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 March 31, 2018 | |
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commissions file number: 000-54530
GOPHER PROTOCOL 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 |
2500 Broadway, Suite F-125, Santa Monica, CA 90404
Issuer’s telephone number: 424-238-4589
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Exchange Act). Yes ☐ No ☒
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 | 130,935,102 Common Shares |
| (Class) | (Outstanding at May 14, 2018) |
GOPHER PROTOCOL, INC.
TABLE OF CONTENTS
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Item 1: Condensed consolidated financial statements
GOPHER PROTOCOL, INC. | ||||||||
| ASSETS | March 31, | December 31, | ||||||
| 2018 | 2017 | |||||||
| (unaudited) | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 894,819 | $ | 1,305,062 | ||||
| Accounts receivable | 691,397 | 41,947 | ||||||
| Inventory | 264,545 | 262,749 | ||||||
| Prepaid expenses | 56,000 | — | ||||||
| Total current assets | 1,906,761 | 1,609,758 | ||||||
| Property and equipment, net | 310,803 | 263,082 | ||||||
| Intangible assets, net | 7,404,762 | 6,666,667 | ||||||
| Other assets | 101,979 | 1,979 | ||||||
| Goodwill | 3,003,577 | 950,619 | ||||||
| Total assets | $ | 12,727,882 | $ | 9,492,105 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses (including related parties of $144,281 and $51,167) | $ | 1,466,927 | $ | 1,199,215 | ||||
| Due to Guardian LLC (related party) | 1,412,625 | 1,350,262 | ||||||
| Convertible notes payable, net of discount of $690,247 and $54,377 | 59,753 | 25,623 | ||||||
| Note payable | 1,000,000 | — | ||||||
| Derivative liability | — | 95,164 | ||||||
| Total current liabilities | 3,939,305 | 2,670,264 | ||||||
| Note payable | 2,600,000 | 2,600,000 | ||||||
| Total liabilities | 6,539,305 | 5,270,264 | ||||||
| Contingencies | — | — | ||||||
| Stockholders’ Equity: | ||||||||
| Series B Preferred stock, $0.00001 par value; 20,000,000 shares authorized; 45,000 and 45,000 shares issued and outstanding at March 31, 2018 and December 31, 2017 | — | — | ||||||
| Series C Preferred stock, $0.00001 par value; 10,000 shares authorized; 700 and 700 shares issued and outstanding at March 31, 2018 and December 31, 2017 | — | — | ||||||
| Series D Preferred stock, $0.00001 par value; 100,000 shares authorized; 0 and 66,000 shares issued and outstanding at March 31, 2018 and December 31, 2017 | — | 1 | ||||||
| Series G Preferred stock, $0.00001 par value; 2,000,000 shares authorized; 2,000,000 and 2,000,000 shares issued and outstanding at March 31, 2018 and December 31, 2017 | 20 | 20 | ||||||
| Common stock, $0.00001 par value; 500,000,000 shares authorized; 130,132,072 and 58,215,406 shares issued and outstanding at March 31, 2018 and December 31, 2017 | 3,301 | 2,582 | ||||||
| Treasury stock, at cost; 1,040 shares at March 31, 2018 and December 31, 2017 | (643,059 | ) | (643,059 | ) | ||||
| Additional paid in captial | 35,317,999 | 19,243,959 | ||||||
| Accumulated deficit | (28,489,684 | ) | (14,381,662 | ) | ||||
| Total stockholders’ equity | 6,188,577 | 4,221,841 | ||||||
| Total liabilities and stockholders’ equity | $ | 12,727,882 | $ | 9,492,105 | ||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
4
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
5
GOPHER PROTOCOL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(UNAUDITED)
Note 1 - Organization and Basis of Presentation
Organization and Line of Business
Gopher Protocol Inc. (the “Company”, “Gopher”, “Gopher Protocol” or “GOPH”) was incorporated on July 22, 2009 under the laws of the State of Nevada and relocated its headquarters to Santa Monica, California in 2016. Gopher is a development stage company that is creating innovative mobile microchip (ICs) and software technologies based on GopherInsight™ . The Company derived revenues from the provision of IT services to Guardian Patch LLC, a related party (“Guardian LLC”) and the Company recognizes revenue from the operations of the acquired assets it acquired in the third quarter of 2017.
The unaudited 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 three months ended March 31, 2018 are not necessarily indicative of the results expected for the year ending December 31, 2018.
GopherInsight™ is a patented real time, heuristic (self-learning/artificial intelligence) based mobile technology. GopherInsight™ chip technology, if successfully fully developed, will be able to be installed in mobile devices (smartphones, tablets, laptops, etc.) as well as stand-alone products. It is intended that GopherInsight™ software applications will work in conjunction with GopherInsight™ microchips across mobile operating systems, providing computing power, advanced database management/sharing functionalities and more. The technology under development consists of a smart microchip, mobile application software and supporting software. The system contemplates the creation of a global network. Once fully developed, the Company believes that its microchip technologies may be installed within mobile devices or on SIM cards.
On March 29, 2016, the Company contributed all of its rights relating to its proprietary microchip that is within a sticky patch package (the “Patch”) to Guardian LLC in consideration of 50% of the profit generated by Guardian LLC and a commitment from Guardian LLC that it is responsible for investing all needed funds for the purpose of developing the Patch and related products to the Patch, as well as funding the working capital needs of the Company.
On September 1, 2017, the Company entered into an Asset Purchase Agreement with a third party, RWJ Advanced Marketing, LLC, a Georgia corporation. The Company entered into this Asset Purchase Agreement to acquire terminals in approximately 15,000 locations by which the Company will deploy its technology. The operations consist primarily of the sale of phones and phone card products, including PINS for cell minutes, SIM cards for cell minutes, as well as gift cards. The Company incorporated a wholly-owned subsidiary, UGopherServices Corp., to operate the acquired assets.
On March 16, 2018, the Company entered into and closed an Asset Purchase Agreement dated March 1, 2018 with ECS Prepaid LLC (“ECS”), a Missouri limited liability company, pursuant to which the Company purchased certain assets from ECS, including, but not limited to, the processing prepaid platform, servers, POS terminals, customer list, and a processing software program.
Basis of Presentation
The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include depreciable lives of property and equipment, valuation of beneficial conversion feature debt discounts, valuation of derivatives, and the valuation allowance on deferred tax assets.
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Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, UGopherServices Corp, since the date of acquisition (September 1, 2017), Ugopherservices Limited (since its date of formation of February 1, 2018) an England and Wales a private limited company that it currently inactive and ECS, since the date of acquisition (March 1, 2018). All significant intercompany transactions and balances have been eliminated.
Cash Equivalents
For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.
Accounts Receivable
The Company grants credit to establishments (such as convenient stores) who sell the Company’s products under credit terms that it believes are customary in the industry and does not require collateral to support customer receivables. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 7-30 days after the issuance of the invoice and typically would be considered past due when the term expires. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. The Company’s allowance for doubtful accounts was $0 and $0 at March 31, 2018 and December 31, 2017, respectively.
Inventory
Inventory is valued at the lower of the inventory’s cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. At March 31, 2018 and December 31, 2017, all of the Company’s inventory was finished goods inventory which consisted principally of phones and phone card products, including PINS for cell minutes, SIM cards for cell minutes, as well as gift cards.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
| Furniture | 7 years |
| Computers and equipment | 3 years |
| POSA machines | 3 years |
Long-Lived Assets
The Company applies the provisions of ASC Topic 360,Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at March 31, 2018 and December 31, 2017, the Company believes there was no impairment of its long-lived assets.
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Intangible Assets
The Company’s intangible assets were all acquired with the acquisition of certain RWJ assets in 2017 and the acquisition of certain ECS assets (see Note 3) in 2018 are being amortized over 84 months. The Company performs a test for impairment at least annually. As of March 31, 2018 and December 31, 2017, the Company performed the required impairment analysis which resulted in no impairment adjustments.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under accounting requirements, goodwill is not amortized but is subject to annual impairment tests. The Company recorded goodwill of $950,619 related to its acquisition of certain RWJ assets in 2017 and $2,052,958, related to its acquisition of certain ECS assets in 2018.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of December 31, 2017, the Company’s only derivative financial instrument was an embedded conversion feature associated with convertible notes payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company’s stock price at the date of conversion. During the three months ended March 31, 2018, the convertible note with the embedded conversion feature was repaid; therefore, there are no derivative financial instruments outstanding at March 31, 2018.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820,Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825,Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480,Distinguishing Liabilities from Equity, and FASB ASC Topic 815,Derivatives and Hedging.
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
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The Company uses Level 2 inputs for its valuation methodology for derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
At December 31, 2017, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
| Fair Value | Fair Value Measurements at | |||||||||||||||
| As of | December 31, 2017 | |||||||||||||||
| Description | December 31, 2017 | Using Fair Value Hierarchy | ||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Conversion feature on convertible notes | $ | 95,164 | $ | — | $ | 95,164 | $ | — | ||||||||
| Total | $ | 95,164 | $ | — | $ | 95,164 | $ | — | ||||||||
The Company did not identify any non-recurring assets and liabilities that are required to be presented in the consolidated balance sheets at fair value in accordance with ASC 815 at March 31, 2018.
Treasury Stock
Treasury stock is recorded at cost. The re-issuance of treasury shares is accounted for on a first in, first-out basis and any difference between the cost of treasury shares and the re-issuance proceeds are charged or credited to additional paid-in capital. During 2011, the Company bought back 8 post-split shares (38,000 pre-split) shares of its own shares.
Revenue Recognition
The Company recognized revenue on arrangements in accordance with FASB Codification Topic 606,Revenue From Contracts with Customers. The Company recognizes revenue from the sale of phones and phone card products at the time of sale to the customer. The Company recognizes revenue from IT-related services at the time the services are performed.
Cost of Goods Sold
Cost of goods sold represents the cost of the phone and phone card products sold by the Company. In 2017 the Company did not have cost of goods sold since all of its revenue was generated from consulting income. In 2018, the entire cost of goods sold relates to products sold by the Company’s new acquired acquisitions in September 2017 and March 2018.
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.
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Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260,Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Due to the net loss incurred potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.
| March 31, | March 31, | |||||||
| 2018 | 2017 | |||||||
| Series B preferred stock | 3,000 | 3,000 | �� | |||||
| Series C preferred stock | 770 | 770 | ||||||
| Series D preferred stock | — | 66,000,000 | ||||||
| Series G preferred stock | 2,000,000 | — | ||||||
| Warrants | 26,260,416 | 93,750 | ||||||
| Convertible notes | 833,333 | 7,287,641 | ||||||
| Total | 29,097,519 | 73,385,161 | ||||||
Recent Accounting Pronouncements
In January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01,Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The adoption of this ASC did not have an impact on its financial statements.
In November 2016, the FASB issued ASU 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASC did not have an impact on its financial statements.
In October 2016, the FASB issued ASU 2016-16,Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASC did not have an impact on its financial statements.
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company has evaluated the impact of ASU 2014-09 on the Company’s financial statements and disclosures does not believe the impact will be material. The Company will adopt this ASU beginning on January 1, 2018 and will use the prospective method of adoption.
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Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3 - Acquisition
On March 16, 2018, the Company entered into and closed an asset purchase agreement dated March 1, 2018 with ECS Prepaid LLC (“ECS”), a Missouri limited liability company, pursuant to which the Company purchased certain assets from ECS, including, but not limited to, the processing prepaid platform, servers, POS terminals, customer list, a processing software program and goodwill, in consideration of $1,100,000 of which $100,000 was paid on the Closing Date and the balance is to be paid pursuant to a secured promissory note in the amount of $1,000,000. In addition, the Company issued 500,000 shares of common stock of the Company and warrants to purchase 500,000 shares of common stock that are exercisable for a period of five years at a fixed exercise price of $1.85 per share. The note is secured by the assets acquired by the Company from ECS and the Company is required to make ten equal principal payments of $100,000 commencing on April 15, 2018. The Company may prepay the note at any time without penalty.
