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United States

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)  
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  For the quarterly period ended June 30, 2022

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commissions file number: 000-54530

 

GBT TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

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

 

2450 Colorado Ave., Suite 100E, Santa Monica, CA 90404

(Address of principal executive offices)

 

Issuer ’s telephone number:   888-685-7336

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filer ☐ Accelerated filer ☐  
     
Non-accelerated filer Smaller reporting company Emerging growth company 

 

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

 

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

 

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

 

Common Stock, $0.00001 par value 1,127,741,469 Common Shares
(Class) (Outstanding at August 10, 2022)

 

 

 

 

GBT TECHNOLOGIES INC.

 

TABLE OF CONTENTS

 

PART I. Financial Information   Page 
       
Item 1. Condensed Consolidated Financial Statements (unaudited)   2
       
  Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021(audited)   2
       
  Condensed Consolidated Statements of Operations for the Three and Six months Ended June 30, 2022 and 2021 (unaudited)   3
       
  Condensed Consolidated Statements of Stockholder’s Deficit for the Six months Ended June 30, 2022 and 2021 (unaudited)   4
       
  Condensed Consolidated Statements of Cash Flows for the Six months Ended June 30, 2022 and 2021 (unaudited)   6
       
  Notes to Condensed Consolidated Financial Statements (unaudited)   7
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   40
       
Item 3. Quantitative and Qualitative Disclosures about Market Risk   54
       
Item 4. Controls and Procedures   54
       
PART II. Other Information   55
       
Signatures   69

 

1

 

 

Item 1: Condensed consolidated financial statements

 

GBT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

         
ASSETS   June 30,   December 31,
    2022   2021
    (Unaudited)   (Audited)
Current Assets:                
Cash   $ 74,110     $ 155,106  
Restricted cash     390,326        
Cash held in trust           112,942  
Inventory     17,053        
Note receivable     102,164        
Other receivable           3,750,000  
Other current assets     43,872          
Marketable securities     87,164        
Total current assets     714,689       4,018,048  
                 
Total assets   $ 714,689     $ 4,018,048  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
Current Liabilities:                
Accounts payable and accrued expenses (including related parties of $856,904 and $2,309,255)   $ 5,448,950     $ 6,896,263  
Accrued settlement     4,090,057       4,090,057  
Unearned revenue     249,159       249,384  
Contract liabilities     46,444        
Convertible notes payable, current, net of discount     6,728,729       8,109,436  
Convertible notes payable, Stanley Hills LLC, net of discount     116,605       116,605  
Notes payable, current     2,635,256       2,612,397  
Notes payable, Alpha     140,000       140,000  
Due to related party     17,137        
Derivative liability     5,612,746       10,192,485  
Total current liabilities     25,085,083       32,406,629  
                 
Noncurrent Liabilities:                
Convertible note payable, noncurrent, net of discount     37,271       35,797  
Note payable, noncurrent     314,744       337,603  
Total noncurrent liabilities     352,015       373,400  
                 
Total liabilities     25,437,098       32,780,029  
                 
Stockholders' Deficit:                
45,000 shares issued and outstanding, 
Series B Preferred stock, $0.00001
par value; 20,000,000 shares authorized;
           
700 shares issued and outstanding,
Series C Preferred stock, $0.00001
par value; 10,000 shares authorized;
           
0 shares issued and outstanding,
Series D Preferred stock, $0.00001
par value; 100,000 shares authorized;
           
0 shares issued and outstanding,
Series G Preferred stock, $0.00001
par value; 2,000,000 shares authorized;
           
20,000 shares issued and outstanding,
Series H Preferred stock, $0.00001
par value ($500.00 stated value); 40,000 shares authorized;
           
