediately due and payable and the Company shall pay to Redstart, in full satisfaction
of its obligations hereunder, additional amounts as set forth in the Redstart Note No. 7. During the nine months ended September
30, 2022, Redstart converted the entire note into 7,656,951 shares of the Company’s common stock.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Sixth Street Lending
LLC – named changed - 1800 Diagonal Lending LLC
First Note
On November 8, 2021,
the Company entered into a Securities Purchase Agreement with Sixth Street Lending LLC (“Sixth Street”) pursuant to
which the Company issued to Sixth Street a Convertible Promissory Note (the “Sixth Street Note”) of $124,200 for $103,500.
The Sixth Street Note has a maturity date of February 8, 2023 and the Company agreed to pay interest on the unpaid principal
balance of the note at 6% from the date on which the 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
note, provided it makes a payment including a prepayment to Sixth Street as set forth in the Sixth Street Note. The outstanding
principal amount of the 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, Sixth Street may convert the note into shares of the Company’s common
stock at a conversion price equal to 85% of the average of the two lowest trading prices with a 20-day look back immediately
preceding the date of conversion. Since the conversion price will vary based on the Company’s stock price, the beneficial
conversion feature associated with this note is accounted for as a derivative liability. In addition, upon the occurrence and during
the continuation of an Event of Default (as defined in the Sixth Street Note), the note shall become immediately due and payable
and the Company shall pay to Sixth Street, in full satisfaction of its obligations hereunder, additional amounts as set forth in
the Sixth Street Note. During the nine months ended September 30, 2022, Sixth Street converted the entire note into 26,343,190
shares of the Company’s common stock.
Second Note
On May 5, 2022, the Company entered into a
Securities Purchase Agreement with 1800 Diagonal Lending LLC, an accredited investor (“DL”), pursuant to which the
Company issued to DL a Convertible Promissory Note (the “DL Note”) of $244,500 for $203,500. The DL Note has a maturity
date of August 4, 2023 and the Company has agreed to pay interest on the unpaid principal balance of the DL Note at 6.0% from the
date on which the DL 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 DL Note at any time from the
Issue Date and continuing through 180 days following the Issue Date, provided it makes a payment including a prepayment premium
to DL as set forth in the DL Note. The transactions described above funded on May 9, 2022.
The outstanding principal amount of the DL
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, DL may convert the DL Note into shares of the Company’s common stock at
a conversion price equal to 85% of the lowest trading price during the 20-day period immediately preceding the date of conversion.
In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the DL Note), the DL Note shall
become immediately due and payable and the Company shall pay to DL, in full satisfaction of its obligations hereunder, additional
amounts as set forth in the DL Note. In no event shall DL be allowed to effect a conversion if such conversion, along with all
other shares of Company common stock beneficially owned by DL and its affiliates would exceed 4.99% of the outstanding shares of
the common stock of the Company.
Unless the Company shall have first delivered
to DL, at least 48 hours prior to the closing of any equity (or debt with an equity component) financing in an amount less than
$150,000 (“Future Offering”), written notice describing the proposed Future Offering and providing the Buyer an option
during the 48 hour period following delivery of such notice to DL the securities being offered in the Future Offering on the same
terms as contemplated by such Future Offering then the Company is restricted from conducting the Future Offering during the period
beginning on the Issue Date and ending nine months following the Issue Date.
Third Note
On September 13, 2022, the Company entered
into a Securities Purchase Agreement (dated September 9, 2022) with 1800 Diagonal Lending LLC, an accredited investor (“DL”)
pursuant to which the Company issued to DL a Promissory Note (the “DL Note”) in the aggregate principal amount of $116,200
with an original issue discount of $12,450 resulting in net proceeds of the Company of $103,750. The DL Note has a maturity date
of September 9, 2023 and the Company has agreed to pay interest on the unpaid principal balance of the DL Note at the rate of 12.0%
per annum from the date on which the DL Note is issued (the “Issue Date”). A one-time interest charge of 12% or $13,944
was applied on the Issue Date to the principal amount owed under the DL Note. Accrued, unpaid interest and outstanding principal,
subject to adjustment, shall be paid in ten payments each in the amount of $13,014.40 resulting in a total payback to DL of $130,144.
The first payment is due October 30, 2022 with nine subsequent payments each month thereafter. The Company shall have a five-day
grace period with respect to each payment. The Company has right to accelerate payments or prepay in full at any time with no prepayment
penalty. This DL Note shall not be secured by any collateral or any assets of the Company. The outstanding principal amount of
the DL Note may not be converted into the Company common shares except in the event of default. In the event of default on the
DL Note, DL may convert the DL Note into shares of the Company’s common stock at
a conversion price equal to 75% of the lowest trading price with a 10-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 DL Note), the DL Note shall
become immediately due and payable and the Company shall pay to DL, in full satisfaction of its obligations hereunder, additional
amounts as set forth in the DL Note. In no event shall DL be allowed to effect a conversion if such conversion, along with all
other shares of Company common stock beneficially owned by DL and its affiliates would exceed 4.99% of the outstanding shares of
the common stock of the Company.