The Company entered into this asset purchase agreement to acquire the software need to process transactions for its prepaid business and to acquire additional terminal locations by which the Company will deploy its technology.
A summary of the purchase price and the purchase price allocations at fair value is below. The purchase price allocation is a preliminary and subject to change. The Company has not yet completed its analysis to determine the fair value of the assets acquired on the acquisition date. Once this analysis is complete, the Company will adjust, if necessary, the provisional amounts assigned to the assets purchased in the accounting period in which the analysis is completed.
| Purchase price | ||||
| Cash | $ | 100,000 | ||
| 500,000 shares of common stock (1) | 1,010,000 | |||
| Secured promissory note | 1,000,000 | |||
| 500,000 warrants (2) | 992,958 | |||
| $ | 3,102,958 | |||
| Allocation of purchase price | ||||
| Property and equipment | $ | 50,000 | ||
| Software | 1,000,000 | |||
| Goodwill | 2,052,958 | |||
| Purchase price | $ | 3,102,958 | ||
(1) – the fair value of the common stock was calculated based on the closing market price of the Company’s common stock at the date of acquisition.
(2) -- the fair value of the 9,000,000 warrants was determined using the Black-Scholes option pricing model with the following assumptions:
| ● | Expected life of 5.0 years |
| ● | Volatility of 210%; |
| ● | Dividend yield of 0%; |
| ● | Risk free interest rate of 2.65% |
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The revenue from the acquisition of the ECS assets included in the results of operations from the date of acquisition on to March 31, 2018 was $4,027,614.
The unaudited pro forma information below present statement of operations data as if the acquisition of the ECS assets took place on January 1, 2017.
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| Sales | $ | 13,192,736 | $ | 6,531,712 | ||||
| Cost of goods sold | 12,919,309 | 6,571,859 | ||||||
| Gross profit | 273,427 | (40,147 | ) | |||||
| Operating expenses | 14,237,155 | 421,255 | ||||||
| Loss from operations | (13,963,728 | ) | (461,402 | ) | ||||
| Net loss | (14,163,024 | ) | (462,407 | ) | ||||
| Loss per share | (0.16 | ) | (0.02 | ) | ||||
Note 4 - Property and Equipment, Net
Property and equipment consisted of the following as of March 31, 2018 and December 31, 2017:
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Furniture | $ | 33,739 | $ | 33,740 | ||||
| Computers and equipment | 52,615 | 22,816 | ||||||
| POSA machines | 295,881 | 253,965 | ||||||
| 382,235 | 310,521 | |||||||
| Less accumulated depreciation | (71,432 | ) | (47,439 | ) | ||||
| Property and equipment, net | $ | 310,803 | $ | 263,082 | ||||
Depreciation expense for the three months ended March 31, 2018 and 2017 was $23,993 and $337, respectively.
Note 5 – Intangible Assets, Net
The following are the details of intangible assets at March 31, 2018 and December 31, 2017:
| March 31 | December 31, | |||||||
| 2018 | 2017 | |||||||
| Leased locations | $ | 7,000,000 | $ | 7,000,000 | ||||
| Software | 1,000,000 | |||||||
| 8,000,000 | 7,000,000 | |||||||
| Less accumulated amortization | (595,238 | ) | (333,333 | ) | ||||
| Intangible assets, net | $ | 7,404,762 | $ | 6,666,667 | ||||
All of the above intangible assets are being amortized over 84 months.
Amortization expense for the three months ended March 31, 2018 and 2017 was $261,905 and $0, respectively.
The estimated future amortization expense related to intangible assets are as follows:
| Twelve months ending March 31, | |||||
| 2019 | $ | 1,142,857 | |||
| 2020 | 1,142,857 | ||||
| 2021 | 1,142,857 | ||||
| 2022 | 1,142,857 | ||||
| 2023 | 1,142,857 | ||||
| Thereafter | 1,690,477 | ||||
| $ | 7,404,762 | ||||
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Note 6 - Other Assets
Other assets at March 31, 2018 consist of an acquisition deposit of $100,000 (See Note 12) and a lease deposit of $1,979.
Note 7 – Convertible Notes Payable
Convertible notes payable at March 31, 2018 and December 31, 2017 consist of the following:
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Convertible notes payable to Power Up | $ | — | $ | 80,000 | ||||
| Convertible notes payable to Bellridge Capital | 750,000 | — | ||||||
| Total convertible notes payable | 750,000 | 80,000 | ||||||
| Unamortized debt discount | (690,247 | ) | (54,377 | ) | ||||
| Convertible notes payable | $ | 59,753 | $ | 25,623 | ||||
Power Up Lending Group Ltd.
On October 2, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd., an accredited investor (“Power Up”) pursuant to which the Company issued to Power Up a Convertible Promissory Note (the “Power Note”) in the aggregate principal amount of $80,000. The Power Note has a maturity date of July 10, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Power Note at the rate of ten percent (10%) per annum from the date on which the Power Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Power Note, provided it makes a payment to Power Up as set forth in the Power Note. The transactions described above closed on October 4, 2017.
The outstanding principal amount of the Power Note isconvertible at any time and from time to time at the election of Power Up during the period beginning on the date that is 180 days following the Issue Date into shares ofthe Company’s common stockat a conversion price equal to 61% of the lowest trading price with a 15 day look back immediately preceding the date of conversion. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the Power Note), the Power Note shall become immediately due and payable and the Company shall pay to Power Up, in full satisfaction of its obligations hereunder, additional amounts as set forth in the Power Note.
In no event shall Power Up be allowed to effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by Power Up and its affiliates would exceed 4.9% of the outstanding shares of the common stock of the Company.
As of March 6, 2018, the Company has paid off in full all principal, interest and penalties with respect to the Power Up Note and there are no further obligations owed with respect to such note.
Bellridge Capital LLC
On March 2, 2018, the Company entered into and closed a Securities Purchase Agreement with Bellridge Capital, LLC (“Bellridge”) pursuant to which Bellridge invested $750,000 into the Company in consideration of a 10% Convertible Debenture (the “Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise price of $2.35 per share. The Bellridge Debenture bears interest of 10% and is payable March 1, 2019. The Bellridge Debenture is convertible into shares of common stock at $0.90 per share subject to antidilution protection. During an event of default, the conversion price in effect on any conversion date means, as of any conversion date or other date of determination, shall be 35% of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding the delivery of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise its Common Stock Purchase Warrants and receive shares of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.
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On March 2, 2018, the Company delivered 1,000,000 shares of Common Stock to an escrow agent. The 1,000,000 escrow shares are to be utilized for the purpose of limited price protection. If, beginning on the 7th monthly anniversary of the issuance of the 1,000,000 escrow shares, Bellridge has sold shares issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares shall be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold at a price less than $1.10.
As long as the Company is not in default of the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered a material breach by Bellridge.
In connection with the Bellridge Debenture, the Company issued 500,000 warrants to purchase shares of the Company’s common stock with an exercise price of $2.35.
The Company first determined the value of the convertible note and the fair value of the detachable warrants issued in connection with this transaction. The estimated value of the warrants of $827,428 and was determined using the Black-Scholes option pricing model with the following assumptions:
| ● | Expected life of 5.0 years |
| ● | Volatility of 210%; |
| ● | Dividend yield of 0%; |
| ● | Risk free interest rate of 2.65% |
The face amount of the convertible note of $750,000 was proportionately allocated to the convertible note and the warrant in the amount of $356,593 and $393,407, respectively. The amount allocated to the warrants of $393,407 was recorded as a discount to the convertible note and as additional paid in capital. The value of the convertible note was then allocated between the convertible note and the beneficial conversion feature, which amounted to $0 and $356,593, respectively. The combined total discount is $750,000, and will be amortized over the year life of the convertible note.
Discounts on convertible notes
The Company recognized interest expense of $114,130 during the three months ended March 31, 2018 related to the amortization of the debt discount. The unamortized debt discount at March 31, 2018 is $690,247.
A roll-forward of the convertible note from December 31, 2017 to March 31, 2018 is below:
| Convertible notes, December 31, 2017 | $ | 25,623 | ||
| Issued for cash | 750,000 | |||
| Repayment in cash | (80,000 | ) | ||
| Debt discount related to new convertible notes | (750,000 | ) | ||
| Amortization of debt discounts | 114,130 | |||
| Convertible notes, March 31, 2018 | $ | 59,753 |
Note 8 - Derivative Liability
The certain of the convertible notes payable discussed in Note 7 have a conversion price that can be adjusted based on the Company’s stock price which results in the conversion feature being recorded as a derivative liability.
The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).
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The Company uses a weighted average Black-Scholes-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at December 31, 2017:
| Stock price | $1.12 | |
| Risk free rate | 1.76% | |
| Volatility | 175% | |
| Conversion/ Exercise price | $0.60 | |
| Dividend rate | 0% | |
| Term (years) | 0.5 years |
The following table represents the Company’s derivative liability activity for the three months ended March 31, 2018:
| Derivative liability balance, December 31, 2017 | $ | 95,164 | ||
| Fair value of beneficial conversion feature of debt repaid | (113,287 | ) | ||
| Change in derivative liability during the period | 18,123 | |||
| Derivative liability balance, December 31, 2017 | $ | — |
During the three months ended March 31, 2018, the convertible note with the embedded conversion feature was repaid; therefore, there is no derivative liability outstanding at March 31, 2018.
Note 9- Note Payable
In connection with the acquisition RWJ in September 2017, the Company issued a note payable. The note accrues interest at 3.5% per annum is due on December 31, 2019 and is secured by the assets purchased in the acquisition. This note payable is classified as long-term in the accompanying consolidated balance sheet.
In connection with the acquisition of ECS as discussed in Note 3, the Company issued a note payable. The note is to be repaid in monthly installment payments of $100,000 with the final payment due on January 15, 2019. This note is secured by the assets purchased in the acquisition and is classified as long-term in the accompanying consolidated balance sheet.
Note 10- Stockholders’ Equity
Common Stock
During the three months ended March 31, 2018, the Company had the following transactions in its common stock:
| ● | issued 66,000,000 shares in connection with the conversion of 66,000 shares of Series D Preferred Stock; |
| ● | issued 250,000 shares to a consultant for professional services rendered valued at $123,725. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the dates that the shares earned based on the agreement; |
| ● | issued an aggregate of 500,000 shares to two employees as part of their employment agreements. The value of the common stock of $1,010,000 was determined based on the closing stock price of the Company’s common stock on the date of the employment agreement; |
| ● | issued 3,000,000 to a consultant for services related to assisting the Company with the acquisition of the RWJ assets. The 3,000,000 shares were earned when the operations of the RWJ assets produced revenue in excess of $10,000,000. The value of the common stock of $4,590,000 was determined based on the closing stock price of the Company’s common stock on the date of the shares were earned. |
| ● | issued an aggregate of 1,000,000 shares to two consultants for services rendered valued at $2,020,000. One of the consultants who received 500,000 shares is the wife of the Company’s CEO. The services, which include business development, analysis, and interaction with professionals, were principally related to assisting the Company with the acquisition of the ECS assets (see Note 3). The value of the common stock was determined based on the closing stock price of the Company’s common stock on the closing date of acquisition of ECS; |
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| ● | issued 500,000 shares for the acquisition of the ECS assets valued at $1,010,000. The value of the common stock was determined based on the closing stock price of the Company’s common stock on the acquisition date; and |
| ● | issued 666,666 shares of common stock to an investor for cash proceeds of $500,000 (See discussion below). |
On December 29, 2017, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant to which Eagle agreed to purchase up to 2,000,000 shares of the Company’s common stock for a purchase price of $1,500,000 or $0.75 per share. The closing occurred on December 29, 2017 with respect to the funding of $1,000,000 resulting in the issuance of 1,333,334 shares of common stock (the “First Closing Shares”). Eagle agreed to potentially purchase an additional 666,666 shares of common stock (the “Second Closing Shares”) on or before March 31, 2018 for a purchase price of $500,000 subject to various closing conditions. On March 21, 2018, Eagle purchased an additional 666,666 shares of common stock for a purchase price of $500,000.