Common stock, $0.00001 par value; 2,000,000,000 shares authorized; 977,741,469 and 5,133,489 shares issued and outstanding,
at June 30, 2022 and December 31, 2021
    9,778       332  
Treasury stock, at cost; 21 shares at June 30, 2022 and December 31, 2021     (643,059 )     (643,059 )
Stock loan receivable     (7,610,147 )     (7,610,147 )
Additional paid in capital     287,617,690       284,072,666  
Accumulated deficit     (304,096,671 )     (304,581,773 )
Total stockholders' deficit     (24,722,409 )     (28,761,981 )
Total liabilities and stockholders' deficit   $ 714,689     $ 4,018,048  

 

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

 

2

 

 

GBT TECHNOLOGIES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

                     
   Three Months Ended June 30,  Six Months Ended June 30,
   2022  2021  2022  2021
Sales  $344,981   $   $569,951   $ 
Sales - related party       45,000    45,000    90,000 
Cost of goods sold   179,471        388,458     
Gross profit   165,510    45,000    226,493    90,000 
                     
Operating expenses:                    
General and administrative   241,869    559,910    371,252    1,208,257 
Marketing   92,168    140,303    433,300    332,214 
Professional   592,305        1,128,192     
Impairment of assets       15,400,000        15,400,000 
Total operating expenses   926,342    16,100,213    1,932,744    16,940,471 
                     
Loss from operations   (760,832)   (16,055,213)   (1,706,251)   (16,850,471)
                     
Other income (expense):                    
Amortization of debt discount   (239,394)   (145,297)   (307,879)   (466,637)
Change in fair value of derivative liability   (2,088,840)   3,649,274    3,150,739    (793,186)
Interest expense and financing costs   (233,900)   (304,939)   (469,393)   (1,147,490)
Unrealized (loss) on marketable equity security       (726,000)        
Realized gain on marketable equity security       11,000        11,000 
Loss on debt modification       (13,777,480)       (13,777,480)
Gain on SURGE settlement       300,000         
Gain on Bad Debt   50,000        50,000     
Change in fair value of marketable securities   (175,000)       (240,000)    
Other income - related party licensing income   6,828        7,885    600,000 
Total other income (expense)   (2,680,306)   (10,993,442)   2,191,352    (15,573,793)
Gain (Loss) before income taxes   (3,441,137)   (27,048,655)   485,102    (32,424,264)
Income tax expense                
                     
Gain (Loss) from continuing operations   (3,441,137)   (27,048,655)   485,102    (32,424,264)
Net (loss) Income  $(3,441,137)  $(27,048,655)  $485,102   $(32,424,264)
                     
Weighted average common shares outstanding:                    
Basic   354,196,118    759,525,411    354,381,392    581,344,884 
Diluted   4,526,076,373    759,525,411    4,526,261,647    581,344,884 
Net loss per share (basic and diluted):                    
Basic  $(0.01)  $(0.04)  $0.00   $(0.06)
Diluted   (0.00)   (0.04)   0.00    (0.06)

 

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

 

3

 

 

GBT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(unaudited)

 

                                                                       
   Series B Convertible Preferred Stock  Series C Convertible Preferred Stock  Series H Convertible Preferred Stock  Common Stock  Treasury Stock  Stock Loan  Additional Paid-in  Accumulated  Total Stockholders' Equity/
   Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Receivable  Capital  Deficit  (Deficit)
Balance, December 31, 2021   45,000   $    700   $    20,000   $    33,200,198   $332   $1,040   $(643,059)  $(7,610,147)  $284,072,666   $(304,581,773)  $(28,761,981)
                                                                       
Common stock issued for conversion of convertible debt and accrued interest                           369,198    4                34,996        35,000 
Fair value of beneficial conversion feature of converted                                               49,504        49,504 
Common stock issued for cash                           463,303    4                68,304        68,308 
Net loss                                                   3,926,239    3,926,239 
                                                                       
Balance, March 31, 2022   45,000   $    700   $    20,000   $    34,032,699   $340   $1,040   $(643,059)  $(7,610,147)  $284,225,470   $(300,655,534)  $(24,682,930)
                                                                       