As of September 30,
2022 and December 31, 2021, the nonrelated party convertible notes had total outstanding balance of $6,574,631 and 8,145,233, net
of debt discount, and accrued interest of $1,897,794 and $1,547,924, respectively.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Convertible notes payable – related parties at September
30, 2022 and December 31, 2021 (audited) consist of the following:
| Summary of convertible notes payable |
|
|
|
|
|
|
|
|
| |
|
September 30,
2022 |
|
December 31,
2021 |
| Convertible note payable to Stanley Hills, related party |
|
$ |
116,605 |
|
|
$ |
116,605 |
|
| Less current portion |
|
|
(116,605 |
) |
|
|
(116,605 |
) |
| Convertible notes payable, net, related party, long-term portion |
|
$ |
— |
|
|
$ |
— |
|
Stanley Hills LLC
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”) from May 2019 to December 2019. On February 26, 2020, to induce Stanley to continue to provide
funding, the Company and Stanley entered into a letter agreement providing that the current note payable balance due to Stanley
$1,214,900 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. Since the conversion price will vary based on the Company’s stock price, the beneficial conversion
feature associated with this note is accounted for as a derivative liability. 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. During
the year ended December 31, 2021, Stanley converted $1,231,466 of its convertible note plus interest into 4,420,758 shares
of the Company’s common stock, and during the year ended December 31, 2021, Stanley loaned the Company an additional $325,000.
Also, during the year ended December 31, 2021, the Company transferred the SURG shares received as repayment of $800,000 of
this convertible note and also converted $126,003 of accrued interest into the principal balance. During the year ended December
31, 2021, Gonzalez assigned all his accrued balances of $424,731 to Stanley in a private transaction. The unpaid interest
of the Stanley debt at September 30, 2022 and December 31, 2021 was $17,094 and $8,372, respectively. The Stanley debt was
secured via a pledge agreement on the SURG shares.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Note 12 - Notes Payable, Non-related Parties
and Related Party
Notes payable, non-related parties at September
30, 2022 and December 31, 2021 (audited) consist of the following:
| Schedule of notes payable |
|
|
|
|
|
|
|
|
| |
|
September 30,
2022 |
|
December 31,
2021 |
| RWJ acquisition note |
|
$ |
— |
|
|
$ |
2,600,000 |
|
| SBA loan |
|
|
350,000 |
|
|
|
350,000 |
|
| Total notes payable |
|
|
350,000 |
|
|
|
2,950,000 |
|
| Less current portion |
|
|
(38,196 |
) |
|
|
(2,612,397 |
) |
| Notes payable, long-term portion |
|
$ |
311,804 |
|
|
$ |
337,603 |
|
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%, was due on December 31, 2019 and is secured
by the assets purchased in the acquisition. The Company entered into a Confidential Settlement Agreement and Mutual Release (“RJW
Agreement”) by and between RWJ Defendants and the Company effective September 26, 2022. Said RJW Agreement will voided the
RWJ acquisition Note in its entirely. (See Footnote 17 Contingencies).
SBA Loan
On June 22, 2020, the Company received a loan
from the Small Business Administration under the Economic Injury Disaster Loan program related to the COVID-19 relief efforts.
The loan bears interest at 3.75%, requires monthly principal and interest payments of $731 after 12 months from funding and is
due 30 years from the date of issuance. The monthly payments were extended by the SBA to all EIDL borrowers with additional 12
months. Monthly payments was commenced on or around June 16, 2022. On October 1, 2021, the Company entered an Amended Loan Authorization
and Agreement with the SBA providing for the modification of the Original Note providing for monthly principal and interest payments
of $1,771 after 24 months from the Original Note commencing on or around June 22, 2022. On March 17, 2022
the SBA notified it deferred the payments to all COVID-19 EIDL loans will have the first payment due extended from 24-months to
30-months from the date of the note. The Modified Note will continue to bear interest at 3.75% and is due 30 years from
the date of issuance of the Original Note. The Modified Note is guaranteed by Douglas Davis, the former CEO of the Company and
current consultant, as well as by GBT Tokenize Corp. The additional funding of $200,000 was received by the Company on October
5, 2021. The balance of the note at September 30, 2022 and December 31, 2021 was $350,000 and $350,000 plus accrued interest of
$20,399 and $10,581, respectively.
Notes payable, related party at September
30, 2022 and December 31, 2021 (audited) consist of the following:
| Schedule of notes payable related parties |
|
|
|
|
|
|
|
|
| |
|
September 31,
2022 |
|
December 31,
2021 |
| Alpha Eda note payable |
|
$ |
140,000 |
|
|
$ |
140,000 |
|
| Less current portion |
|
|
(140,000 |
) |
|
|
(140,000 |
) |
| Notes payable, net, related party, long-term portion |
|
$ |
— |
|
|
$ |
— |
|
GBT Technologies, Inc
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Alpha Eda
On November 15, 2020, the Company issued a
promissory note to Alpha Eda, LLC (“Alpha”), a related party for $140,000. The note accrues interest at 10%, is
unsecured and was due on September 30, 2021. On June 20, 2021 Alpha and the Company extended the note maturity to December
31, 2022. The balance of the note at September 30, 2022 and December 31, 2021 (audited) was $140,000 and $140,000 plus accrued
interest of $29,104 and $16,633, respectively.
