GBT Technologies Inc. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 31, 2017

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

Commission File Number: 000-54530

GOPHER PROTOCOL INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices)

Issuer’s telephone number: 424 238-4589

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.00001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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 definition of “accelerated filer, large accelerated filer or smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 the Exchange Act) Yes ☐  No ☒

As of June 30, 2017, the market value of our common stock held by non-affiliates was approximately $15,982,334, which is computed based upon the closing price on that date of the Common Stock of the registrant on the OTCQB maintained by OTC Markets Group Inc. of $0.36. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

As of April 11, 2018, 125,132,072 shares of common stock, $.00001 par value per share, of the registrant were outstanding.

Documents incorporated by reference:  None

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

INDEX

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In this annual report, references to “Gopher” ” “GOPH” “the Company,” “we,” “us,” and “our” refer to Gopher Protocol, Inc.

Except for the historical information contained herein, some of the statements in this report contain forward-looking statements that involve risks and uncertainties. These statements are found in the sections entitled “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk.” They include statements concerning: our business strategy; expectations of market and customer response; liquidity and capital expenditures; future sources of revenues; expansion of our proposed product line; and trends in industry activity generally. In some cases, you can identify forward-looking statements by words such as “may,” “will,” “should,” “expect,” “plan,” “could,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “goal,” or “continue” or similar terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined under “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited to our ability to successfully develop and market our products to customers; our ability to generate customer demand for our products in our target markets; the development of our target markets and market opportunities; our ability to manufacture suitable products at a competitive cost; market pricing for our products and for competing products; the extent of increasing competition; technological developments in our target markets and the development of alternate, competing technologies in them; and sales of shares by existing shareholders. 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. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

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.

GopherInsight™ is a patented, licensed, 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. Upon development, the Company believes that its microchip technologies may be installed within mobile devices or on SIM cards. The Company and Guardian Patch, LLC, a related party, are currently developing out the following products:

Products:

UGopherServices acquisition

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, and at which, the Company plans to 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. The assets acquired in the purchase consist of (1) racks that contain 9-12 items per rack that are displayed in 15,000 retail locations, mainly convenience stores; and (2) payment terminals at those same points of sale.

UGopherServices products

On the racks are the following items:

When any of these items are brought to the counter, the customer’s method of payment is swiped into a payment terminal machine. The Company records the revenue from the purchase and the cost of goods sold at the point of sale, and the net is booked as gross profit by the Company. When a customer purchases a gift card, for example, a value is assigned to a digital PIN number which puts a certain value on their gift card, to be redeemed by the purchaser at their convenience.

There are various fees that get added to the cost of the gift card, including commissions and a transaction fee. The transaction fee is split between the store and the Company. The volume of transactions for each customer in a given month varies, with some points of sale more active in certain months than others.

UGopherServices Markets

After the acquisition of certain assets from RWJ Marketing Services LLC in September 2017, the uGopherServices Corp. subsidiary had approximately 15,000 locations in which their technology is deployed, each of which process varying volumes of transactions per month on their terminals which the Company acquired in September 2017. The majority of these sale locations are in the Southeastern US, but the geographic penetration of the locations overall is national.

UGopherServices Competition

Given the nature of its business (primarily gift cards, prepaid long distance and wireless calls, and selling handsets and SIM cards), the competitors are numerous, as any company that issues gift cards, such as Starbucks and Best Buy, could potentially compete with the gift cards that the company sells at these points of sale. Competitors that sell prepaid calling and wireless plans are also numerous. Although its competitors do not necessarily sell their gift and calling cards at the same points of sale at which the company sells its goods, they could, though not on the rack that the Company controls that is positioned within the store.

Activities in 2018

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. 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.

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.

Joint Ventures

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 was the exclusive license holder for certain intellectual property relating to a 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 Patch, LLC (“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.

On July 21, 2016 members of the Guardian Patch LLC, together with Dr. Rittman, incorporated Alpha EDA, LLC (“Alpha”). The members of the Alpha appointed Dr. Rittman as the manager of Alpha. The Company and Guardian LLC 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 Patch 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 these new products (Epsilon, Guardian Pack & PuzPix) to the market this year, and the Sphere in the first quarter of 2017. 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.

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 or around 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.

Intellectual Property

To date, the Company, has filed for 16 (sixteen) different patents with an additional three in process, as well as 6 (six) trademarks. The patents are owned by Dr. Rittman, our CTO, but the Company is the exclusive licensee of these patents and trademarks in perpetuity. These patents and trademarks, as well as various websites and social media platforms, comprise the Company’s intellectual properties. The Company and Dr. Rittman are in the process of consolidating some or all of these patents into a single comprehensive patent for the Guardian Patch. To date, none of the Company’s patents have been granted, but two trademarks been granted.