Common stock issued for conversions                           288,672,073    2,887                1,663,973        1,666,861 
Fair value of derivative liability due to conversions                                               1,571,238        1,571,238 
Common stock issued for cash                           5,036,697    50                163,508        163,559 
Common stock issued for JV - Tokenize                           150,000,000    1,500                (1,500)        
Common stock issued for JV - Meta                           500,000,000    5,000                (5,000)        
Net loss                                                   (3,441,137)   (3,441,137)
                                                                       
Balance, June 30, 2022   45,000   $    700   $    20,000   $    977,741,469   $9,777   $1,040   $(643,059)  $(7,610,147)  $287,617,690   $(304,096,671)  $(24,722,409)
                                                                       
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

GBT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(unaudited)

 

Balance, December 31, 2020   45,000   $    700   $    20,000   $    5,133,489   $51   $2,080   $(1,286,118)  $(15,220,294)  $251,046,191   $(270,651,339)  $(27,858,303)
                                                                       
Common stock issued for conversion of convertible debt and accrued interest                           4,483,717    45                3,122,803        3,122,848 
Common stock issued for services                           245,000    2                281,748        281,750 
Fair value of beneficial conversion feature of converted                                               9,207,107        9,207,107 
Net loss                                                   (5,375,609)   (5,375,609)
                                                                       
Balance, March 31, 2021   45,000        700        20,000        9,862,206    98    2,080    (1,286,118)   (15,220,294)   263,657,849    (276,026,948)   (20,622,207)
                                                                       
Common stock issued for conversion of convertible debt and accrued interest                           720,311    7                592,698        592,705 
Common stock issued for joint venture                           14,000,000    140                15,399,860        15,400,000 
Fair value of beneficial conversion feature of converted                                               522,349        522,349 
Net loss                                                   (27,048,655)   (27,048,655)
                                                                       
Balance, June 30, 2021   45,000       700       20,000       24,582,517   245   $2,080   (1,286,118)  (15,220,294)  280,172,756   (303,075,603)  (31,155,808)

 

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

  

5

 

 

GBT TECHNOLOGIES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           
   For the Six Months Ended June 30,
   2022  2021
Cash Flows From Operating Activities:          
Net income (loss)  $485,102   $(32,424,264)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Amortization of debt discount   307,879    466,637 
Change in fair value of derivative liability   (3,150,739)   793,186 
Excess of debt discount and financing costs       588,920 
Shares issued for services       281,750 
Loss on modification of debt       13,777,480 
Impairment loss       15,400,000 
Realized (gain) loss on market equity security       (11,000)
Payment of other income with marketable securities       (600,000)
Change in fair value of market equity security   240,000     
Changes in operating assets and liabilities:          
Other receivable   3,747,836     
Inventory   (60,925)    
Unearned revenue   (225)    
Contract liabilities   (3,556)    
Accounts payable and accrued expenses   (1,330,044)   780,829 
Net cash provided by (used in) operating activities   235,328    (946,462)
           
Cash Flows From Investing Activities:          
Investment to GTX   (150,000)    
Investment to TGHI   (125,000)    
Net cash used in investing activities   (275,000)    
           
Cash Flows From Financing Activities:          
Issuance of convertible notes   200,000    851,884 
Issuance of note receivable   (100,000)    
Proceeds from sales of common stock   231,865     
Repayments to related party   (558,379)    
Proceeds from related party   575,516     
Net cash provided by financing activities   349,002    851,884 
           
Net increase (decrease) in cash   309,330    (94,578)
           
Cash, beginning of period   155,106    113,034 
           
Cash, end of period  $464,436   $18,456 
           
Cash paid for:          
Interest  $   $ 
Income taxes  $   $ 
           
Supplemental non-cash investing and financing activities          
Debt discount related to convertible debt  $191,741   $396,600 
Reduction in derivative liability due to conversion  $1,620,742   $9,729,456 
Shares issued for conversion of convertible debt  $1,701,864   $3,715,553 
Equity Method Investment  $   $424,731 
Share issuance for JV Metaverse   5,000     
Share issuance for JV Tokenize  $1,500   $ 