The Company placed an aggregate of 2,000,000 shares of common stock (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection. If, beginning on the seventh month anniversary of the issuance of the First Closing Shares and Second Closing Shares, Eagle has sold any of the First Closing Shares or the Second Closing Shares at a sales price of less than $0.72 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following formula:
($0.72 – Closing Price) / Closing Price) * number of shares sold at a price less than $0.72.
Closing Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of January 31, 2019 or until all shares are sold).
The Company shall deposit an additional 2,000,000 shares of common stock into escrow which shares shall only be released to Eagle, if, prior to January 31, 2019 (while Eagle continues to hold shares), the Company issues shares at an issue price of less than $0.30 per share.
The Company also issued Eagle a Common Stock Purchase Warrant to acquire 666,666 shares of common stock exercisable for three years at an exercise price of $2.00 per share (the “Eagle Warrant”). Unless otherwise agreed in writing by both the Company and Eagle, at no time will Eagle exercise any amount of the Eagle Warrant to purchase common stock that would result in Eagle owning more than 9.9% of the common stock outstanding of the Company. The Eagle Warrant contains standard anti-dilution protections.
Series D Preferred Shares
Per the terms of the Exclusive License Agreement and in consideration of the licensing agreement signed between the Company and Hermes Roll LLC, the Company issued 100,000 shares of Series D Preferred Stock of the Company (the “Preferred Shares”). The preferred stock has a value of $ 1,000 based upon the cost of the license; due to the holder of license is the related party of the Company. The Preferred Shares have no liquidation rights. The Holder of the Preferred Shares will be entitled to vote on all matters submitted to shareholders of the Company on an as-converted basis. The Preferred Shares have a conversion price of $0.01 (the “Conversion Price”) and a stated value of $10.00 per share (the “Stated Value”). Each Preferred Share is convertible, at the option of the Holder, into such number of shares of common stock of the Company as determined by dividing the Stated Value by the Conversion Price.
On January 23, 2018, Reko Holdings, LLC converted 66,000 shares of its Series D Preferred Stock into 66,000,000 restricted common shares.
As of March 31, 2018 and December 31, 2017, there are 0 and 66,000, respectively, Series D Preferred Shares outstanding.
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Warrants
The following is a summary of warrant activity:
| Weighted | |||||||||||||||||
| Weighted | Average | ||||||||||||||||
| Average | Remaining | Aggregate | |||||||||||||||
| Warrants | Exercise | Contractual | Intrinsic | ||||||||||||||
| Outstanding | Price | Life | Value | ||||||||||||||
| Outstanding, December 31, 2017 | 22,760,416 | $ | 0.55 | 4.67 | $ | 13,640,000 | |||||||||||
| Granted | 3,500,000 | 1.92 | |||||||||||||||
| Forfeited | — | ||||||||||||||||
| Exercised | — | ||||||||||||||||
| Outstanding, March 31, 2018 | 26,260,416 | $ | 0.73 | 4.45 | $ | 50,806,666 | |||||||||||
| Exercisable, March 31, 2018 | 26,260,416 | $ | 0.73 | 4.45 | $ | 50,806,666 | |||||||||||
The exercise price for warrant outstanding and exercisable at March 31, 2018:
| Outstanding and Exercisable | |||||
| Number of | Exercise | ||||
| Warrants | Price | ||||
| 22,000,000 | $ | 0.50 | |||
| 3,000,000 | 1.85 | ||||
| 666,666 | 2.00 | ||||
| 93,750 | 2.25 | ||||
| 500,000 | 2.35 | ||||
| 26,260,416 | |||||
During the three months ended, the Company issued:
| ● | 500,000 warrants in connection with a convertible note payable; |
| ● | 500,000 warrants as consideration for the acquisition of the ECS assets (see Note 3) valued at $992,958; |
| ● | 1,000,000 warrants to two employees as part of their employment agreements valued at $1,985,915; |
| ● | 1,500,000 warrants to two consultants for services rendered. One of the consultants who received 500,000 warrants is the wife of the Company’s CEO The services, which include business development, analysis, and interaction with professionals, were principally related to assisting the Company with the acquisition of the ECS assets (see Note 3) valued at $2,978,873. |
The fair value of the warrants listed above was determined using the Black-Scholes option pricing model with the following assumptions:
| ● | Expected life of 5.0 years |
| ● | Volatility of 210%; |
| ● | Dividend yield of 0%; |
| ● | Risk free interest rate of 2.65% |
Note 11 - Related Parties
Related parties are natural persons or other entities that have the ability, directly or indirectly, to control another party or exercise significant influence over the party in making financial and operating decisions. Related parties include other parties that are subject to common control or that are subject to common significant influences. All of the Company’s revenue for the three months ended March 31, 2017 and $45,000 of the Company’s revenue for the three months ended March 31, 2018 is from IT services delivered to a single customer, Guardian LLC, which is a related party to the Company. The revenue generated from Guardian LLC was paid to the Company via a reduction in the amount that the Company owes Guardian LLC that is classified as Due to Guardian LLC in the accompanying consolidated balance sheet. All expenses in the Company’s operations were incurred as a consequence of delivering Company’s obligations under the joint venture agreement between the parties to commercialize the technology that is being developed by the LLC.
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On April 22, 2015, Michael Murray was appointed by the Company as the Chairman of the Board, CEO, and President of the Company. Mr. Murray resigned as an executive officer on September 1, 2017. On March 4, 2015, the Company entered into a Territorial License Agreement with Hermes, which is the basis for the Company’s current operations. Mr. Murray was the owner of 9,900 shares of Series D Preferred Stock of the Company that was convertible at Mr. Murray’s election into 9,900,000 shares of common stock. To date, Mr. Murray has converted all of his Series D Preferred Stock into common shares of the Company.
On June 30, 2015, the Company appointed Dr. Danny Rittman as Chief Technical Officer and a board member. On August 20, 2015, the Company entered into an agreement with Dr. Rittman pursuant to which the parties agreed that (i) all inventions, improvements and developments made or conceived by Dr. Rittman, either solely or in collaboration with others pertaining to Company’s business, will be the property of Company, and (ii) Dr. Rittman will assign to the Company any and all intellectual property related to the Company’s consumer heuristic technology platform. The agreement with Dr. Rittman was contingent upon the Company funding its commitments per the June 16, 2015 - Amended and Restated Territorial License Agreement. Failure of the Company providing this funding, in full, or partially, will automatically terminate any GOPH ownership of the intellectual properties. Dr. Rittman is the Chief Technology Officer and a director of the Company as well as the Chairman of the Company’s Advisory Board, which is in formation. Dr. Rittman and Mr. Murray jointly own 9,900 shares of Series D Preferred Stock of the Company that is convertible at Dr. Rittman’s or Mr. Murray’s election into 9,900,000 shares of common stock. To date, Mr. Rittman has converted all of his Series D Preferred Stock into common shares of the Company.
On August 20, 2015, the Company entered into an agreement with Dr. Rittman pursuant to which the parties agreed that (i) all inventions, improvements and developments made or conceived by Dr. Rittman, either solely or in collaboration with others pertaining to Company’s business, will be the property of Company, and (ii) Dr. Rittman agreed to assign to the Company any and all intellectual property related to the Company’s consumer heuristic technology platform, subject to certain conditions. The Company has expensed the stated value of that intellectual property in these financial statements.
On or around March 18, 2016 the Company and Dr. Danny Rittman entered into an agreement intended to clarify the relationship between Dr. Rittman and the Company and the ownership of certain technology in connection with certain agreements previously entered into between Company and Dr. Rittman and with third parties. Specifically, the Company entered into that certain Territorial License Agreement with Hermes Roll LLC dated March 4, 2015, which such agreement was amended to expand the related territorial license to a worldwide license pursuant to that certain Amended and Restated Territorial License Agreement dated June 16, 2015 (the “Amended and Restated Territorial License Agreement”), and that certain Letter Agreement (the “Letter Agreement”) entered into between Dr. Rittman and the Company dated August 20, 2015. The aforementioned agreements were tied to the funding of the Company in the minimum amount of $5,000,000 (the “Required Funding”) and the assignment to the Company and/or ownership by the Company of all past, present and future technology in the form of intellectual property, including, but not limited to patents, trademarks, domains, applications, social media pages (e.g. Twitter, LinkedIn and landing pages) (collectively, the “IP”), which such IP was paid for exclusively by Dr. Rittman and/or his affiliated companies, was contingent upon the Company obtaining the Required Funding by no later than October 30, 2015 (the “Contingency”). Accordingly, it was agreed to by the parties that all inventions, improvements and developments made or conceived by the Dr. Rittman, either solely or in collaboration with others pertaining to Company’s business, would be the property of the Company subject to the Contingency. In the event the Contingency was not met, the Letter Agreement would be cancelled and rendered null and void. The Company acknowledged that the Company did not meet the Contingency, technically resulting in the cancellation of the Letter Agreement and rendering the Letter Agreement null and void. Moreover, the Company failed to meet its obligations under the Amended and Restated Territorial License Agreement, including the further development of the consumer heuristic technology platform, thereby creating a vacuum in its development in all aspects, including the ability to obtain funding, resulting in the need for Dr. Rittman’s partners to perform the necessary development work related to the above agreements.
In March 2016, the Company and Dr. Danny Rittman, Co-Chairman, CTO and a shareholder, entered into an agreement intended to clarify the relationship between Dr. Rittman and the Company and the ownership of certain technology in connection with certain agreements previously entered into between Company and Dr. Rittman and with third parties. Prior to these agreements, the Company is the exclusive license holder for certain intellectual property relating to Hermes’ system and method for scheduling categorized deliverables, according to demand, at the customer’s location based on smartphone application and/or via the internet. As a result of these agreements, the Company shall remain an exclusive licensee per the terms of the original License Agreement and will develop the first products with Dr. Rittman and his partners.
On March 29, 2016, Gopher contributed all of its rights relating to its proprietary microchip that is within a sticky patch package (the “Patch”) to Guardian LLC in consideration of 50% of the profit generated by Guardian LLC (the “Joint Venture”). Guardian LLC is responsible for investing all needed funds for the purpose of developing the Patch and related products to the Patch. In addition, Guardian LLC is required to provide short term loans to Gopher on an as needed basis secured by Gopher’s economic interest in the Joint Venture. The Company will provide IT services to Guardian LLC for a monthly fee. Dr. Rittman has signed an amendment employment agreement with the Company.
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The Company is the exclusive license holder for certain intellectual property relating to GopherInsight technology. The Company has assigned all its rights as they relate to the Guardian Patch to Guardian LLC as consideration for the JV. Guardian LLC has commenced development of the products. Certain private investors will provide all initial funding to the Company via the LLC for product development. Guardian LLC will fund the development, and the Company will provide IT services via Dr. Rittman for a monthly fee. Dr. Rittman has signed an amendment employment agreement with the Company. As the Company is not a member of Guardian LLC, the Company and Guardian LLC have formed a Joint Venture (“JV”) for the purposes of developing and marketing the Patch. Guardian LLC will be responsible for funding the development of the Patch. The Company will not need be required to invest funds in said JV. The Company responsibilities will be limited to the marketing of the product, where the marketing budget will be funded by Guardian LLC. Moreover, Guardian LLC has committed to provide the Company with working capital as needed. The Company has assigned and pledged to the LLC all its license derivative rights as they pertain to the Patch only. Dr. Rittman may be offered membership rights at some point in the future with Guardian LLC, with which the Company is a JV partner, but is not equity member. The Company has agreed with Guardian LLC that the same JV principles of the Guardian LLC for the patch will apply for the other two products (Epsilon and Puzpix) which will be vested under designated LLCs that will be incorporated by the LLC members. During the three months ended March 31, 2018 and 2017, $45,000 and $45,000, respectively, of the Company’s revenue was related to IT service provided to the LLC for Dr. Rittman services, in connection with the development of the Patch.