Note 13- Derivative Liability
Certain of the convertible notes payable 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 FV of the derivative liability is recorded
and shown separately under current liabilities. Changes in the FV 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 FV of derivative liability at September 30, 2022 and December 31, 2021 (audited):
Schedule
of assumptions to measure fair value
| Schedule of assumptions to measure fair value |
|
|
|
|
|
|
|
|
| |
|
September
30, |
|
December 31, |
| |
|
2022 |
|
2021 |
| Stock
price |
|
$ |
0.0012-0.2 |
|
|
$ |
0.17-0.19 |
|
| Risk
free rate |
|
|
1.06-4.05 |
% |
|
|
0.07-0.39 |
% |
| Volatility |
|
|
278-361 |
% |
|
|
167-217 |
% |
| Conversion/
Exercise price |
|
$ |
0.001-0.095 |
|
|
$ |
0.102-0.103 |
|
| Dividend
rate |
|
|
0 |
% |
|
|
0 |
% |
The following table represents the Company’s
derivative liability activity for the three and nine months ended September 30, 2022:
| Derivative instruments and hedging activities disclosure |
|
|
|
|
| Derivative liability balance, December 31, 2021 |
|
$ |
10,192,485 |
|
| Issuance of derivative liability during the period |
|
|
191,741 |
|
| Fair value of beneficial conversion feature of debt converted |
|
|
(1,620,742 |
) |
| Change in derivative liability during the period |
|
|
(3,150,739 |
) |
| Derivative liability balance, June 30, 2022 |
|
$ |
5,612,745 |
|
| Issuance of derivative liability during the period |
|
|
134,174 |
|
| Fair value of beneficial conversion feature of debt converted |
|
|
(314,029 |
) |
| Change in derivative liability during the period |
|
|
354,869 |
|
| Derivative liability balance, September 30, 2022 |
|
$ |
5,787,759 |
|
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Note 14 – Stockholders’ Equity
Common Stock
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 was reverse split, reconstituted and converted into one 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. 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. On June 8, 2020 FINRA advised the Company that such request is deficient due
to the fact that a holder of an outstanding convertible note of the Company had entered into two settlements with the SEC that
related to securities laws violations but were in no way related to the Company. As a result, FINRA advised that it is necessary
for the protection of investors, the public interest, and to maintain fair and orderly markets that documentation related to the
Reverse Stock Split not be processed. The Company appealed the decision made by FINRA on June 15, 2020. On August 4, 2020, FINRA
notified the Company that its appeal had been denied. On October 25, 2021 FINRA approved the Reverse Stock Split and on October
26, 2021, the Company effectuated a 1 for 50 reverse stock split.
In July 7, 2022 the Company filed a preliminary
information statement to the stockholders of record (the “Record Date”) in connection with certain actions to be taken
by the written consent by stockholders holding a majority of the voting stock of the Company, dated as of June 28, 2022.
| |
● |
To amend the Company’s Articles
of Incorporation, (the “Articles of Incorporation”) to increase the number of authorized shares of common stock,
par value $0.00001 per share (the “Common Stock”), of the Company from 2,000,000,000 shares to 10,000,000,000
shares. This action concluded on August 11, 2022. |
| |
● |
(i) authorize the Company’s Board of Directors to effect, in its sole discretion, a reverse stock split of the Common Stock in a ratio of up to 1-for-500 (the “Reverse Stock Split”), and (ii) authorize the filing of an amendment to the Company’s Articles of Incorporation to implement the Reverse Stock Split and any other action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time prior to December 31, 2023. This action was not commenced yet by the Company’s board. |
During the three months ended March 31, 2022,
the Company had the following transactions in its common stock:
| |
● |
issued 369,198 shares for the conversion of convertible notes of $35,000; and |
| |
|
|
| |
● |
issued 463,303 shares to GHS from Equity Financing Agreement for gross consideration of $68,308, The value of the shares of was determined based on the Equity Financing. |
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
During the three months ended June 30, 2022,
the Company had the following transactions in its common stock:
| |
● |
issued 288,672,073 shares for the conversion of convertible notes of $1,660,370 and accrued interest of $6,491; and |
| |
|
|
| |
● |
issued 150,000,000 shares to GBT Tokenize for certain joint venture agreement between Magic International Argentina FC, S.L. and the Company. The value of the shares of $1,500 was determined based on the FV of the Company’s common stock; and |
| |
|
|
| |
● |
issued 500,000,000 shares to Metaverse for certain equity method investment. The value of the shares of $5,000 was determined based on the FV of the Company’s common stock; and |
| |
|
|
| |
● |
issued 5,036,697 shares to GHS from Equity Financing Agreement for gross consideration of $163,559, The value of the shares of was determined based on the Equity Financing. |
During the three months ended September 30,
2022, the Company had the following transactions in its common stock:
|
● |
issued 206,000,000 shares for the conversion of convertible notes of $270,300. |
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 per share representing
30 post-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.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Series C Preferred Shares
On April 29, 2011, GV Global Communications,
Inc. (“GV”) provided funding to the Company 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.
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.