Employees

As of December 31, 2017, we had seven direct employees. All Company’s development and marketing activities are being performed internally, but also using outside parties as needed.

Clients and Customers

During fiscal 2016, the Company had one significant customer that accounted for all of its revenue. The customer was a related party through its joint venture with the Company. This dependence on one customer for 100% of our revenues was also the case for the first three fiscal quarters of 2017.

After the acquisition of certain assets from RWJ Marketing Services LLC in September 2017, the uGopherServices Corp. subsidiary had approximately 15,000 customers, each of which process varying volumes of transactions per month on their terminals which the Company acquired in September 2017. The majority of these points of sale are in the Southeastern US, but the geographic penetration of the locations overall is national.

Advisory Board

In connection with the Company’s desire to retain highly qualified individuals to advise the Company with respect to certain aspects of its business, the Company has adopted an Advisory Board Charter, effective September 1, 2016, and has appointed four (4) members to its newly created Advisory Board, in order to advise the Company on the roll-out of its technologies, including its Guardian Patch “GOPHERINSIGHT™” circuit prototype device (the “Patch”). Each of the Company’s Advisory Board members are seasoned veterans of the technology industry and are considered experts in their respective fields. 

Having been formed in September 2016, Advisory Board members received $3,000 each remuneration in the form of cash. The Company had its first advisory board meeting in the fourth quarter of fiscal 2016. The Advisory Board has since been dissolved, and had no meetings in 2017 beyond the initial meeting in 2016. No stock options were granted to any of the members of the advisory board.

ITEM 1A. RISK FACTORS

As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item 1A. Risk Factors.  Despite the fact that we are not required to provide risk factors, we consider the following factors to be risks to our continued growth and development:

We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We only recently started our operations in our current business in 2015. We have a limited operating history in an evolving industry that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to:

If the demand for our products offered through our points of sales or our products under development are not finalized, our business will be harmed. We may not be able to successfully address these risks and difficulties, which could harm our business and results of operations.

Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.

We shifted our focus to our real-time, heuristic- (self-learning/artificial intelligence) based mobile technology in 2015 and recently acquired point of sale terminals.  We have a limited operating history and generated $9.2m in revenue for the year ended December 31, 2017.  As a consequence, it is difficult, if not impossible, to forecast our future results based upon our historical data.  Reliance on the historical results may not be representative of the results we will achieve.  Because of the uncertainties related to our limited historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues or expenses.  If we make poor budgetary decisions as a result of unreliable historical data, we could be less profitable or continue to incur losses. 

Gopher Protocol’s results of operations have not resulted in profitability and we may not be able to achieve profitability going forward

Gopher Protocol does not accrue or capitalize development costs (or any costs to this effect) and expense it to its profit and loss statements as required by US GAPP. As such the Company incurred a net loss amounting to $10,287,290 for the year ended December 31, 2017 and $1,586,226 for the year ended December 31, 2016.   If we incur additional significant operating losses, our stock price, may decline, perhaps significantly. Our management is developing plans to alleviate the negative trends and conditions described above.  Our business plan is speculative and unproven. There is no assurance that we will be successful in executing our business plan or that even if we successfully implement our business plan, that we will be able to curtail our losses now or in the future.  Further, as we are an emerging enterprise, we expect that net losses will continue, and our working capital deficiency will increase.

We have GENERATED INSIGNIFICANT positive cash flow, and our ability to generate positive cash flow is uncertain. If we are unable to generate positive cash flow OR obtain sufficient capital when needed, our business and future prospects will be adversely affected and we could be forced to suspend or discontinue operations.

Our operations have generated insignificant positive cash flow for any reporting period since our inception, and we have funded our operations primarily through the issuance of common stock and short-term and long-term debt and convertible debt. Our limited operating history makes an evaluation of our future prospects difficult. The actual amount of funds that we will need to meet our operating needs will be determined by a number of factors, many of which are beyond our control. These factors include the timing and volume of sales transactions, the success of our marketing strategy, market acceptance of our products, the success of our manufacturing and research and development efforts (including any unanticipated delays), our manufacturing and labor costs, the costs associated with obtaining and enforcing our intellectual property rights, regulatory changes, competition, technological developments in the market, evolving industry standards and the amount of working capital investments we are required to make.

Our ability to continue to operate until we are able to generate sufficient our cash flow from operations will depend on our ability to generate sufficient positive cash flow from our operations. If we are unable to generate sufficient cash flow from our operations, our business and future prospects will be adversely affected and we could be forced to suspend or discontinue operations.