On July 21, 2016 members of the Guardian LLC, together with Dr. Rittman, incorporated Alpha EDA, LLC (“Alpha”). The members of the LLC appointed Dr. Rittman as the manager of Alpha. The Company, the LLC and Alpha have agreed that all Epsilon Rights, as well as Puzpix rights, will be assigned to Alpha. Alpha and the Company entered into a JV agreement similar to the Patch Joint Venture agreement (as described above), whereby Alpha will fund all of its operational and developmental needs (software development, support, marketing and administrative), and the profits of Alpha will be distributed equally to the two equal Joint venture partners, Guardian h LLC and the Company. Alpha will hold all intellectual property rights related to software. Currently, three products will be owned by Alpha – the Epsilon software, the Puzpix social game and the Guardian Pack application. The Company and its technology licensing partners, Guardian LLC and Alpha, are preparing to introduce said new products (Epsilon, Guardian Pack & PuzPix) to the market beginning in 2018, and the Sphere during the second half of fiscal 2017. Certain problems caused by the need to miniaturize both the chip design and the battery caused a delay in the rollout from its planned launch during the first half of the year. The Epsilon product will be presented for time-based license agreements utilizing a designated website on top of customary distributing channels for the product. Epsilon is under confidential evaluation agreement with third party.
During 2016, the Company relocated its headquarters to 2500 Broadway, Suite F-125, Santa Monica, California. The Company paid approximately $5,000 per month in rent for this office space, and paid a $1,979 security deposit that is classified in our financial statements contained herein as a prepaid expense. The lease is being paid for by the Guardian LLC via reimbursement. The Company moved into smaller office space during the quarter, and its security deposit was adjusted downward to cover the smaller space in April 2016. The Company believes its current facilities will be adequate for the foreseeable future.
The Company has commenced development, and the Company has completed the Statement of Work (SOW) for the Federal Communications Commission (“FCC”) survey to deploy the Company’s Guardian Global Tracking Device within the continental US. The Company has also completed their transmitters/transceivers modules feasibility research. Although the Company can use open channels, and therefore is not required to comply with various FCC regulations relevant to the system, the Company has chosen to comply, and is complying with FCC regulations. The FCC regulates the limits of potentially harmful interference to licensed transmitters due to low power unlicensed transmitters. The Guardian Patch/Sphere system consists of advanced security protocols in order to maintain the global, private, fully-secured network. In addition, the Guardian Patch device needs to perform communication tasks across the globe providing breakthrough tracking features. The Company and its technology licensing partner, Guardian LLC, successfully completed thorough research that involved security, performance and FCC regulations compliance. Based on this research, a set of particular frequencies was chosen to be used by Guardian LLC. By the end of this year, the Company completed the design and construction of the Guardian Patch/Sphere circuit prototype device. The Company has completed the construction of 10 prototype units, and performed intensive testing program to be tested as a complete system in designated areas by the Company. On December 1, 2016, Guardian LLC issued Statement of Work for the Placement and Development of Guardian Sphere and its Base System. For this project, Guardian LLC has assembled a team of eight, including a Project Manager, CTO, digital and software engineers, a specialist algorithm mathematician and project leader. This team was assembled by Guardian LLC, and is based in the USA, Europe and Asia. Per the Joint Venture agreement, Guardian LLC is funding the SOW project through its sources, while the Company’s portion of the cost is $67,000 and due to the vendor on August 15, 2017. Guardian took full responsibility for all amounts due to this vendor. The Company intends to enter a new SOW for the purpose of creating fully-commercial products utilizing the manufacturers that it has identified.
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On June 20, 2016, two holders (the “Preferred Stock Holders”) of an aggregate of 2,400 shares of Series D Preferred Stock (the “Preferred Shares”) of the Company converted the Preferred Shares into an aggregate of 2,400,000 shares of common stock of the Company at $0.01 per share. The Preferred Stock Holders are executive officers and directors of the Company.
On August 9, 2016, two holders (the “Preferred Stock Holders”) of an aggregate of 17,400 shares of Series D Preferred Stock (the “Preferred Shares”) of the Company executed conversion notices to convert the Preferred Shares into an aggregate of 17,400,000 shares of common stock of the Company at $0.01 per share. The Preferred Stock Holders are executive officers and directors of the Company.
Effective August15, 2016, the Employment Agreement of Mansour Khatib, our CMO, was amended and restated as follows: Upon the Company generating $1,000,000 in revenue during any three (3) month period (the “Threshold Requirement”), the Executive will receive salary at the rate of $100,000 annually (the “Base Salary”); provided, however, that that Company shall pay to Executive $5,000 per month (the “Monthly Salary Advance”) commencing on August 15, 2016, which such Monthly Salary Advance shall be an advance on the Base Salary and shall continue to be paid to Executive until such time that the Company launches its GopherInsight™ technology into the consumer markets. Once the Threshold Requirement is met, the Base Salary will be payable in equal increments not less often than monthly in arrears and in any event consistent with the Company’s payroll policy and practices. The Base Salary of the Executive may from time to time be increased, but not decreased, by the Board, in its absolute discretion, including potential bonuses.”
Since April 2016, Guardian LLC has provided loans to the Company for the Company’s working capital purposes, outside of its commitment to develop the Patch, in the aggregate amount of $660,132 (the “Loans”). On May 23, 2017, the Company entered into a Conversion Agreement with Guardian LLC pursuant to which the parties agreed to convert the Loans provided by Guardian LLC to the Company into a Convertible Promissory Note in the principal amount of $660,132 (the “Note”).
The Note bears interest at 6%, matures May 30, 2019 and is convertible into the Company’s common stock, at Guardian LLC’s option, at a conversion price equal to 50% of the lowest closing price for the common stock on the principal market during the ten consecutive trading days immediately preceding the conversion date, which, in no event, will be less than $0.01 per share. Guardian LLC has agreed to restrict their ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.9% of the then issued and outstanding shares of common stock.
Guardian LLC (the “Note Holder”) understands that the Company may be seeking additional capital or funding and believes that the lock-up and leak-out restrictions and provisions, as further described herein, will improve the Company’s prospects for obtaining additional financing and thus improving the overall financial condition of the Company. As such on or around June 26, 2017 the Company and the Note Holder entered into a lock-up and leak-out:
| 1. | Subject to the terms of this Agreement, the Note Holder agrees that for a period of nine (9) months from the Effective Date of this Agreement (the “Lock-Up Period”), the Note Holder shall not convert the Note into Common Stock for safe keeping or, directly or indirectly, sell, offer to sell, contract to sell, assign, pledge, hypothecate, encumber or otherwise transfer, or enter into any contract, option or other arrangement or understanding with respect to the sale, assignment, pledge or other disposition of (each a “Transfer”) any beneficial rights with respect to the Note. |
| 2. | Leak-Out Provisions. Subject to the terms of this Agreement, the Note Holder agrees that for a period beginning immediately upon the end of the Lock-Up Period and ending fifteen (15) months from the Effective Date of this Agreement (the “Leak-Out Period”), the Note Holder shall have the right to sell the lessor of (i) five (5%) percent of the previous day’s traded volume of the Company’s Common Stock, or (ii) Five Thousand (5,000) shares of the Common Stock on a per daily basis. |
On December 29, 2017, all the principal and accrued interest were converted into 2,000,000 share of Series G preferred stock.
On September 1, 2017, the Company entered into and closed an Asset Purchase Agreement with a third party, RWJ Advanced Marketing, LLC (“RWJ”), a Georgia corporation, pursuant to which the Company purchased certain assets from RWJ, including inventory, terminals, licenses and permits and intangible assets. At closing, the Company and Mr. Greg Bauer entered into an Employment Agreement pursuant to which Mr. Bauer was retained as Chief Executive Officer for a term of one year, subject to an automatic extension, unless terminated, in consideration of a base salary of $250,000 and a bonus of 10% of net profit generated by the assets acquired. Mr. Bauer was also appointed to the Board of Directors of the Company. As of the closing date, Mr. Murray resigned as Chief Executive Officer of the Company but will remain as a director of the Company. Mr. Bauer, since 2004 through present, has served as executive director with W.L. Petrey Wholesale, Inc. where he was in charge of the UGO/Preway operations. Mr. Bauer holds a Bachelor of Science degree from University of Maryland College Park. Mr. Bauer is veteran of the United States Navy and was honorably discharged in 1983. He held the title of United States Navy Surface Warfare Qualified.
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The Company and Guardian Patch, LLC, which assisted structuring and negotiating the Purchase Agreement and related asset purchase, entered into a Consulting Agreement dated September 1, 2017. In consideration for the services, the Company issued Guardian 2,000,000 shares of common stock and warrants to purchase 9,000,000 shares of common stock. The warrants contain identical terms to the RJW Warrants. If and when the assets acquired under the Purchase Agreement generate revenues of $10,000,000, the Company shall issue Guardian an additional 3,000,000 shares of common stock. The consulting agreement was effective August 1, 2017 and terminates November 30, 2017. Guardian, pursuant to its existing joint venture agreement, agreed to provide the $400,000 in funding needed for the cash purchase price under the Purchase Agreement. Guardian also agreed to provide the needed $100,000 working capital designated to UGopherServices Corp. The parties have agreed to negotiate and finalize the terms of such loans in the near future.
In order to facilitate the transition of the Company, the Company and Michael Murray have agreed to enter into an employment agreement in which Mr. Murray will serve as Executive Vice President in charge of business development. As consideration, the Company issued a warrant to acquire 4,000,000 shares of common stock to Mr. Murray. The warrants contain identical terms to the RJW Warrants.
In March 2018, in connection with consulting services provided to the Company in connection with its acquisition of ECS Prepaid, LLC, the wife of the Company’s CEO received 500,000 shares of common stock and warrants to purchase 500,000 shares common stock.
Regulatory
The Company has commenced development, and the Company has completed the Statement of Work (SOW) for the Federal Communications Commission (“FCC”) survey to deploy the Company’s Guardian Global Tracking Device within the continental US. The Company has also completed their transmitters/transceivers modules feasibility research. Although the Company can use open channels, and therefore is not required to comply with various FCC regulations relevant to the system, the Company has chosen to comply, and is complying with FCC regulations. The FCC regulates the limits of potentially harmful interference to licensed transmitters due to low power unlicensed transmitters. The Guardian Patch/Sphere system consists of advanced security protocols in order to maintain the global, private, fully-secured network. In addition, the Guardian Patch device needs to perform communication tasks across the globe providing breakthrough tracking features. The Company and its technology licensing partner, Guardian LLC, successfully completed thorough research that involved security, performance and FCC regulations compliance. Based on this research, a set of particular frequencies was chosen to be used by Guardian LLC. By the end of this year, the Company completed the design and construction of the Guardian Patch/Sphere circuit prototype device. The Company has completed the construction of 10 prototype units, and performed intensive testing program to be tested as a complete system in designated areas by the Company. On December 1, 2016, Guardian LLC issued Statement of Work for the Placement and Development of Guardian Sphere and its Base System. For this project, Guardian LLC has assembled a team of eight, including a Project Manager, CTO, digital and software engineers, a specialist algorithm mathematician and project leader. This team was assembled by Guardian LLC, and is based in the USA, Europe and Asia. Per the Joint Venture agreement, Guardian LLC is funding the SOW project through its sources.
Note 12 - Contingencies
Legal Proceedings
From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.