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 for 20,000 shares of Series H Convertible Preferred Stock of the Company
and a Convertible Note 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% and was paid 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 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.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Warrants
The following is a summary of warrants activity:
Summary of warrant activity
| Summary of warrant activity |
|
|
|
|
|
|
|
|
| |
|
Warrants
Outstanding |
|
Weighted
Average
Exercise
Price |
|
Weighted
Average
Remaining
Contractual
Life |
|
Aggregate
Intrinsic
Value |
| |
Outstanding, December 31, 2021 |
|
|
|
392,870 |
|
|
$ |
74.97 |
|
|
|
1.76 |
|
|
$ |
— |
|
| |
Granted |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
Forfeited |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
Exercised |
|
|
|
(322,100 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
| |
Outstanding, September 30, 2022 |
|
|
|
70,770 |
|
|
$ |
205.07 |
|
|
|
0.56 |
|
|
$ |
— |
|
| |
Exercisable, September 30, 2022 |
|
|
|
70,770 |
|
|
$ |
205.07 |
|
|
|
0.56 |
|
|
$ |
— |
|
Equity Purchase
Agreement and Registration Rights Agreement
On December 17, 2021
(the “Effective Date”), the Company entered into an equity financing agreement (the “Equity Financing Agreement”)
and a registration rights agreement (the “Registration Rights Agreement”) with GHS Investments LLC (“GHS”),
pursuant to which GHS shall purchase from the Company, up to that number of shares of common stock of the Company (the “Shares”)
having an aggregate Purchase Price of $10,000,000, subject to certain limitations and conditions set forth in the Equity Financing
Agreement from time to time over 24 months after an effective registration of the Shares with the SEC pursuant to the Registration
Rights Agreement, is declared effective by the SEC (the “Contract Period”).
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
The Equity Financing
Agreement grants the Company the right, from time to time at its sole discretion (subject to certain conditions) during the Contract
Period, to direct GHS to purchase shares of Common Stock on any business day (a “Put”), provided that at least 10 trading
days has passed since the most recent Put. The purchase price of the shares of Common Stock contained in a Put will be 90%
of the lowest daily VWAP of the Company’s Common Stock during the 10 consecutive trading days preceding the receipt by GHS
of the applicable Put notice. Such sales of Common Stock by the Company, if any, may occur from time to time, at the Company’s
option, during the Contract Period. Subject to the satisfaction of certain conditions set forth in the Equity Financing Agreement,
on each Put the Company will deliver an number of Shares equaling 110% of the dollar amount of each Put. The maximum dollar amount
of each Put will not exceed 200% of the average daily trading dollar volume for the Company’s Common Stock during the ten
trading days preceding the Trading Day that GHS receives a Put. No Put will be made in an amount equaling less than $10,000 or
greater than $500,000. Puts are further limited to GHS owning no more than 4.99% of the outstanding stock of the Company at any
given time. The Equity Financing Agreement and the Registration Rights Agreement contain customary representations, obligations,
rights, warranties, agreements and conditions of the parties. The Equity Financing Agreement terminates upon any of the following
events: when GHS has purchased an aggregate of $10,000,000 in the Common Stock of the Company pursuant to the Equity Financing
Agreement; on the date that is 24 calendar months from the date the Equity Financing Agreement was executed.
Actual sales of shares
of Common Stock to GHS under the Equity Financing Agreement will depend on a variety of factors to be determined by the Company
from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the
Company as to the appropriate sources of funding for the Company and its operations.
For the nine months ended September 30, 2022,
the Company received $231,866 as proceeds from the equity purchase agreement for issuance of 5,500,000 registered common shares.
Post this issuance The Equity Financing Agreement is exhausted and not valid anymore.
Note 15 – Other Related Party Transactions
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.
On August 1, 2021, 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 $5,000 per month .
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
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 10,000,000 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 for $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 was
two years. The closing of the BitSpeed Agreement occurred on October 14, 2019. 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. On June 16, 2022 the parties amended the Bitspeed Agreement to further define the constitution
of the Board of Directors. As such, Section 4.2 of the Bitspeed Agreement was amended and restated to provide that the Board of
GBT Bitspeed Corp. shall consist of two Directors, one of whom shall be appointed by Bitspeed LLC and the other shall be appointed
by the Company.
On March 6, 2020, the Company through Greenwich,
entered into the Tokenize Agreement with Tokenize, which is owned by a Costa Rica Trust represented by Gonzalez. Gonzalez also
represents Gonzalez Costa Rica Trust, which holds a note of $10,000,000 and is also a shareholder of the Company. Under the Tokenize
Agreement, the parties formed GBT Tokenize. The purpose of GBT Tokenize is to develop 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 contributed 100,000,000 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 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 was two years. The closing of the Tokenize Agreement occurred on
March 9, 2020. Via this Joint Venture the parties commenced development of a development of an intelligent human vital signs’
device, suggested named qTerm.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
The platform is an expansion of the existing
license agreement with GBT Tokenize Corp., which provided GBT Tokenize Corp. with an exclusive territory of California to develop
certain of the Company’s technology. As the nature of the platform cannot be restricted only to California, the Company’s
joint venture GBT Tokenize Corp. will be compensated with additional 200,000,000 shares of the Company to strengthen its funding,
subject to board approval. A provisional patent application for the qTerm Medical Device was filed on March 30, 2020 with the USPTO. The
application has been assigned serial number 63001564. The Joint Venture completed successfully the first prototype. There is no
guarantee that the Company will be successful in researching, developing or implementing this product into the market. In order
to successfully implement this concept, the Company will need to raise adequate capital to support its research and, if successfully
researched, developed and granted regulatory approval, the Company would need to enter into a strategic relationship with a third
party that has experience in manufacturing, selling and distributing this product. There is no guarantee that the Company will
be successful in any or all of these critical steps.