 

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

 

6

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 30, 2022 and 2021 (Unaudited)

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

GBT Technologies Inc. (the “Company”, “GBT”, or “GTCH”) was incorporated on July 22, 2009 under the laws of the State of Nevada. The Company targets growing markets such as development of Internet of Things (IoT) and Artificial Intelligence (AI) enabled networking and tracking technologies, including wireless mesh network technology platform and fixed solutions, development of an intelligent human body vitals device, asset-tracking IoT, and wireless mesh networks. The Company derived revenues from (i) the provision of IT consulting services; and (ii) from selling electronic products through e-commerce platforms like Amazon and eBay for the three and six months ended June 30, 2022.

 

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 revenues generated by Mahaser with respect to e-commerce sales through the online retail platform in the United States of America.

  

The unaudited condensed consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to such rules and regulations. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results expected for the year ending December 31, 2022.

 

Basis of Presentation

 

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

 

7

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Stock Splits

 

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.

 

Going Concern

 

The accompanying CFS were prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $304,096,671 and a working capital deficit of $24,370,394 as of June 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 consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include leases, valuation of derivatives and valuation allowance on deferred tax assets.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries; the Company’s 50% owned subsidiaries GBT BitSpeed Corp. and GBT Tokenize Corp; 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”), Greenwich International Holdings, a Costa Rica corporation (“Greenwich”) 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.

 

8

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 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 June 30, 2022 and December 31, 2021, the Company did not have any cash equivalents.

 

Restricted Cash

 

Restricted cash represents $375,000 as part of the SURG settlements proceeds that need to stay in escrow and $15,326 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.

 

Cash Held in Trust

 

Cash held in trust consists of proceeds from the sale of investments. The proceeds less the payment of certain expenses are being held in AltCorp’s (the Company’s wholly owned subsidiary) attorney trust account. (See Note 5). The cash held in trust is readily available and there are no restrictions as of June 30, 2022.

 

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

 

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, in consideration of $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.

 

9

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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 “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 June 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 June 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:

 

      
Description  Fair Value
As of
June 30, 2022
  Fair Value Measurements at
June 30, 2022
Using Fair Value Hierarchy
      Level 1  Level 2  Level 3
Conversion feature on convertible notes  $5,612,746   $   $5,612,746   $ 
Marketable securities  $87,164   $87,164   $   $ 

 

10

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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 its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. The Company had no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.

 

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.

 

11

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 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 website, the Company just followed the general terms on Amazon website and the customer entered into a contract with the Company based on the product listed on the Amazon website;
     
  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 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 website 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 website.;
     
  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 represents 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. $15,326 been credited as unearned revenue until the court’s final decision. The Company has $249,159 and $249,384 of unearned revenue at June 30, 2022 and December 31, 2021 (audited), respectively.

 

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 five-year term. The Company has yet to earn any royalty income in relation to this agreement as of June 30, 2022. The contract liabilities as of June 30, 2022 and December 31, 2021 (audited) was $46,444 and $0, respectively.

 

12

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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 will be entitled to 95% for all revenue generated by and received by Mahaser for the period 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 for the period 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 test run 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 (after elimination of intercompany transactions and balances):

 

   
   June 30,
Assets of consolidated variable interest entity (“VIE”) included in the consolidated balance sheets above (after elimination of intercompany transactions and balances) consist of:  2022
Current assets:     
Cash and cash equivalents  $8,899 
Inventory   17,053 
Total current assets  $25,951 
      
Liabilities of consolidated VIE included in the consolidated balance sheets above (after elimination of intercompany transactions and balances) consist of:     
Current liabilities     
Due to related party  $10,238 
      
Total current liabilities  $10,238 
      
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  $569,951 
 Cost of goods sold   388,458 
 Gross profit   181,493 
 General and administrative expenses   145,305 
Net loss  $36,188 

 

13

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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.