On June 10, 2016, the Company entered into a consulting agreement with Waterford Group LLC (“Waterford”) pursuant to which the Company engaged Waterford to provide sales and marketing consulting and advisory services to the Company in consideration of 100,000 shares of restricted common stock of the Company (the “Shares”) and a common stock purchase warrant (the “Warrant”) to acquire 750,000 shares of restricted common stock of the Company at an exercise price of $2.25 per share for a period of five (5) years. 50,000 of the Shares were issued to Waterford upon the execution of the Agreement. The Warrant vested on a quarterly basis in eight (8) equal quarterly installments each in the amount of 93,750 shares each quarter during the term of the Agreement. The first quarterly installment vested upon the execution of the Agreement and each subsequent quarterly installment was to vest each quarter thereafter. The Company believes that Waterford is in default of its agreement, as it failed to perform or provide any services under the agreement. As such, the Company put Waterford on notice in writing that the Company did not issue shares or warrants during the third or fourth fiscal quarters of 2016 due to the default.
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On or around January 23, 2017, the Company filed a complaint against Waterford and the Company’s Transfer Agent, in Superior Court of the State of California, County of Riverside. On February 1, 2017, the Company obtained a temporary restraining order that prohibits Waterford from (x) lifting the restricted legend from the 50,000 shares that it received in connection with signing the Agreement; (y) selling the 50,000 shares to another party; and, (z) from exercising the warrant on 93,750 shares that was issued and vested upon the execution of the Agreement. As ordered by the court, on February 9, 2017, the Company deposited a Corporate Surety Bond in the amount of $42,875 to secure the temporary restraining order. The Company agreed with Waterford to go to binding arbitration, which is currently being scheduled.
On or around February 27, 2017, the Company was issued a stay of the temporary restraining order barring its transfer agent from providing shares in connection with the exercise of the first Waterford warrant on 93,750 shares that was provided to Waterford in connection with the execution of the engagement letter that was executed by the parties on or around June 10, 2016. The matter is currently in arbitration.
On or around April 10, 2017, the Company was billed by its transfer agent (“TA”) for approximately $11,500 for legal fees (“TA Charges”) in connection with a lawsuit brought by one of the Company’s shareholders against the TA. The Company is not a named party in this litigation. The Company disputes the TA Charges, as the Company’s position is that the TA Charges are not covered under the indemnification section of the Company’s agreement with its TA. As the TA refused to provide further services, the Company paid the fees, and booked it as an expense in this quarter. This matter has been resolved amicably, and the Company continues its relationship with the TA.
SEC Matters
On July 29, 2016, the staff of the Atlanta Regional Office of the U.S. Securities and Exchange Commission (the “SEC” and the “Commission”) advised the Company in a telephone conversation, followed by a written “Wells” notice, that it is has made a preliminary determination to recommend that the Commission file an enforcement action against the Company alleging violations of Section 13(a) of the Securities and Exchange Act of 1934 and Rules 13a-11, 13a-13 and 12b-20 thereunder. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any violations of law have occurred. Rather, it provides the Company with an opportunity to respond to issues raised by the Commission and offer its perspective prior to any SEC decision to institute proceedings. These proceedings could result in the Company being subject to an injunction and cease and desist order from further violations of the securities laws as well as monetary penalties of disgorgement, pre-judgment interest and a civil penalty. On September 20, 2016, the Company filed an amended and restated 10-Q for the period ended June 30, 2014. In February 2017, the SEC advised that it concluded its investigation and that it does not intend to recommend an enforcement action by the SEC against the Company.
Spare CS, Inc.
On January 14, 2018, the Company entered into an Initial Term Agreement (the “ITA”) with Spare CS Inc. (“Spare”), a Delaware corporation, pursuant to which the Company agreed to acquire 50% of the equity of Spare. Spare is a mobile banking app that allows customers to access cash with no ATM, no debit or credit card, and no purchase required from participating merchants.
As set forth in the ITA, the Company agreed to provide Spare with all needed operating costs and will fund $100,000 every three months until Spare has positive cash flow. The Company provided the initial $100,000 on January 16, 2018. D’Ontra Hughes, CEO of Spare, will continue as CEO for 24 months at a salary of $10,000 per month and all current management will remain in place for 12 months. In addition, the Company will issue Spare 1,500,000 shares of common stock and a common stock purchase warrant to acquire 1,000,000 shares of common stock at an exercise price of $3.00 per share for a period of three years. The Company also agreed to place 1,500,000 shares of common stock in escrow as a limited form of price protection for six months.
Although the Company consider the terms in the ITA to be binding and the Company has provided an initial funding of $100,000 to Spare, the closing the transactions is subject to the completion of due diligence and drafting and execution of a definitive purchase agreements and related transaction documents. There is no guarantee that the parties will successfully negotiate and finalize a definitive purchase agreement, that the Board of Directors of each company will approve such agreement or that the transaction set forth in the ITA will close.
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Note 13 – Concentrations
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
There have been no losses in these accounts through March 31, 2018.
In 2017, the Company had one customer that contributed 100% of its revenues. Per the terms of the JV with the LLC, the LLC has committed to fund all Company’s needs, as well as needs of the JV. Failure of the LLC to provide the Company or the JV with said funding would represent a significant Credit Risk. As of March 31, 2018 and December 31, 2017 the Company has a payable to Guardian LLC of $1,412,625 and $1,350,262, respectively.
Note 14 - Subsequent Events
Management has evaluated events that occurred subsequent to the end of the reporting period shown herein:
On April 2, 2018 (“Closing Date”), the Company entered into and closed an Asset Purchase Agreement (the “Electronic Purchase Agreement”) with Electronic Check Services Inc. (“Electronic Check”), a Missouri corporation, pursuant to which the Company purchased certain assets from Electronic Check, including, but not limited to, assets associated with software that validates written check authenticity, in consideration of $75,000 paid on the Closing Date. In addition, the Company issued 250,000 shares of common stock of the Company (the “Electronic Shares”) and warrants to purchase 250,000 shares of common stock (the “Electronic Warrants”). The Electronic Warrants were assigned by Electronic Check to Dennis Winfrey, the shareholder of Electronic Check. The Electronic Warrants are exercisable for a period of five years at a fixed exercise price of $2.70 per share and contain standard anti-dilution protection.
On April 2, 2018, the Company entered into and closed an Asset Purchase Agreement (the “Central Purchase Agreement”) with Central State Legal Services Inc. (“Central”), a Missouri corporation, pursuant to which the Company purchased certain assets from Central, including, but not limited to, assets associated with the a system to recover funds from returned checks, in consideration of $25,000 paid on the Closing Date. Derron Winfrey, the COO of the Company, is a director and President of Electronic Check and Central. Derron Winfrey’s parents are the shareholders of Check and Central.
On the Closing Date, the Company and J.I.L. Venture LLC (“JIL Venture”), a non-related party, which assisted structuring and negotiating the ECS Purchase Agreement and related asset purchase, entered a Consulting Agreement dated April 2, 2018. In consideration for the services, the Company issued JIL Venture 250,000 shares of common stock and warrants to purchase 250,000 shares of common stock exercisable for a term of five years at an exercise price of $2.70 per share.
On April 6, 2018, the Company and Danny Rittman, Chief Technology Officer and a Director of the Company, agreed to amend his employment agreement pursuant to which he will receive salary at the rate of $250,000 annually payable in equal increments of $15,000 per month. An additional $70,000 shall be payable within 15 days of the end of the calendar year.
On April 9, 2018, Bellridge elected to exercise the Bellridge Option, as such the Company and Bellridge closed the second financing as contemplated by the Securities Purchase Agreement entered with Bellridge pursuant to which Bellridge invested an additional $750,000 into the Company in consideration of a 10% Convertible Debenture (the “Second Bellridge Debenture” and together with the First Bellridge Debenture, the “Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise price of $2.35 per share (the “Second Bellridge Warrant” and together with the First Bellridge Warrant, the “Bellridge Warrant”) The Bellridge Debenture bears interest of 10% and is payable one year from issuance. The First Bellridge Debenture and the Second Bellridge Debenture are convertible into shares of common stock at $0.90 per share and $1.00 per share, respectively, subject to limited antidilution protection.
During an event of default, the conversion price for the Bellridge Debenture in effect on any conversion date means, as of any conversion date or other date of determination, shall be 35% of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding the delivery of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise the Bellridge Warrant and receive shares of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.
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In connection with both closings, the Company delivered 1,000,000 shares of common stock to an escrow agent. The escrow shares are to be utilized for the purpose of limited price protection. If, beginning on the 7th monthly anniversary of the issuance of the escrow shares, Bellridge has sold shares issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares shall be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold at a price less than $1.10.
As long as the Company is not in default of the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered a material breach by Bellridge.
As of the date hereof, the Company is obligated on the Bellridge Debenture in the principal amount of $1,500,000 in connection with the offering. The Bellridge Debenture is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. Other than the Bellridge Debentures, the Company does not have any other convertible debt on its balance sheet.
On April 16, 2018, Kevin F. Pickard was appointed by the Company to serve as the Chief Financial Officer of the Company.
The Company and Mr. Pickard entered into an Executive Retention Agreement dated April 16, 2018 pursuant to which Mr. Pickard agreed to serve as Chief Financial Officer in consideration of an annual salary of $120,000. The Company also issued Mr. Pickard 250,000 shares of common stock and granted Mr. Pickard a Stock Option to acquire 500,000 shares of common stock of the Company at an exercise price of $2.80 per share for a period of five years. The Stock Options vest in tranches of 100,000 shares commencing on the one-year anniversary and continuing thereafter on an annual basis or in full in the event of a change of control.
On April 25, 2018, Muhammad Khilji was appointed to the Board of Directors of the Company to serve as a director of the Company. Mr. Khilji entered into an agreement pursuant to which he will serve as a director. The director agreement provides that he will one tine grant of 100,000 shares of common stock and a stock option to acquire 100,000 shares of common stock exercisable for a period of five years at $2.50 per share. In addition, Mr. Khilji will receive 100,000 shares of common stock per year vesting in increments of 25,000 per quarter commencing January 1, 2019. The Company will also pay Mr. Khilji $5,000 per quarter.
On May 4, 2018, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant to which Eagle agreed to purchase up to 1,212,120 shares of the Company’s common stock for an aggregate purchase price of $2,000,000 or $1.65 per share. The closing occurred on May 4, 2018 with respect to the funding of $500,000 resulting in the issuance of 303,030 shares of common stock. Additional closings of $500,000 for 303,030 shares are scheduled to close on May 25, 2018, June 15, 2018 and July 5, 2018 each.
The Company agreed to place 303,030 shares of common stock each tranche (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection. If, beginning on the seventh month anniversary of the closing of each tranche, Eagle has sold any of its shares of common stock at a sales price of less than $1.65 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following formula:
($1.65 – Closing Price) / Closing Price) * number of shares sold at a price less than $1.65.
Closing Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of June 4, 2019 or until all shares are sold.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our financial statements and related notes included elsewhere in this report. In addition to historical information, this discussion includes forward-looking information that involves risks and assumptions, which could cause actual results to differ materially from management’s expectations. See “Forward-Looking Statements” included in this report.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as “may,��� “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.
This section of the report should be read together with Footnotes of the Company audited financials. The audited statements of operations for the three months ended March 31, 2018 and 2017 are compared in the sections below.
General Overview
Gopher Protocol Inc. (the “Company”, “we”, “us”, “our”, “Gopher”, “Gopher Protocol” or “GOPH”) was incorporated on July 22, 2009 under the laws of the State of Nevada and is headquartered in Santa Monica, California.Gopher is a development-stage company which consider itself Native IoT creator, developing Internet of Things (IoT) and Artificial Intelligence enabled mobile technology. Gopher has a portfolio of Intellectual Property that when commercialized will include smart microchips, mobile application software and supporting cloud software. The system contemplates the creation of a global network. The core of the system will be its advanced microchip technology that can be installed in any mobile device worldwide. Gopher envisions this system as an internal, private network between all enabled mobile devices providing shared processing, advanced mobile database management/sharing and enhanced mobile features.