Magic Agreement
As explained above, on April 11, 2022 the Company,
through its wholly owned subsidiary, Greenwich International Holdings, a Costa Rica corporation (“Greenwich”), entered
into a Master Joint Venture and Territorial License Agreement (the “Tokenize Agreement”) with Magic International Argentina
FC, S.L. (“Magic”) and Tokenize which replaced a prior joint venture entered between the parties.
The purpose of 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 world, which Technology Portfolio was previously licensed to the Company for the State of California.
The Tokenize Agreement provides that the Company
shall contribute 150,000,000 shares of common stock of the Company (“GBT Shares”) to Tokenize. Sergio Fridman is the
manager of Magic and the beneficial owner of all outstanding securities of Magic. Magic will contribute cash of $250,000 into Tokenize
for promissory note and agreed to further fund Tokenize with all funds reasonably needed for implementation of the business purposes
as described in the Tokenize Agreement. The GBT Shares will not be transferable for five years. As of June 30, 2022, the Company
received the $250,000 fund from Magic but the promissory note agreement has not been finalized yet. Therefore, the Company recorded
the $250,000 funds as an account payable.
Magic and the Company each own 50% of
the outstanding shares of common stock of Tokenize. The Company pledged its 50% ownership in Tokenize and its 100% ownership of
Greenwich (the “Pledged Securities”) to Magic for providing that Magic may take possession of such Pledged Securities
in the event the Company executes, delivers and performs any future agreement or document or judgement resulting in the creation
of any lien, pledge, mortgage, claim, charge or encumbrance upon any assets of the Company. The Company shall appoint two directors
and Magic shall appoint one director of Tokenize.
On June 16, 2022 the parties amended the Tokenize
Agreement to further define the constitution of the Board of Directors. As such, Section 4.2 of the Tokenize Agreement was amended
and restated to provide that the Board of GBT Tokenize Corp. shall consist of two Directors, one of whom shall be appointed by
GBT Tokenize Corp. and the other shall be appointed by the Company.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Yello Partners Inc.
As of September, 30, 2022 and December 31,
2021 (audited), the Company owed $475,000 and $385,000 to Yello Partners, Inc., a Company owned by the Mansour Khatib, the Company’s
CEO.
Stanley Hills LLC
Accounts Payable – Related Party
On March 8, 2020, SURG filed a lawsuit against
its transfer agent, Vstock from transferring millions of SURG stock is currently in possession by the Company and assigned to Stanley
Hills, LLC. On January 1, 2021, SURG, AltCorp and Stanley Hills, LLC (“Stanley”) entered into a Mutual Release and
Settlement Agreement (“Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, SURG agreed to amend
the AltCorp Exchange Agreement where SURG acknowledged a debt of $3,300,000 (the “Debt”) to be paid in 33 monthly payments
of $100,000 payable in shares of common stock of SURG at a per share price equal the volume weighted average price of Surg’s
common stock during the ten trading days immediately preceding the issuance. SURG paid $400,000 in cash and $800,000 by shares.
The SURG common stock issued to Altcorp have been pledged since August 12, 2020 for the benefit of Stanley to secure Stanley’s
note payable by the Company. Accordingly, the SURG Common Stock issued to AltCorp as a result of the Settlement Agreement were
pledged to Stanley. As of December 31, 2021 there were no surge shares pledges after the final settlement signed on December 22,
2021 and that replaced all prior settlement agreement. The final settlement SURG agreed to make total payments of $4,200,000 to
the Company on or prior to January 7, 2022. This $4.2 million amount consists of $450,000 paid by SURG in November and December
2021, $100,000 to be paid on or about January 4, 2022, and $3,650,000 to be paid on or prior to January 7, 2022 of which $375,000
will be held in escrow as described before. The $3,750,000 was recorded as other receivable as of December 31, 2021. As of September,
30, 2022 and December 31, 2021, the Company has recorded an outstanding payable to Stanley of $660,735 and $1,862,928, respectively,
recorded under accrued expenses.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Sales to related party for the three months
ended September 30, 2022 and 2021 were $45,000 and $45,000 respectively. Sales are derived from providing IT consulting services
to Stanley Hills, a related party.
Sales to related party for the nine months
ended September 30, 2022 and 2021 were $90,000 and $90,000 respectively. Sales are derived from providing IT consulting services
to Stanley Hills, a related party.
The Company did not provide IT services to
Stanley during the second quarter ended June 30, 2022.
Advanced from Related Party
During the nine months ended September 30,
2022, Mansour Khatib, the Company’s CEO advanced $634,176 cash to the Company for business purposes to fund the e-commerce
operations.