 

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 six months.

 

      
   June 30,
2022
  December 31,
2021
Series B preferred stock   45,000    45,000 
Series C preferred stock   700    700 
Series H preferred stock   20,000    20,000 
Warrants   388,870    392,870 
Convertible notes   4,170,491,847    83,722,340 
Total   4,171,946,417    84,180,910 

 

14

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 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 quarter ended March 31, 2022. The adoption had no material impact on the CFS in the period ended June 30, 2022.

 

In August 2020, the FASB issued ASU 2020-06Debt—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 quarter ended March 31, 2022. The adoption had no material impact on the CFS in the periods ended June 30, 2022 and March 31, 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 has adopted this ASU on the CFS in the quarter ended March 31, 2022. The adoption had no material impact on the CFS in the periods ended June 30, 2022 and March 31, 2022.

 

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

 

15

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 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 represents $375,000 as part of the SURG settlement proceeds that need to stay in escrow and $15,326 restricted cash that the court on January 28, 2022 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.

 

As   of June 30, 2022 and December 31, 2021 (audited), the Company held cash in the amount of $74,110 and $155,106, respectively.

 

As of June 30, 2022 and December 31, 2021 (audited), the Company held restricted cash in the amount of $390,326 and $0, respectively.

 

As of June 30, 2022 and December 31, 2021 (audited), the Company held cash in the trust account of $0 and $112,942, respectively. The cash in the trust account do not have any restrictions.

 

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 fair value of $50,000 as an 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 have yet to earn any royalty income in relation to this agreement as of June 30, 2022.

 

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 $44,000 as of June 30, 2022 based on level 1 stock price in OTC markets.

 

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 acquire convertible promissory notes of GTX in the principal amount of $100,000 (the “GTX Notes”). In addition, GBT Tokenize acquired 5,000,000 shares of common stock of GTX for $150,000 - in total FV of $41,000 as of June 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. As of June, 30, 2022, the note had an outstanding balance of $100,000 and accrued interest of $2,164.

 

As of June, 30, 2022 and December 31, 2021, the marketable security had a FV of $87,164 and $0, respectively.

16

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 30, 2022 and 2021 (Unaudited)

 

Note 5 – Investment in Surge Holdings, Inc (Relate to Year 2021).

 

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 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 December 31, 2021, the Company has recorded an outstanding payable balance to Stanley amounted $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.

 

17

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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 related to 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 during the periods ended June 30, 2022.

 

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 representing 25% of its issued and outstanding shares of common stock from Gonzalez for the issuance of 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 in the principal amount of $5,000,000 dated February 6, 2019 (of which the underlying security for this Promissory Note is 30,000,000 restricted shares of common stock of Mobiquity 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.

 

18

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 30, 2022 and 2021 (Unaudited)

 

On May 19, 2021, the Company, entered into a Mutual Release and Settlement Agreement and Irrevocable Assignment of Note Balance Principal and Accrued Interest (the “Gonzalez Agreement”) with third party, GBT-CR, IGOR 1 Corp and Gonzalez. 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.

 

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.

 

19

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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 that 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 has 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 that 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 June 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 period ended June 30, 2022 and December 31, 2021. The Company has $17,053 finished goods and $43,872 inventory in transit as of June 30, 2022 and $0 inventory as of December 31, 2021 (audited).

 

Note 8 – Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses at June 30, 2022 and December 31, 2021 (audited) consist of the following (including related parties of $856,904 and $2,309,255):

 

      
   2022  2021
Accounts payable  $1,025,530   $670,127 
Accounts payable – related party   500,000    440,000 
Accrued liabilities   400,451    1,170,088 
Accrued liabilities – Stanley   317,174    1,862,928 
Accrued interest   3,166,065    2,746,793 
Accrued   interest – related party   39,730    6,327 
Total Accounts payable and accrued expenses  $5,448,950   $6,896,263 

 

20

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 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. $15,326  been credited as unearned revenue until the court’s final decision.