The Company sustained net losses of $10,287,290 in this fiscal year, and our operating activities provided cash flows of $228,711. The Company had a working capital deficit of $1,060,506, stockholders’ equity of $4,221,841, and accumulated deficit of $14,381,662 at December 31, 2017. This raises substantial doubt about its ability to continue as a going concern. The Company is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts. Per the Joint Venture agreement, the Guardian LLC has committed to provide the Company with all its working capital needs, the Guardian LLC’s commitment has decreased much of the risk of going concern.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments. There have been no losses in these accounts through December 31, 2017 and December 31, 2016. Per the terms of the JV with Guardian Patch LLC, Guardian Patch LLC has committed to fund all Company’s needs, as well as needs of the joint venture. Failure of Guardian Patch LLC to provide the Company or the joint venture with said the required funding would represent a significant credit risk.

We WILL require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business growth and we will require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired, and our business may be harmed.

We depend upon key personnel and need additional personnel

Our success depends on our inability to attract and retain key personnel including Dr. Danny Rittman, our CTO, and our inability to do so may materially and adversely affect our business operations. The loss of qualified personnel could have a material and adverse effect on our business operations.  Additionally, the success of the Company’s operations will largely depend upon its ability to successfully attract and maintain competent and qualified key management personnel. As with any company with limited resources, there can be no guaranty that the Company will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability for the Company.  

Our business requires substantial capital, and if we are unable to maintain adequate CASH FLOWS FROM OPERATIONS our profitability and financial condition will suffer and jeopardize our ability to continue operations

We require substantial capital to support our operations.  If we are unable to generate adequate cash flows from our operations, maintain adequate financing or other sources of capital are not available, we could be forced to suspend, curtail or reduce our operations, which could harm our revenues, profitability, financial condition and business prospects.

There are limitations on director/officer liability

As permitted by Nevada law, the Company’s certificate of incorporation limits the liability of its directors for monetary damages for breach of a director’s fiduciary duty except for liability in certain instances. As a result of the Company’s charter provision and Nevada law, stockholders may have limited rights to recover against directors for breach of fiduciary duty.

We have never paid dividends on our Common Stock

We have never paid dividends on our Common Stock and do not presently intend to pay any cash dividends in the foreseeable future. We anticipate that any funds available for payment of dividends will be re-invested into the Company to further its business strategy.

A SINGLE stockholder holdS a controlling interest in our Company, which could limit your ability to influence the outcome of any stockholder vote

One shareholder beneficially owns more than 50% of the outstanding shares of Common Stock. Under our Certificate of Incorporation and Nevada law, the vote of a majority of the shares outstanding is generally required to approve most stockholder action. As a result, these stockholders will be able to significantly influence the outcome of stockholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Certificate of Incorporation or proposed mergers or other significant corporate transactions.

THERE IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK. FAILURE TO FURTHER DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT THE VALUE OF OUR COMMON STOCK AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR STOCK.

There is a limited public market for our Common Stock, which is traded on the OTCQB under the symbol GOPH. We cannot give any assurances that there will ever be a mature, developed market for our common stock. Failure to further develop or maintain an active trading market could negatively affect the value of our shares and make it difficult for you to sell your shares or recover any part of your investment in us. Even if a market for our common stock does develop in a material way, the market price of our common stock may be highly volatile. In addition to the uncertainties relating to our future operating performance and the profitability of our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our brand and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, for the year ended December 31, 2016, we reported that our disclosure controls and procedures were not effective due to the lack of resources and the reliance on outside consultants. We intend to increase management’s review of our financials. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Penny stock regulations may affect your ability to sell our common stock.

To the extent the price of our Common Stock remains below $5.00 per share, our Common Stock will be subject to Rule 15g-9 under the Exchange Act, which imposes additional sales practice requirements on broker dealers which sell these securities to persons other than established customers and accredited investors. Under these rules, broker-dealers who recommend penny stocks to persons other than established customers and “accredited investors” must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our Common Stock and may make it more difficult for holders of our Common Stock to sell shares to third parties or to otherwise dispose of them.

ITEM 1B. UNRESOLVED STAFF COMMENTS

As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item 1B. Unresolved Staff Comments. At this time, there are no unresolved staff comments.