Recent Developments
On January 14, 2018, the Company entered into an Initial Term Agreement (the “ITA”) with Spare CS Inc. (“Spare”), a Delaware corporation, pursuant to which the Company agreed to acquire 50% of the equity of Spare. Spare isa mobile banking app that allows customers to access cash with no ATM, no debit or credit card, and no purchase required from participating merchants. The Company earns a transaction fee associated with the transaction.
As set forth in the ITA, the Company agreed to provide Spare with all needed operating costs and will fund $100,000 every three months until Spare has positive cash flow. The Company provided the initial $100,000 on January 16, 2018. D’Ontra Hughes, CEO of Spare, will continue as CEO for 24 months at a salary of $10,000 per month and all current management will remain in place for 12 months. In addition, the Company will issue Spare 1,500,000 shares of common stock and a common stock purchase warrant to acquire 1,000,000 shares of common stock at an exercise price of $3.00 per share for a period of three years. The Company also agreed to place 1,500,000 shares of common stock in escrow as a limited form of price protection for six months.
Although the Company consider the terms in the ITA to be binding and the Company has provided an initial funding of $100,000 to Spare, the closing the transactions is subject to the completion of due diligence and drafting and execution of a definitive purchase agreements and related transaction documents. There is no guarantee that the parties will successfully negotiate and finalize a definitive purchase agreement, that the Board of Directors of each company will approve such agreement or that the transaction set forth in the ITA will close.
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On February 1, 2018, the Company formed Ugopherservices Limited (“Ugopher England”), under the laws of England and Wales, as a private limited company and a wholly-owned subsidiary. The purpose of establishing Ugopher England is to expand the Company’s prepaid financial and calling services to international consumers.
On March 16, 2018 ( “Closing Date”), the Company entered into and closed an Asset Purchase Agreement dated March 1, 2018 (the “ECS Purchase Agreement”) with ECS Prepaid LLC (“ECS”), a Missouri limited liability company, pursuant to which the Company purchased certain assets from ECS, including, but not limited to, the processing prepaid platform, servers, POS terminals, customer list, a processing software program and goodwill, in consideration of $1,100,000 of which $100,000 was paid on the Closing Date and the balance is to be paid pursuant to a secured promissory note in the amount of $1,000,000 (the “ECS Note”). In addition, the Company issued 500,000 shares of common stock of the Company (the “ECS Shares”) and warrants to purchase 500,000 shares of common stock (the “ECS Warrants”). The ECS Warrants were assigned by ECS to Dennis Winfrey. The ECS Warrants are exercisable for a period of five years at a fixed exercise price of $1.85 per share and contain standard anti-dilution protection. Under the ESC Note, which is secured by the assets acquired by the Company from ECS, the Company is required to make ten equal payments of $100,000 commencing on April 15, 2018. The Company may prepay the ECS Note at any time without penalty. The ECS Note is a short-term debt obligation that is material to the Company.
On April 2, 2018 (“Closing Date”), Gopher Protocol Inc. (the “Company”) entered into and closed an Asset Purchase Agreement (the “Electronic Purchase Agreement”) with Electronic Check Services Inc. (“Electronic Check”), a Missouri corporation, pursuant to which the Company purchased certain assets from Electronic Check, including, but not limited to, assets associated with software that validates written check authenticity, in consideration of $75,000 paid on the Closing Date. In addition, the Company issued 250,000 shares of common stock of the Company (the “Electronic Shares”) and warrants to purchase 250,000 shares of common stock (the “Electronic Warrants”). The Electronic Warrants were assigned by Electronic Check to Dennis Winfrey, the shareholder of Electronic Check. The Electronic Warrants are exercisable for a period of five years at a fixed exercise price of $2.70 per share and contain standard anti-dilution protection.
On April 2, 2018, the Company entered into and closed an Asset Purchase Agreement (the “Central Purchase Agreement”) with Central State Legal Services Inc. (“Central”), a Missouri corporation, pursuant to which the Company purchased certain assets from Central, including, but not limited to, assets associated with the a system to recover funds from returned checks, in consideration of $25,000 paid on the Closing Date. Derron Winfrey, the COO of the Company, is a director and President of Electronic Check and Central. Derron Winfrey’s parents are the shareholders of Check and Central.
Results of Operations:
Three months ended March 31, 2018 and March 31, 2017
A comparison of the statements of operations for the three months ended March 31, 2018 and 2016 is as follows:
| Three Months Ended March 31, | Change | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Sales | $ | 7,904,606 | $ | 45,000 | $ | 7,859,606 | 17465.8 | % | ||||||||
| Cost of goods sold | 7,704,176 | — | 7,704,176 | |||||||||||||
| Gross profit | 200,430 | 45,000 | 155,430 | 345.4 | % | |||||||||||
| Operating expenses | 14,109,156 | 227,177 | 13,881,979 | 6110.6 | % | |||||||||||
| Loss from operations | (13,908,726 | ) | (182,177 | ) | (13,726,549 | ) | 7534.7 | % | ||||||||
| Other expense | (199,296 | ) | (1,005 | ) | (198,291 | ) | 19730.4 | % | ||||||||
| Loss before provision for income taxes | (14,108,022 | ) | (183,182 | ) | (13,924,840 | ) | 7601.6 | % | ||||||||
| Provision for income taxes | — | — | — | |||||||||||||
| Net loss | $ | (14,108,022 | ) | $ | (183,182 | ) | $ | (13,924,840 | ) | 7601.6 | % | |||||
Sales for the three months ended March 31, 2018 were $7,904,606 compared to $45,000 for the same period in 2017. The sales from 2017 to 2018 are not comparable since the increase of $7,859,606 or 17,466% is almost all the result of sales of $7,859,606 generated from the acquisitions of RWJ and ECS.
Our gross margins for the three months ended March 31, 2018 were 2.6% as compared to 100.0% for the same period in 2017. The decrease in due to the sales generated by the RWJ assets and ECS assets have a much lower gross margin.
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Operating expenses for the three months ended March 31, 2018 were $14,109,156 compared to $227,177 for the same period in 2017. The increase of $13,881,979 or 6,110% is due to including the operating cost for the newly acquired acquisitions and common stock and warrants valued at $12,708,513 being issued to consultants and employees for services rendered during the three months ended March 31, 2018.
Other expense for the three months ended March 31, 2018 was $199,296, an increase of $198,291 from $1,005 for the same period in 2017. The increase is principally due to net charges to earnings resulting from the issuance of convertible notes with conversion features.
Net loss for the three months ended March 31, 2018 was $14,108,022 compared to $183,182 for the same period in 2017 due to the factors described above. The periods are not comparable due to the acquisitions of RWJ and ECS in the third fiscal quarter of 2017 and the first quarter of 2018, respectively.
Liquidity and Capital Resources
Our cash was $894,819 and $1,305,062 at March 31, 2018 and December 31, 2017, respectively. Cash used in operating activities during the three months ended March 31, 2018 was $1,358,529, compared to $3,193 during the same period in 2017. Certain items are not comparable between the periods, including common stock and warrants issued for services in 2018, amortization of intangible assets from recent acquisitions and amortization of debt discount which result from the convertible notes issued in 2017. Our working capital position worsened going from a working capital deficit of $1,060,506 at December 31, 2017 to a working capital deficit of $2,032,544 at March 31, 2018, principally as a result of the issuance of a note payable for $1,000,000 related to the acquisition of certain assets ECS Prepaid LLC. Cash flows used in investing activities were $221,714 during the three months ended March 31, 2018, compared to $0 for the same period in 2017. The increase is due to the purchase of property and equipment, , the amount paid for the ECS Prepaid LLC acquisition and the amount paid as an acquisition deposit for Spare CS, Inc. Cash from financing activities for the three months ended March 31, 2018 was $1,170,000, compared to $0 for the same period in 2017. The increase is due to the issuance of a convertible note and the sale of common stock in 2018.
On December 29, 2017, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant to which Eagle agreed to purchase up to 2,000,000 shares of the Company’s common stock for a purchase price of $1,500,000 or $0.75 per share. The closing occurred on December 29, 2017 with respect to the funding of $1,000,000 resulting in the issuance of 1,333,334 shares of common stock (the “First Closing Shares”). On March 21, 2018, Eagle purchased an additional 666,666 shares of common stock (the “Second Closing Shares”) for a purchase price of $500,000 that been wired into the Company’s bank account.
The Company placed 2,000,000 (1,333,334 on prior closing on December 29, 2017 and additional 666,666 on this current closing) shares of common stock (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection. If, beginning on the seventh month anniversary of the issuance of the First Closing Shares and Second Closing Shares if the second closing occurs, Eagle has sold any of the First Closing Shares or the Second Closing Shares as the case may be at a sales price of less than $0.72 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following formula:
($0.72 – Closing Price) / Closing Price) * number of shares sold at a price less than $0.72.
Closing Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of January 31, 2019 or until all shares are sold).
The Company shall deposit an additional 2,000,000 shares of common stock into escrow which shares shall only be released to Eagle, if, prior to January 31, 2019 (while Eagle continues to hold shares), the Company issues shares at an issue price of less than $0.30 per share.
The Company also issued Eagle a Common Stock Purchase Warrant to acquire 666,666 shares of common stock exercisable for three years at an exercise price of $2.00 per share (the “Eagle Warrant”). Unless otherwise agreed in writing by both the Company and Eagle, at no time will Eagle exercise any amount of the Eagle Warrant to purchase common stock that would result in Eagle owning more than 9.9% of the common stock outstanding of the Company. The Eagle Warrant contains standard anti-dilution protections.
On September 13, 2017, the Company entered into a Securities Purchase Agreement with Eagle pursuant to which the Company issued Eagle two convertible notes. The first note, due September 18, 2018 in the principal amount of $50,000 (“Eagle Equities Note 1”), was issued in exchange for $50,000 in cash. The second note, due September 13, 2018 in the principal amount of $50,000 (“Eagle Equities Note 2” and, together with Eagle Equities Note 1, the “Eagle Equities Notes”), was issued in exchange for a full-recourse, collateralized promissory note from Eagle Equities in the amount of $45,000 (“Eagle Equities Payment Note”). The Eagle Equities Payment Note is due on May 13, 2018, unless the Company does not meet the current public information requirement pursuant to Rule 144, in which case both Eagle Equities Note 2 and the Eagle Equities Payment Note may be cancelled. The Eagle Equities Payment Note is secured by the Eagle Equities Note 1. The above financing closed on September 20, 2017. On December 29, 2017, Eagle converted the Eagle Equities Note 1 into 503,726 shares of common stock.
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On March 2, 2018, the Company entered into and closed a Securities Purchase Agreement with Bellridge Capital, LLC (“Bellridge”) pursuant to which Bellridge invested $750,000 into the Company in consideration of a 10% Convertible Debenture (the “Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise price of $2.35 per share. The Bellridge Debenture bears interest of 10% and is payable March 1, 2019. The Bellridge Debenture is convertible into shares of common stock at $0.90 per share subject to antidilution protection. During an event of default, the conversion price in effect on any conversion date means, as of any conversion date or other date of determination, shall be 35% of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding the delivery of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise its Common Stock Purchase Warrants and receive shares of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. On or about May 2, 2018, at the election of Bellridge, Bellridge may acquire an additional Bellridge Debenture in the principal amount of $750,000 and a Common Stock Purchase Warrant on the terms of the initial closing.
On March 2, 2018, the Company delivered 1,000,000 shares of Common Stock to an escrow agent. The 1,000,000 escrow shares are to be utilized for the purpose of limited price protection. If, beginning on the 7th monthly anniversary of the issuance of the 1,000,000 escrow shares, Bellridge has sold shares issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares shall be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold at a price less than $1.10.
As long as the Company is not in default of the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered a material breach by Bellridge.