 

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 June 30, 2022, the award had not been paid yet. The Company recorded accrued settlement of $4,090,057 and $4,090,057 at June 30, 2022 and December 31, 2021 (audited), respectively, not including interest accrued.

 

Note 11 – Convertible Notes Payable, Non-related Partied and Related Party

 

Convertible notes payable – non related parties at June 30, 2022 and December 31, 2021 (audited) consist of the following:

 

      
   June 30,
2022
  December 31,
2021
Convertible note payable to IGOR 1 CORP  $6,728,731   $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   244,500     
Total convertible notes payable, non-related parties   6,973,231    8,424,100 
Unamortized debt discount   (207,229)   (278,867)
Convertible notes payable – non related parties   6,766,002    8,145,233 
Less current portion   (6,728,731)   (8,109,436)
Convertible notes payable – non related parties, long-term portion  $37,271   $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.

 

21

 

  

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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 June 30, 2022, the note had an outstanding balance of $6,728,731 and accrued interest of $1,778,497.

 

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 has 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 six months ended June 30, 2022, Redstart converted the entire note into 7,656,951 shares of the Company’s common stock.

 

22

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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 three months ended June 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.

 

23

 

 

GBT Technologies, Inc. 

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Convertible notes payable – related parties at June 30, 2022 and December 31, 2021 (audited) consist of the following:

 

      
   June 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 June 30, 2022 and December 31, 2021 was $14,154 and $8,372, respectively. The Stanley debt was secured via a pledge agreement on the SURG shares.

 

Discounts on convertible notes

 

The Company recognized amortization of the debt discount of $307,879 and $321,340 during the six months ended June 30, 2022 and 2021, respectively, related to the convertible notes.

 

24

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Note 12 - Notes Payable, Non-related Parties and Related Party

 

Notes payable, non-related parties at June 30, 2022 and December 31, 2021 (audited) consist of the following:

 

      
   June 31,
2022
  December 31,
2021
RWJ acquisition note  $2,600,000   $2,600,000 
SBA loan   350,000    350,000 
Total notes payable   2,950,000    2,950,000 
Less current portion   (2,635,256)   (2,612,397)
Notes payable, long-term portion  $314,744   $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 contests the validity of the note, as such the note has not been repaid as of June 30, 2022.

 

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 will be 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 June 31, 2022 and December 31, 2021 was $350,000 and $350,000 plus accrued interest of $17,091 and $10,581, respectively.

 

Notes payable, related party at June 30, 2022 and December 31, 2021 (audited) consist of the following:

 

      
   June 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  $   $ 

 

25

 

 

GBT Technologies, Inc 

Notes to Condensed Consolidated Financial Statements

June 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 June 31, 2022 and December 31, 2021 (audited) was $140,000 and $140,000 plus accrued interest of $25,576 and $16,633, respectively.

 

Note 13- Derivative Liability

 

Certain of the convertible notes payable discussed in these financials 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 June 30, 2022 and December 31, 2021 (audited):

 

       
    June 30,
2022
  December 31,
2021
Stock price   $ 0.002-0.2     $ 0.17-0.19  
Risk free rate     1.06-2.51%       0.07-0.39 %
Volatility     161-242%       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 six months ended June 30, 2022 and December 31, 2021:

 

 Schedule of Derivative Liabilities at Fair Value        
Derivative liability balance, December 31, 2020   5,262,448  
Debt modification     13,777,480  
Issuance of derivative liability during the period     1,480,439  
Fair value of beneficial conversion feature of debt converted     (116,669 )
Change in derivative liability during the period     1,339,117  
Derivative liability balance, December 31, 2021   $ 10,192,485  
Debt modification      
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  

 

26

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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.