ITEM 2. PROPERTIES

During 2017, the Company relocated its headquarters to 2500 Broadway, Suite F-125, Santa Monica, California. The Company pays approximately $2,300 per month in rent for this office space, and paid a security deposit of approximately $2,000. The lease is being paid for by the Guardian LLC via reimbursement. The Company believes its current facilities will be adequate for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Legal Proceedings

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

On August 26, 2015, the Company finalized a consulting agreement that it entered into on August 11, 2015 with Michael Korsunsky (“Consultant”) pursuant to which Consultant was engaged by the Company to (i) provide introductions to strategic business alliances, (ii) advise on exposure and risk in the operation of smart phone applications and (iii) advise on market fluctuations within the different categories of the smart phone application delivery services sector, in consideration of 100,000 restricted shares of common stock of the Company, which shares were issued on or around August 26, 2015. On or around November 17, 2016, the Company filed a complaint against Consultant in Superior Court of the State of California, County of Riverside, for Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing. The Consultant been served, surrender his certificate but to date has not filed a defense. This case has since been dismissed.

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 4. MINE SAFERY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company is authorized to issue 500,000,000 of its $0.00001 par value common stock and 20,000,000 shares of its $0.00001 par value preferred stock Series B and 10,000 shares of its $0.00001 par value preferred stock Series C, 100,000 shares of its $0.00001 par value preferred Series D shares, and 2,000,000 of its $0.00001 par value preferred Series G shares. As of December 31, 2017, 58,215,406 shares of common stock, as well as 45,000 shares of preferred stock Series B, 700 shares of preferred stock Series C, 66,000 shares of preferred stock Series D and 2,000,000 shares of preferred stock Series G were issued and outstanding. As of December 31, 2017, the Company has 1,040 Treasury shares at cost. As of April 11, 2018, 125,132,072 shares of common stock, as well as 45,000 shares of preferred stock Series B, 700 shares of preferred stock Series C, zero shares of preferred stock Series D, and 2,000,000 shares of preferred stock Series G are issued and outstanding. The Board of Directors reserves the right to issue shares of preferred stock in the future indicating preference or rights as appropriate.

Market Information  

Our common stock commenced quotation on the OTCQB under the symbol “GOPH”. The following table sets forth the range of high and low prices per share of our common stock for each period indicated.   

Record Holders

The number of holders of record for our common stock as of December 31, 2017 was 66.

Dividends

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

Securities Authorized for Issuance Under Equity Compensation Plans

We presently do not have equity compensation plans authorized.

Penny Stock

Our common stock is considered “penny stock” under the rules the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:

In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

Recent Issuances of Unregistered Securities

Authorized Shares-Common stock

Effective February 17, 2015, the Company filed with the State of Nevada a Certificate of Change to effect a reverse stock split of its outstanding and authorized shares of common stock at a ratio of 1 for 1,000 (the “Reverse Stock Split”). The effective date of the Reverse Stock Split was February 24, 2015. On or about February 24, 2015, the Company implemented a 1,000-1 reverse split, with no fractional shares allowed. In addition, the Company filed Articles of Merger (the “Articles”) with the Secretary of State of the State of Nevada to effectuate a name change. The Articles were filed to effectuate a merger between Gopher Protocol Inc., a Nevada corporation and a wholly owned subsidiary of the Company, and the Company, with the Company being the surviving entity. As a result, the Company’s name changed to “Gopher Protocol Inc.”. In connection with the above, the Company filed an Issuer Company-Related Action Notification Form with the Financial Industry Regulatory Authority. The Reverse Stock Split was implemented by FINRA on February 23, 2015. Our new CUSIP number is 38268V 108. As a result of the name change, our symbol been changed following the Notification Period to GOPH. In April 2015, the Company amended it certificate of incorporation to increase the number of authorized shares of common stock, of the Company from 2,000,000 shares to 500,000,000 shares.

Authorized Shares-Preferred stock

The Company has authorized 20,000,000 Preferred Stock Series B shares, par value $0.00001; 10,000 Preferred Stock Series C shares authorized, par value $0.00001; 100,000 Preferred Stock Series D shares, par value $0.00001 and 2,000,000 Preferred Stock Series G shares, par value $0.00001.

Common Stock

On or around March 8, 2016, the Company issued 226,110 common shares worth $1,702 to a third party that converted a portion of the PTPI Note, which was reduced by the same amount.

On April 25, 2016, the Company issued 200,000 common shares worth $1,505 to a third party that converted a portion of the PTPI Note, which was reduced by the same amount. On June 9, 2016, the Company issued 300,000 common shares worth $2,258 to a third party that converted a portion of the PTPI Note, which was reduced by the same amount.

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 has been recorded as adjusting equity during this quarter. The Company believes that this agreement is in default, as the counterparty failed to deliver services under the agreement. As such, in the third fiscal quarter, the Company did not issue the shares or warrants in the third or fourth fiscal quarter, and does not intend to issue those items. The warrant has been expensed in 2016 in the amount of $177,062.