During the nine months ended September 30,
2022, the Company repaid $664,225 cash to Mansour Khatib.
As of September, 30, 2022 and December 31,
2021 (audited), the Company has recorded a due from related party of $30,049 and $0, respectively.
Metaverse Agreement
On June 10, 2022, the Company, entered into
a Joint Venture and Territorial License Agreement (the “Metaverse Agreement”) with Ildar Gainulin and Maria Belova
(“IGMB”). Under the Metaverse Agreement, the parties formed Metaverse Kit Corp., a Nevada corporation (“Metaverse
Kit”). The purpose of Metaverse Kit is to develop, maintain and support source codes for its proprietary technologies and
comprehensive platform that combines a core virtual reality platform and an extended set of real-world functions to provide a metaverse
experience initially within the area of sports and then expanding into virtual worlds of entertainment, live events, gaming, communications
and other cross over product opportunities (the “Meta Portfolio”). Under the Metaverse Agreement, IGMB agreed to provide
Metaverse Kit with the licensed technology and expertise, as requested and mutually agreed to by Company and IGMB. In connection
therewith, the parties entered an Asset Purchase Agreement concurrently with the Metaverse Agreement whereby IGMB sold Metaverse
Kit all source codes pertaining to the Meta Portfolio. Further, IGMB provided an exclusive license to Metaverse Kit throughout
the world for the invented product/service and the related platforms relating to the Meta Portfolio and to use the know how to
develop, manufacture, sell, market and distribute the Meta Portfolio throughout the world The Company shall contribute 500,000,000
shares of common stock of the Company (“GBT Shares”) to Metaverse Kit. IGBM and the Company will each own 50% of Metaverse
Kit. The Company pledged its 50% ownership in Metaverse Kit to Igor 1 Corp. to secure a convertible note held by Igor 1 Corp. The
Company shall appoint two directors and IGBM shall appoint one director of Metaverse Kit.
In addition, Metaverse Kit, IGMB and Elentina
Group, LLC (“Elentina”) entered into a Consulting Agreements in which IGBM and Elentina, each were engaged to provide
services for $25,000 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. IGBM and Elentina will provide services in connection with the development of the business
as well as Metaverse Kit’s capital raising efforts. The term of the Consulting Agreement is two years.
The closing of the Metaverse Agreement occurred
on June 13, 2022 and the Company recorded the share issuance at FV of $5,000 on the agreement date.
On June
16, 2022 the parties amended the Meta Agreement to further define the constitution of Meta Board of Directors. As such,
Section 4.2 of the Meta Agreement was amended and restated to provide that the Board of Metaverse Kit Corp. shall consist of two
Directors, one of whom shall be appointed by Ildar Gainulin and Maria Belova and the other shall be appointed by the Company.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2022 and 2021 (Unaudited)
Note 17 – 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 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 UGO in September 2017.
The case number is 19STCV03320 (the “Original Lawsuit”). The complaint in the Original 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 or about September 10, 2020, the Company through its agent of service was
“served” with a complaint (the Company contested service) that was filed against the Company and third parties by Robert
Warren Jackson and Gregory Bauer in Los Angeles Superior Court Case No.: 20STCV32709 (“Second Lawsuit”). In the Original
Lawsuit filed, the court rejected the plaintiff’s claims that they were filing a purported quasi-derivative lawsuit. As such,
in this current litigation, the plaintiff is now again claiming the action is a derivative lawsuit. On October 13, 2020, the Second
Lawsuit was removed by other defendants into Central District of California (CASE NO. 2:20−cv−09399−RGK−AGR).
On February 2, 2021 the Central District of California dismissed the entire Second Lawsuit based on “demand futility”.
In the Original lawsuit, the Company filed a cross complaint against the plaintiff and other third parties. The court has scheduled
various hearings and a trial date set for December 27, 2021 which was later continued by the Court to September 28, 2022.
It was the Company’s intention to dividend its holdings of its wholly owned subsidiary Ugopherservices Corp. (“UGO”).
As UGO is the main dispute in the litigations described above, the Company elected to sell UGO to a third-party effective July
1, 2020 (See Note 3). On September 17, 2020, the Company terminated Greg Bauer as consultant (resulting from the sale of UGO),
which he confirmed in writing. On or about June 14, 2021 the Company stipulated with plaintiff that all third parties will be released
and plaintiff may file a new first amendment complaint that will name only the Company. As such, all third parties other than prior
transfer agent of the Company have been dismissed from this litigation. The Company is in default on this note.
Following the sale of UGO, the Company noticed
third parties (including SURG, via its asset manager) to wire the UGO funds to its new bank account. SURG never answered the notice.
SURG is the clearing house for UGO. The Company noticed certain third parties that it intends to take legal actions to resolve
this issue. On November 12, 2020 the Company filed a complaint in the United States District Court – District of Nevada –
Case 2:20-cv-02078 against RWJ, Mr. Bauer, Mr. Jackson and against W.L. Petrey Wholesale Company Inc for fraud, breach of contract,
Unjust Enrichment and other claims. On January 28, 2022 the court awarded the Company an injunction against RWJ defendants, where
all fee funds generating from resale should be deposited into GBT blocked account, and therefore RWJ Defendants cannot use these
funds without court order.