 

During the three months ended March 31, 2022, the Company had the following transactions in its common stock:

  

  issued an aggregate of 369,198 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.

  

During the three months ended June 30, 2022, the Company had the following transactions in its common stock:

  

  issued an aggregate of 288,672,073 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.    

 

Series B Preferred Shares

 

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

 

The Series B Preferred Stock has a stated value of $100 per share and is convertible into the Company’s common stock at a conversion price of $30.00 per share representing 30 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.

 

27

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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.

  

At December 31, 2021 and 2020, GV owns 700 Series C Preferred Shares.

 

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

 

Series H Preferred Shares

 

On June 17, 2019, the Company, AltCorp Trading LLC, a Costa Rica company and a wholly-owned subsidiary of the Company (“AltCorp”), GBT Technologies, S.A., a Costa Rica company (“GBT-CR”) and Pablo Gonzalez, a shareholder’s representative of GBT-CR (“Gonzalez”), entered into and closed an Exchange Agreement (the “GBT Exchange Agreement”) pursuant to which the parties exchanged certain securities. In accordance with the Exchange Agreement, AltCorp acquired 625,000 shares of GBT-CR representing 25% of its issued and outstanding shares of common stock from Gonzalez in exchange for 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 ($10.00 per share). The Series H Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series H Preferred Stock shall be entitled to one vote for each share of common stock that the Series H Preferred Stock may be convertible into. On July 8, 2019, the Company entered a Consulting Agreement with Glen Eagles Glen Eagles Acquisition LP (“Glen”) as consultant to provide services in connection with the Company’s acquisition of 25% of GBT-CR. Consultant will provide analysis, interaction with related professional and other services as requested by the Company to integrate and expand capabilities between GBT-CR and the Company.

 

28

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Warrants

 

The following is a summary of warrant activity.

 

            
    
 
 
Warrants
Outstanding
   
Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Life
   
 
Aggregate
Intrinsic
Value
Outstanding, December 31, 2020    392,870   $74.97    1.76   $ 
Granted                    
Forfeited                    
Exercised                    
Outstanding, June 30, 2022    392,870   $74.97    0.76   $ 
Exercisable, June 30, 2022    392,870   $74.97    0.76   $ 

  

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 the course of 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”).

 

29

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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 six months ended June 30, 2022, the Company received $231,866 as proceeds from the equity purchase agreement for issuance of 5,500,000 registered common shares.

 

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.

  

On September 1, 2017, the Company entered into and closed an Asset Purchase Agreement with a third party, RWJ Advanced Marketing, LLC (“RWJ”), a Georgia corporation, pursuant to which the Company purchased certain assets from RWJ, including inventory, terminals, licenses and permits and intangible assets. At closing, the Company and Mr. Greg Bauer entered into an Employment Agreement pursuant to which Mr. Bauer was retained as Chief Executive Officer for a term of one year, subject to an automatic extension, unless terminated, in consideration of a base salary of $250,000 and a bonus of 10% of net profit generated by the assets acquired. Mr. Bauer was also appointed to the Board of Directors of the Company. As of the closing date, Mr. Murray resigned as Chief Executive Officer of the Company but will remain as a director of the Company. Mr. Bauer, since 2004 through present, has served as executive director with W.L. Petrey Wholesale, Inc. where he was in charge of the UGO/Preway operations. The Company is in litigations in connection with RWJ transaction.