On April 9, 2018, Bellridge elected to exercise the Bellridge Option, as such the Company and Bellridge closed the second financing as contemplated by the Securities Purchase Agreement entered with Bellridge pursuant to which Bellridge invested an additional $750,000 into the Company in consideration of a 10% Convertible Debenture (the “Second Bellridge Debenture” and together with the First Bellridge Debenture, the “Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise price of $2.35 per share (the “Second Bellridge Warrant” and together with the First Bellridge Warrant, the “Bellridge Warrant”) The Bellridge Debenture bears interest of 10% and is payable one year from issuance. The First Bellridge Debenture and the Second Bellridge Debenture are convertible into shares of common stock at $0.90 per share and $1.00 per share, respectively, subject to limited antidilution protection.
During an event of default, the conversion price for the Bellridge Debenture in effect on any conversion date means, as of any conversion date or other date of determination, shall be 35% of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding the delivery of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise the Bellridge Warrant and receive shares of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.
In connection with both closings, the Company delivered 1,000,000 shares of common stock to an escrow agent. The escrow shares are to be utilized for the purpose of limited price protection. If, beginning on the 7th monthly anniversary of the issuance of the escrow shares, Bellridge has sold shares issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares shall be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold at a price less than $1.10.
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As long as the Company is not in default of the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered a material breach by Bellridge.
As of the date hereof, the Company is obligated on the Bellridge Debenture in the principal amount of $1,500,000 in connection with the offering. The Bellridge Debenture is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. Other than the Bellridge Debentures, the Company does not have any other convertible debt on its balance sheet.
We sustained net losses of $14,108,022 for the three months ended March 31, 2018. In addition, we had a working capital deficit of $2,032,544 and accumulated deficit of $28,489,684 at December 31, 2018. We recently purchased the assets of RWJ Advanced Marketing, LLC in 2017 and ECS Prepaid LLC in 2018. Both these companies have historically generated significant revenues which we expect to continue in the future. In addition, during the past 30 days, the Company has raised or secured approximately $2,750,000 in convertible debt and equity capital, and expects to raise additional capital in the future. With the cash flow from operations from the recent acquisitions and the cash received from recent convertible debt and equity capital, we believe we will have sufficient cash to meet our obligations for the next 12 months.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Use of Estimates
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of our financial statements in accordance with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements, the reported amounts and classification of revenues and expenses during the periods presented, and the disclosure of contingent assets and liabilities. We evaluate our estimates and assumptions on an ongoing basis and material changes in these estimates or assumptions could occur in the future. Changes in estimates are recorded on the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances and at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily-apparent from other sources. Actual results may differ materially from these estimates if past experience or other assumptions do not turn out to be substantially accurate.
We believe that the accounting policies described below are critical to understanding our business, results of operations, and financial condition because they involve significant judgments and estimates used in the preparation of our financial statements. An accounting is deemed to be critical if it requires a judgment or accounting estimate to be made based on assumptions about matters that are highly uncertain, and if different estimates that could have been used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements. Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also critical to understanding our financial statements. The notes to our financial statements contain additional information related to our accounting policies and should be read in conjunction with this discussion.
Presentation of Financial Statements
The accompanying financial statements include the accounts of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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Accounts Receivable
The Company grants credit to establishments (such as convenient stores) who sell the Company’s products under credit terms that it believes are customary in the industry and does not require collateral to support customer receivables. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 7-30 days after the issuance of the invoice and typically would be considered past due when the term expires. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.
Inventory
Inventory is valued at the lower of the inventory’s cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. At December 31, 2017, all of the Company’s inventory was finished goods inventory which consisted principally of phones and phone card products, including PINS for cell minutes, SIM cards for cell minutes, as well as gift cards.
Revenue Recognition
The Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition” (“ASC Topic 605”). Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company recognizes revenue from the sale of phones and phone products at the time of sale to the customer. The Company recognizes revenue from IT-related services at the time the services are performed.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of December 31, 2017, the Company’s only derivative financial instrument was an embedded conversion feature associated with convertible notes payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company’s stock price at the date of conversion.
Fair Value Measurements
The Company applies the provisions of ASC 820-10,“Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
The Company uses Level 2 inputs for its valuation methodology for derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
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Dividends
The Company has not yet adopted any policy regarding payment of dividends. No cash dividends have been paid or declared since the Date of Inception.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the applicable period to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
As a smaller reporting company, without a viable business and revenues, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and GAAP compliance. As is the case with many smaller reporting companies, the Company will continue to consult with its external auditors and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. The Company has found that this approach worked well in the past and believes it to be the most cost-effective solution available for the foreseeable future. The Company will conduct a review of existing sign-off and review procedures as well as document control protocols for critical accounting spreadsheets. The Company will also increase management’s review of key financial documents and records.
As a smaller reporting company, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of, financial statements on a monthly basis, and the Company’s external auditor conducts reviews on a quarterly basis. These actions, in addition to the improvements identified above, will minimize any risk of a potential material misstatement occurring.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2018, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
Legal Proceedings
From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.
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On June 10, 2016, the Company entered into a consulting agreement with Waterford Group LLC (“Waterford”) pursuant to which the Company engaged Waterford to provide sales and marketing consulting and advisory services to the Company in consideration of 100,000 shares of restricted common stock of the Company (the “Shares”) and a common stock purchase warrant (the “Warrant”) to acquire 750,000 shares of restricted common stock of the Company at an exercise price of $2.25 per share for a period of five (5) years. 50,000 of the Shares were issued to Waterford upon the execution of the Agreement. The Warrant vested on a quarterly basis in eight (8) equal quarterly installments each in the amount of 93,750 shares each quarter during the term of the Agreement. The first quarterly installment vested upon the execution of the Agreement and each subsequent quarterly installment was to vest each quarter thereafter. The Company believes that Waterford is in default of its agreement, as it failed to perform or provide any services under the agreement. As such, the Company put Waterford on notice in writing that the Company did not issue shares or warrants during the third or fourth fiscal quarters of 2016 due to the default.
On or around January 23, 2017, the Company filed a complaint against Waterford and the Company’s Transfer Agent, in Superior Court of the State of California, County of Riverside. On February 1, 2017, the Company obtained a temporary restraining order that prohibits Waterford from (x) lifting the restricted legend from the 50,000 shares that it received in connection with signing the Agreement; (y) selling the 50,000 shares to another party; and, (z) from exercising the warrant on 93,750 shares that was issued and vested upon the execution of the Agreement. As ordered by the court, on February 9, 2017, the Company deposited a Corporate Surety Bond in the amount of $42,875 to secure the temporary restraining order. The Company agreed with Waterford to go to binding arbitration, which is currently being scheduled.
On or around February 27, 2017, the Company was issued a stay of the temporary restraining order barring its transfer agent from providing shares in connection with the exercise of the first Waterford warrant on 93,750 shares that was provided to Waterford in connection with the execution of the engagement letter that was executed by the parties on or around June 10, 2016. The matter is currently in arbitration.
On or around April 10, 2017, the Company was billed by its transfer agent (“TA”) for approximately $11,500 for legal fees (“TA Charges”) in connection with a lawsuit brought by one of the Company’s shareholders against the TA. The Company is not a named party in this litigation. The Company disputes the TA Charges, as the Company’s position is that the TA Charges are not covered under the indemnification section of the Company’s agreement with its TA. As the TA refused to provide further services, the Company paid the fees, and booked it as an expense in this quarter. This matter has been resolved amicably, and the Company continues its relationship with the TA.
SEC Matters
On July 29, 2016, the staff of the Atlanta Regional Office of the U.S. Securities and Exchange Commission (the “SEC” and the “Commission”) advised the Company in a telephone conversation, followed by a written “Wells” notice, that it is has made a preliminary determination to recommend that the Commission file an enforcement action against the Company alleging violations of Section 13(a) of the Securities and Exchange Act of 1934 and Rules 13a-11, 13a-13 and 12b-20 thereunder. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any violations of law have occurred. Rather, it provides the Company with an opportunity to respond to issues raised by the Commission and offer its perspective prior to any SEC decision to institute proceedings. These proceedings could result in the Company being subject to an injunction and cease and desist order from further violations of the securities laws as well as monetary penalties of disgorgement, pre-judgment interest and a civil penalty. On September 20, 2016, the Company filed an amended and restated 10-Q for the period ended June 30, 2014. In February 2017, the SEC advised that it concluded its investigation and that it does not intend to recommend an enforcement action by the SEC against the Company. The matter has been closed by the SEC.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Eagle Equities
On December 29, 2017, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant to which Eagle agreed to purchase up to 2,000,000 shares of the Company’s common stock for a purchase price of $1,500,000 or $0.75 per share. The closing occurred on December 29, 2017 with respect to the funding of $1,000,000 resulting in the issuance of 1,333,334 shares of common stock (the “First Closing Shares”). On March 21, 2018, Eagle purchased an additional 666,666 shares of common stock (the “Second Closing Shares”) for a purchase price of $500,000 that been wired into the Company’s bank account.
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The Company placed 2,000,000 (1,333,334 on prior closing on December 29, 2017 and additional 666,666 on this current closing) shares of common stock (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection. If, beginning on the seventh month anniversary of the issuance of the First Closing Shares and Second Closing Shares if the second closing occurs, Eagle has sold any of the First Closing Shares or the Second Closing Shares as the case may be at a sales price of less than $0.72 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following formula:
($0.72 – Closing Price) / Closing Price) * number of shares sold at a price less than $0.72.
Closing Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of January 31, 2019 or until all shares are sold).
The Company shall deposit an additional 2,000,000 shares of common stock into escrow which shares shall only be released to Eagle, if, prior to January 31, 2019 (while Eagle continues to hold shares), the Company issues shares at an issue price of less than $0.30 per share.
The Company also issued Eagle a Common Stock Purchase Warrant to acquire 666,666 shares of common stock exercisable for three years at an exercise price of $2.00 per share (the “Eagle Warrant”). Unless otherwise agreed in writing by both the Company and Eagle, at no time will Eagle exercise any amount of the Eagle Warrant to purchase common stock that would result in Eagle owning more than 9.9% of the common stock outstanding of the Company. The Eagle Warrant contains standard anti-dilution protections.
On September 13, 2017, the Company entered into a Securities Purchase Agreement with Eagle pursuant to which the Company issued Eagle two convertible notes. The first note, due September 18, 2018 in the principal amount of $50,000 (“Eagle Equities Note 1”), was issued in exchange for $50,000 in cash. The second note, due September 13, 2018 in the principal amount of $50,000 (“Eagle Equities Note 2” and, together with Eagle Equities Note 1, the “Eagle Equities Notes”), was issued in exchange for a full-recourse, collateralized promissory note from Eagle Equities in the amount of $45,000 (“Eagle Equities Payment Note”). The Eagle Equities Payment Note is due on May 13, 2018, unless the Company does not meet the current public information requirement pursuant to Rule 144, in which case both Eagle Equities Note 2 and the Eagle Equities Payment Note may be cancelled. The Eagle Equities Payment Note is secured by the Eagle Equities Note 1. The above financing closed on September 20, 2017. On December 29, 2017, Eagle converted the Eagle Equities Note 1 into 503,726 shares of common stock.
Upon any of its securities being available for resale under Rule 144 as promulgated under the Securities Act of 1933, Eagle shall limit its sales with regard to any shares of common stock it owns to the greater of $10,000 in gross sales per day or 10% of the aggregate trading volume per day.
Bellridge
On March 1, 2018, the Company entered into and closed a Securities Purchase Agreement (the “Bellridge Agreement”) with Bellridge Capital, LP (“Bellridge”) pursuant to which Bellridge invested $750,000 into the Company in consideration of a 10% Convertible Debenture (the “First Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise price of $2.35 per share (the “First Bellridge Warrant”). The Bellridge Agreement provided that Bellridge was entitled to acquire an additional 10% Convertible Debenture in the principal amount of $750,000 and a Common Stock Purchase Warrant on the terms of the initial closing (“Bellridge Option”).