The Company entered into the Confidential Settlement
Agreement and Mutual Release (“RJW Agreement”) by and between RWJ Advanced Marketing, LLC, Robert Warren Jackson, Gregory
Bauer (collectively the “RJW Parties”) and W.L. Petrey Wholesale Company, Inc., (“Petrey”) on one hand;
and GBT Technologies Inc., on behalf of itself and its agents (collectively the GBT Parties”), on the other hand. The Company
the RJW Agreement effective September 26, 2022 with final signatures delivered to the Company on or about October 5, 2022. Pursuant
to the RJW Agreement, the parties have agreed to settle, release, and otherwise resolve all known or unknown claims between them
and agreed to jointly stipulate, move, or otherwise dismiss the lawsuits filed in the United States District Court of Nevada (Case
No. 2:20-cv- 02078), in the Superior Court of the State of California, County of Los Angeles, Central District (Case Nos. 19STCV03320
and 20STCV32709), and in the United States District Court of the Central District of California (Case No. 2:20-cv-09399-RGK-AGR)
with prejudice. The parties agreed and stipulated to release all funds currently being held in a blocked account of $19,809 with
50% distributed to the RWJ Parties and 50% distributed the Company or its assignee. The Parties also entered into the InComm Assignment
Agreement (“IAA”) which assigned, transferred and conveyed all proceeds derived from the RWJ Parties’ agreements
with Interactive Communications International, Inc., and its affiliate Hi Technology Corp., including but not limited to that Master
Distribution and Service Agreement between Interactive Communications International, Inc. and Petrey d/b/a UGO-HUB dated August
29, 2016, as amended (collectively referred to as the “InComm Proceeds”), and which shall divide the InComm Proceeds
90% to the Company or its assignee and 10% to the RWJ Parties or their assignee. Finally, the Company agreed to pay $40,000 to
the RWJ Parties or their assignee. The Company accrued $49,847 expenses represent the final amounts due to the RJW Parties.
The Company under a different settlement agreement
with SURG, committed to assign the IAA. As such, on October 5, 2022 and as cumulation of all settlement agreements the Company
issued a request to SURG regarding release of certain escrow funds and the execution of an assignment of rights as contemplated
in the aforereferenced agreement.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
On December 3, 2018, the Company entered into a Securities
Purchase Agreement (the “SPA”) with Discover Growth Fund, LLC (the “Investor”) pursuant to which the Company issued
a Senior Secured Redeemable Convertible Debenture (the “Debenture”) 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 per share with
respect to 50,000 Warrant Shares, $75 with respect to 75,000 Warrant Shares and $50 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 (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). The Market Price is the average of
the five lowest individual daily VWAP 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 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 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 $4,034,444 plus interest of 7.25% from May 15, 2019 and costs
of $55,613. 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 Investor’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 issues regarding whether Investor’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 Investor 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 Investor 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, Investor advised that it conducted
a sale of the Company’s assets. As the date of this report Investor 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 the alleged sale. On July 28,
2020, Investor filed in the State of Nevada a motion for attorney’s fees $48,844 and cost of $716. The Company filed an answer
on August 11, 2020. On October 16, 2020, Investor motion for attorney’s fees $48,844 and cost of $716 was denied.
The balance was included in accounts payable for the unearned settlement. As of September, 30, 2022, this case is still pending with the
Federal court and the Court has not taken any substantive action in the matter as of the date of this report.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
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 compliance and regulated crypto currency exchange platform that currently operates in Costa Rica as a decentralized crypto currency
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 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 year 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 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 agreed will be applied toward the $5,000,000
fee when it becomes due. 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 October 18, 2021, the AltCorp Parties, the
Company, and SURG entered into a Memorandum of Understanding (the “MOU”) to set up a framework for an attempt to settle the
two lawsuits.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
On December 22, 2021 (the “Effective Date”),
pursuant to the framework in the MOU, the AltCorp Parties (and an additional third party), the Company, ECS, and SURG, Kevin Brian Cox
(SURG’s Chief Executive Officer) – in his individual capacity, entered into a Resolution of Purchase, Mutual Release, and
Settlement Agreement (the “Final Settlement Agreement”) to settle the two lawsuits and resolve all disputes related to the
consideration paid by SURG to the Company in connection with the APA.
On or about July 9, 2021 the Company filed a lawsuit
in District Court in Clack County Nevada – Department 19 (Case number A-21-837631-C) against Terry Taylor and TTSG Holdings, Inc
for breach of contract, breach of covenant of Good Faith and Fair Dealing, Unjust Enrichment and declaratory relief for failure of providing
consulting services per contract they entered. The Company is demanding the return of 240,000 shares issued, return of the $5,000 payments,
recission of the consulting agreement, and attorney’s fees and costs. The lawsuit is still pending as of the date of this report.
As Terry Taylor and TTSG Holdings failed to appear to a notice of deposition, the Company filed for a summary judgment.