 

30

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

On January 1, 2019, the Company and Douglas Davis entered into an Amended and Restated Employment Agreement pursuant to which Mr. Davis was retained as Chief Executive Officer. Mr. Davis served as Interim Chief Executive Officer from July 2018 to April 11, 2020. The term of Mr. Davis’ employment was for two years through January 1, 2021. Mr. Davis was entitled to an annual base salary of $250,000, which was to be increased to $400,000 upon the Company up-listing to a national exchange. Mr. Davis was also entitled to the issuance of Stock Options to acquire an aggregate of 50,000 shares of common stock of the Company, exercisable for five years, subject to vesting. The options were to be earned and vested (i) with respect to 20,000 shares of common stock on the date hereof, (ii) 5,000 shares of common stock upon the successful dual list of the Company on an international exchange such as SIX Zurich Stock Exchange or Euronext, (iii) 15,000 shares of common stock upon the successful up listing to a national exchange such as the Nasdaq, NYSE Euronext, TSX, AMEX or other, and (iv) with respect to 5,000 shares of common stock at each of the six month anniversaries (July 1, 2019 and January 1, 2020). The exercise price of such options shall be the closing price of the Company on the date prior to such event.

 

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 is 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 is 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.

 

31

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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 two hundred million 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 a period of 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.

 

32

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Yello Partners Inc.

 

As of June 30, 2022 and December 31, 2021 (audited), the Company owed $445,000 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 June 30, 2022 and December 31, 2021, the Company has recorded an outstanding payable to Stanley of $317,174 and $1,862,928, respectively, recorded under accrued expenses.

 

33

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Sales to related party for the three months ended June 30, 2022 and 2021 were $0 and $45,000 respectively. Sales are derived from providing IT consulting services to Stanley Hills, a related party. The Company ceased providing IT services to Stanley during the quarter ended June 30, 2022.

 

Sales to related party for the six months ended June 30, 2022 and 2021 were $45,000 and $90,000 respectively. Sales are derived from providing IT consulting services to Stanley Hills, a related party. The Company ceased providing IT services to Stanley during the second quarter ended June 30, 2022.

 

Advanced from Related Party

 

During the three and six months ended June 30, 2022, Mansour Khatib, the Company’s CEO advanced $154,117 and $575,516 cash to the Company for business use purpose to fund the Amazon operations, respectively.

 

During the six months ended June 30, 2022, the Company repaid $558,379 cash back to Mansour Khatib.

 

As of June, 30, 2022 and December 31, 2021 (audited), the Company has recorded an outstanding payable balance to Mansour Khatib of $17,137 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.

  

34

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements 

June 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 recently 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. Recently, 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.

 

35

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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 volume weighted average prices during the period the Debenture is outstanding. On May 28, 2019, the Investor delivered to the Company a “Notice of Default and Notice of Sale of Collateral” (the “Notice”). On December 23, 2019, in 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 attorneys fees $48,844 and cost of $716. The Company filed an answer on August 11, 2020. On October 16, 2020, Investor motion for attorneys fees $48,844 and cost of $716 was denied. The balance was included in accounts payable for the unearned settlement. As of June 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.

 

36

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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.

 

In connection with SURG Exchange Agreement – On November 4, 2020, Altcorp and Stanley filed an Ex Parte Motion in the District Court, Clark County, Nevada (Case No: A-20-823039-B, in Dep No: 43) to appoint a receiver and issue a temporary restraining Order against SURG and its transfer agent for alleged defaults on prior exchange agreement. On December 4, 2020, the parties entered an interim agreement which set the material terms of the settlement. A final settlement was achieved on January 1, 2021. On March 4, 2021 the Company filed a motion to enforce settlement agreements, as the Company alleged that SURG owes an additional $240,000 which is due and owing under the settlement agreements.

 

On June 24, 2021 per the June 23, 2020 Agreement, the Company together with AltCorp sent SURG and its transfer agent via registered mail, a true-up shares demand for an additional 14,870,370 SURG shares as calculated per the Agreement. As of the filing date of this report, SURG’s transfer agent did not answer the Company’s request.

 

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.

 

37

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 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 12,000,000 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 June 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.

 

38

 

 

GBT Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2022 and 2021 (Unaudited)

 

Note 18 – Concentrations

 

Concentration of Credit Risk

 

Financ