On April 9, 2018, Bellridge elected to exercise the Bellridge Option, as such the Company and Bellridge closed the second financing as contemplated by the Securities Purchase Agreement entered with Bellridge pursuant to which Bellridge invested an additional $750,000 into the Company in consideration of a 10% Convertible Debenture (the “Second Bellridge Debenture” and together with the First Bellridge Debenture, the “Bellridge Debenture”) and common stock purchase warrants to acquire an aggregate of 500,000 shares of common stock exercisable for a period of five years at an exercise price of $2.35 per share (the “Second Bellridge Warrant” and together with the First Bellridge Warrant, the “Bellridge Warrant”) The Bellridge Debenture bears interest of 10% and is payable one year from issuance. The First Bellridge Debenture and the Second Bellridge Debenture are convertible into shares of common stock at $0.90 per share and $1.00 per share, respectively, subject to limited antidilution protection.
During an event of default, the conversion price for the Bellridge Debenture in effect on any conversion date means, as of any conversion date or other date of determination, shall be 35% of the lowest trading price for the Company’s common stock during the 20 trading Days immediately preceding the delivery of a notice of conversion. Bellridge has agreed to restrict its ability to convert the Bellridge Debenture or exercise the Bellridge Warrant and receive shares of common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.
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In connection with both closings, the Company delivered 1,000,000 shares of common stock to an escrow agent. The escrow shares are to be utilized for the purpose of limited price protection. If, beginning on the 7th monthly anniversary of the issuance of the escrow shares, Bellridge has sold shares issuable upon conversion of the Bellridge Debenture at a sales price of less than $1.10 per share, then that number of shares shall be released from escrow to Bellridge as a limited make whole using the following formula:
(($1.00 – closing price on 1st day of each monthly anniversary beginning on the 1st day of the 7th month (and continuing monthly until all shares are sold) / closing price of the 1st monthly day in question) * number of shares sold at a price less than $1.10.
As long as the Company is not in default of the Bellridge Debenture or in breach of the Securities Purchase Agreement, at any time during which Bellridge owns the Bellridge Debenture, Bellridge commits to limit in the aggregate all sales of the shares of common stock issued upon conversion of the Bellridge Debenture and the related Common Stock Purchase Warrant to the greater of not more than (i) 10.00% of the daily trading volume for the Company’s common stock as reported for that day or (ii) $35,000. Breach of this leak-out provision will be considered a material breach by Bellridge.
As of the date hereof, the Company is obligated on the Bellridge Debenture in the principal amount of $1,500,000 in connection with the offering. The Bellridge Debenture is a debt obligations arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. Other than the Bellridge Debentures, the Company does not have any other convertible debt on its balance sheet.
ECS Prepaid
On March 16, 2018 (“Closing Date”), the Company entered into and closed an Asset Purchase Agreement dated March 1, 2018 (the “ECS Purchase Agreement”) with ECS Prepaid LLC (“ECS”), a Missouri limited liability company, pursuant to which the Company purchased certain assets from ECS, including, but not limited to, the processing prepaid platform, servers, POS terminals, customer list, a processing software program and goodwill, in consideration of $1,100,000 of which $100,000 was paid on the Closing Date and the balance is to be paid pursuant to a secured promissory note in the amount of $1,000,000 (the “ECS Note”). In addition, the Company issued 500,000 shares of common stock of the Company (the “ECS Shares”) and warrants to purchase 500,000 shares of common stock (the “ECS Warrants”). The ECS Warrants were assigned by ECS to Dennis Winfrey. The ECS Warrants are exercisable for a period of five years at a fixed exercise price of $1.85 per share and contain standard anti-dilution protection. Under the ESC Note, which is secured by the assets acquired by the Company from ECS, the Company is required to make ten equal payments of $100,000 commencing on April 15, 2018. The Company may prepay the ECS Note at any time without penalty. The ECS Note is a short-term debt obligation that is material to the Company.
At closing, the Company and Derron Winfrey entered into an Employment Agreement pursuant to which Mr. Winfrey was retained as Chief Operating Officer for a term of one year, subject to an automatic extension, unless terminated, in consideration of a base salary of $144,000 and an annual bonus of $25,000 in shares of common stock of the Company subject to the discretion of the Board of Directors of the Company. In addition, Mr. Winfrey received a signing bonus of 250,000 shares of common stock, a Common Stock Purchase Warrant to acquire 500,000 shares of common stock at an exercise price of $1.85 per share and a $50,000 bonus with $25,000 paid on the Closing Date and $25,000 payable on May 1, 2018. The Company also entered into an Employment Agreement with Mark Garner pursuant to which Mr. Garner was retained as Vice President of Operations for a term of one year, subject to an automatic extension, unless terminated, in consideration of a base salary of $120,000 and an annual bonus of $25,000 in shares of common stock of the Company subject to the discretion of the Board of Directors of the Company. In addition, Mr. Garner received a signing bonus of 250,000 shares of common stock, a Common Stock Purchase Warrant to acquire 500,000 shares of common stock at an exercise price of $1.85 per share and a $50,000 bonus with $25,000 paid on the Closing Date and $25,000 payable on May 1, 2018. On March 16, 2018, Mr. Bauer was appointed as Chairman of the Board of the Company.
On the Closing Date, the Company and J.I.L. Venture LLC (“JIL Venture”), a non-related party, which assisted structuring and negotiating the ECS Purchase Agreement and related asset purchase, entered a Consulting Agreement dated March 1, 2018. In consideration for the services, the Company issued JIL Venture 1,000,000 shares of common stock and warrants to purchase 1,500,000 shares of common stock exercisable for a term of five years at an exercise price of $1.85 per share. JIL Venture assigned 500,000 shares of common stock and 750,000 warrants to acquire 750,000 shares of common stock to Michelle Bauer, the wife of Gregory Bauer, CEO and a director of the Company.
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Electronic Check Services
On April 2, 2018 (“Closing Date”), the Company entered into and closed an Asset Purchase Agreement (the “Electronic Purchase Agreement”) with Electronic Check Services Inc. (“Electronic Check”), a Missouri corporation, pursuant to which the Company purchased certain assets from Electronic Check, including, but not limited to, assets associated with software that validates written check authenticity, in consideration of $75,000 paid on the Closing Date. In addition, the Company issued 250,000 shares of common stock of the Company (the “Electronic Shares”) and warrants to purchase 250,000 shares of common stock (the “Electronic Warrants”). The Electronic Warrants were assigned by Electronic Check to Dennis Winfrey, the shareholder of Electronic Check. The Electronic Warrants are exercisable for a period of five years at a fixed exercise price of $2.70 per share and contain standard anti-dilution protection.
On April 2, 2018, the Company entered into and closed an Asset Purchase Agreement (the “Central Purchase Agreement”) with Central State Legal Services Inc. (“Central”), a Missouri corporation, pursuant to which the Company purchased certain assets from Central, including, but not limited to, assets associated with the a system to recover funds from returned checks, in consideration of $25,000 paid on the Closing Date. Derron Winfrey, the COO of the Company, is a director and President of Electronic Check and Central. Derron Winfrey’s parents are the shareholders of Check and Central.
On the Closing Date, the Company and J.I.L. Venture LLC (“JIL Venture”), a non-related party, which assisted structuring and negotiating the ECS Purchase Agreement and related asset purchase, entered a Consulting Agreement dated April 2, 2018. In consideration for the services, the Company issued JIL Venture 250,000 shares of common stock and warrants to purchase 250,000 shares of common stock exercisable for a term of five years at an exercise price of $2.70 per share.
Chief Financial Officer
On April 16, 2018, Kevin F. Pickard was appointed by the Company to serve as the Chief Financial Officer of the Company.
The Company and Mr. Pickard entered into an Executive Retention Agreement dated April 16, 2018 pursuant to which Mr. Pickard agreed to serve as Chief Financial Officer in consideration of an annual salary of $120,000. The Company also issued Mr. Pickard 250,000 shares of common stock and granted Mr. Pickard a Stock Option to acquire 500,000 shares of common stock of the Company at an exercise price of $2.80 per share for a period of five years. The Stock Options vest in tranches of 100,000 shares commencing on the one-year anniversary and continuing thereafter on an annual basis or in full in the event of a change of control.
New Director
On April 25, 2018, Muhammad Khilji was appointed to the Board of Directors of the Company to serve as a director of the Company. Mr. Khilji entered into an agreement pursuant to which he will serve as a director. The director agreement provides that he will one tine grant of 100,000 shares of common stock and a stock option to acquire 100,000 shares of common stock exercisable for a period of five years at $2.50 per share. In addition, Mr. Khilji will receive 100,000 shares of common stock per year vesting in increments of 25,000 per quarter commencing January 1, 2019. The Company will also pay Mr. Khilji $5,000 per quarter.
Eagle Equities – May 2018
On May 4, 2018, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle”) pursuant to which Eagle agreed to purchase up to 1,212,120 shares of the Company’s common stock for an aggregate purchase price of $2,000,000 or $1.65 per share. The closing occurred on May 4, 2018 with respect to the funding of $500,000 resulting in the issuance of 303,030 shares of common stock. Additional closings of $500,000 for 303,030 shares are scheduled to close on May 25, 2018, June 15, 2018 and July 5, 2018 each.
The Company agreed to place 303,030 shares of common stock each tranche (the “Escrow Shares”) in escrow to be utilized for the purpose of limited price protection. If, beginning on the seventh month anniversary of the closing of each tranche, Eagle has sold any of its shares of common stock at a sales price of less than $1.65 per share, then that number of Escrow Shares shall be released from escrow to Eagle as a limited make whole which shall be determined by using the following formula:
($1.65 – Closing Price) / Closing Price) * number of shares sold at a price less than $1.65.
Closing Price is price on the first day of each monthly anniversary beginning on the first day of the 7th month (and continuing monthly until the earlier of June 4, 2019 or until all shares are sold.
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Series D Conversion
The Company issued 66,000,000 shares in connection with the conversion of 66,000 shares of Series D Preferred Stock.
The issuance of the securities set forth herein were made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and/or Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(a)(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the note was an accredited investor.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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| (16) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 29, 2011 | |
| (17) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 9, 2011 | |
| (18) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 12, 2011 | |
| (19) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 16, 2011 | |
| (20) | Incorporated by referenced to the Form 10-K Annual Report filed with the Securities and Exchange Commission on April 13, 2012 | |
| (21) | Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on May 14, 2012 | |
| (22) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 27, 2012. | |
| (23) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 9, 2013. | |
| (24) | Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on April 15, 2013. | |
| (25) | Incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on November 20, 2012. | |
| (26) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 1, 2013. | |
| (27) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 4, 2013. | |
| (28) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 3, 2014. | |
| (29) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 20, 2014 | |
| (30) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 27, 2015 | |
| (31) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 18, 2015 | |
| (32) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 12, 2015 | |
| (33) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 24, 2015 | |
| (34) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 1, 2015 | |
| (35) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 16, 2015 | |
| (36) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 21, 2015 | |
| (37) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on August 28, 2015 | |
| (38) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 20, 2016 | |
| (39) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 20, 2016 | |
| (40) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 13, 2016 | |
| (41) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 26, 2017 | |
| (42) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 13, 2017 | |
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| (43) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on June 30, 2017 | |
| (44) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2017 | |
| (45) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 7, 2017 | |
| (46) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 22, 2017 | |
| (47) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2017 | |
| (48) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 27, 2017 | |
| (49) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 30, 2017 | |
| (50) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 2, 2018 | |
| (51) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 3, 2018 | |
| (52) | Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 6, 2018 | |
(53)
(54)
(55)
(56)
(57)
| Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 21, 2018
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 13, 2018
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 18, 2018
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 26, 2018.
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 8, 2018. |
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In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
GOPHER PROTOCOL INC. (Registrant) | ||
| Date: May 14, 2018 | By: | /s/ Gregory Bauer |
| Gregory Bauer | ||
President, Chief Executive Officer, Secretary and Director (Principal Executive Officer) | ||
| Date: May 14, 2018 | By: | /s/ Kevin Pickard |
| Kevin Pickard | ||
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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