Gregory Mancuso and Rainer AG
On or about February 2, 2022, GBT was served with
a First Amended Complaint (the “Complaint”) initiated by Gregory Mancuso and Rainer AG, a Swiss corporation, Case No. 21SMCV01430,
filed in the Superior Court of the State of California for the County of Los Angeles. The Complaint names a number of different parties,
including GBT, and asserts, among other things, claims for conversion, unjust enrichment, breach of contract, and breach of implied covenant
of fair dealing, which Plaintiffs allege arise out of a brokerage agreement entered into between Plaintiff Rainer AG and co-defendant
Consul Group re Dos Mil Veintiuno S.R.L (“Consul”). GBT was sued under an alter ego theory of liability, and its only involvement
in the above-referenced chain of events seems to be that its shares were deposited with Rainer by Consul upon the opening of the brokerage
account. GBT will be filling a demurrer to the First Amended Complaint based on a variety of deficiencies with the First Amended Complaint,
and will ask the Court to dismiss the claims against GBT.
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 pledged 4,005 restricted
shares of its common stock valued at $7,610,147 (based on the closing price on the grant date) for 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 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 principle to return
the pledged 4,005 restricted shares to the Company for cancellation. The 4,005 restricted shares have not yet been returned to the Company
as of September 30, 2022.
Assignment of lease agreement
On May 17, 2022, Mahaser LLC (“Assignee”)
entered into an assignment and assumption of lease agreement by and between 2819 Coldwater LLC (“Assignor”), Sunset Place
Holdings LLC (“Lessor”) and Yossi Attia (“Guarantor”). Pursuant to the agreement, Lessor agreed to lease to Assignor
certain Standard Industrial/Commercial Multi-Tenant Lease – Gross agreement dated February 7, 2022 (the “Lease”) and
expiring on January 31, 2024, which premises commonly known as 8265 Sunset Boulevard, Suite #107, West Hollywood, CA 90046. The base rent
payment shall equal $4,100 per month and share of common area operating expense shall equal $200 per month. Guarantor has guaranteed payment
of Assignor’s obligations under the Lease and Assignor assigned all of its right, title and interest in the Lease to Assignee and
Assignee assumed Assignor’s obligations under the Lease.
GBT Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2022 and 2021 (Unaudited)
Note 18 – Concentrations
Concentration of Credit Risk
Financial instruments, which potentially subject the
Company to a concentration of credit risk, consist principally of temporary cash investments. There have been no losses in these accounts
through September 30, 2022.
Customers
For the three months ended September 30, 2022, $45,000
of sales were derived from providing IT consulting services, and $201,495 sales were derived from e-commerce sales .
For the nine months ended September 30, 2022, $90,000
of sales were derived from providing IT consulting services and $771,446 sales were derived from e-commerce sales.
Note 19 – Income Taxes
No income tax expense reflected in the consolidated
statements of operations for the nine months ended September 30, 2022 and 2021. The Company has $2,255,565 net income during the nine
months ended September 30, 2022 but it was mainly from the gain on the Surge settlement of $3,012,633 and the gain of change in FV in
derivatives of $2,795,870 and it is a non-taxable event so would have a taxable loss, and continue to record a valuation allowance.
Note 20 – Subsequent Events
Management has evaluated events that occurred subsequent
to the end of the reporting period shown herein:
GBT Technologies, Inc. (the
“Company”) entered into the Confidential Settlement Agreement and Mutual Release (“RJW Agreement”) by and between
RWJ Advanced Marketing, LLC, Robert Warren Jackson, Gregory Bauer (collectively the “RJW Parties”) and W.L. Petrey Wholesale
Company, Inc., (“Petrey”) on one hand; and GBT Technologies Inc., on behalf of itself and its agents (collectively the GBT
Parties”), on the other hand. The Company the RJW Agreement effective September 26, 2022 with final signatures delivered to the
Company on or about October 5, 2022.
Pursuant to the RJW Agreement,
the parties agreed to settle, release, and otherwise resolve all known or unknown claims between them and agreed to jointly stipulate,
move, or otherwise dismiss the lawsuits filed in the United States District Court of Nevada (Case No. 2:20-cv- 02078), in the Superior
Court of the State of California, County of Los Angeles, Central District (Case Nos. 19STCV03320 and 20STCV32709), and in the United States
District Court of the Central District of California (Case No. 2:20-cv-09399-RGK-AGR) with prejudice.
The parties agreed and stipulated
to release all funds currently being held in a blocked account of $19,809 with 50% distributed to the RWJ Parties and 50% distributed
the Company or its assignee. The Parties also entered into the InComm Assignment Agreement (“IAA”) which assigned, transferred
and conveyed all proceeds derived from the RWJ Parties’ agreements with Interactive Communications International, Inc., and its
affiliate Hi Technology Corp., including but not limited to that Master Distribution and Service Agreement between Interactive Communications
International, Inc. and Petrey d/b/a UGO-HUB dated August 29, 2016, as amended (collectively referred to as the “InComm Proceeds”),
and which shall divide the InComm Proceeds 90% to the Company or its assignee and 10% to the RWJ Parties or their assignee. Finally, the
Company agreed to pay $40,000 to the RWJ Parties or their assignee.
On
November 10, the Company received a notice of conversion from 1800 Diagonal Lending, LLC (for their second note - see note 11) for $30,000
converting into 23,076,923 common shares.