On June 17, 2016, the Company engaged a law firm to provide certain legal services to the Company in consideration of 900,000 shares of common stock of the Company (the “Retainer Shares”). The value of these shares is $233,982 and this amount was recorded as legal expense. On June 23, 2016, the Company prepaid legal services for 12 months, with an effective date of January 7, 2016. On August 16, 2016, the retainer agreement dated June 17, 2016 (“Original Retainer Agreement”) entered by and between the Company and its legal firm was amended and restated provided legal services to the Company for a flat fee of 2,600,000 shares of common stock and a monthly cash flat fee. The Company issued an additional 1,700,000 shares valued at $441,966 to this law firm to cover legal costs that exceeded $233,982, per the amendment.

On June 20, 2016, two holders (the “Preferred Stock Holders”) of an aggregate of 2,400 shares of Series D Preferred Stock 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, the Preferred Stock Holders of an aggregate of 17,400 shares of Series D Preferred Stock 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.

In addition, on August 9, 2016, Direct Communications, Inc. (“Direct Communications”), a holder of 8,950 shares of Series D Preferred Stock (the “Direct Communications Preferred Shares”) of the Company executed a conversion notice to convert the Direct Communications Preferred Shares into 8,950,000 shares of common stock of the Company (the ” Direct Communications Conversion Shares”) at $0.01 per share.

On or around September 30, 2016, a third party converted $11,291 of the PTPI Note into 1,500,000 shares. This reduced the overall principal balance on that note to $55,042. On or around October 26, 2016, a third party converted $14,302 of the PTPI Note into 1,900,000 shares. This reduced the overall principal balance on that note to $40,740. Including interest accrued at December 31, 2016, which includes interest accrued since early 2015, the note balance net of this conversion is $53,852.

During the year ended December 31, 2017, the Company had the following transactions in its common stock:

On September 1, 2017, the Company entered into and closed an Asset Purchase Agreement (the “Purchase Agreement”) with RWJ Advanced Marketing, LLC (“RWJ”), a Georgia corporation, pursuant to which the Company purchased certain assets from RWJ in consideration of, among other things, an aggregate 5,000,000 shares of common stock of the Company (the “RWJ Shares”) and warrants to purchase 9,000,000 shares of common stock (the “RWJ Warrants”). RWJ assigned 3,000,000 RWJ Shares and 5,000,000 RWJ Warrants to Robert Warren Jackson and 2,000,000 RWJ Shares and 4,000,000 RWJ Warrants to Gregory Bauer.

The RWJ Warrants are exercisable for a period of five years at a fixed exercise price of $0.50 per share and non-dilutive anti-dilution protection. If, prior to the exercise of the RJW Warrants, the Company (i) declares, makes or issues, or fixes a record date for the determination of holders of common stock entitled to receive, a dividend or other distribution payable in shares of its capital stock, (ii) subdivides the outstanding shares, (iii) combines the outstanding shares (including a reverse stock split), (iv) issues any shares of its capital stock by reclassification of the shares, capital reorganization or otherwise (including any such reclassification or reorganization in connection with a consolidation or merger or and sale of all or substantially all of the Company’s assets to any person), then, notwithstanding any such action the exercise price, and the number and kind of shares receivable upon exercise, in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification shall remain fixed so that the holder of the RJW Warrants exercised after such time shall be entitled to receive the number and kind of shares which, if the RJW Warrants had been exercised immediately prior to such time, the holder would have owned upon such exercise and been entitled to receive.

On December 29, 2017, Gopher Protocol Inc. (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.

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 7^th  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 1^st  day of each monthly anniversary beginning on the 1 ^st  day of the 7 ^th  month (and continuing monthly until all shares are sold) / closing price of the 1 ^st  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 $750,000 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.

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. 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”) as partial consideration for this transaction. 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.

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. 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 shar. 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. 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.

The offer and sale of securities listed above were made to an accredited investor and the Company relied upon the exemptions contained in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated there under with regard to those sales. No advertising or general solicitation was employed in offering the securities. The offers and sales were made to one party, an accredited investor, and transfer of the securities issued was restricted by the Company in accordance with the requirements of the Securities Act of 1933.

Series B Preferred Shares

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

The Series B Preferred Stock has a stated value of $100 per share and is convertible into the Company’s common stock at a conversion price of $0.30 per share representing 3,000 posts split (15,000,000 pre-split) common shares. Furthermore, the Series B Preferred Stock votes on an as converted basis and carries standard anti-dilution rights. These rights were subsequently removed, except in cases of stock dividends or splits.

As of December 31, 2017 and 2016, there were 45,000 Series B Preferred Shares outstanding.

Series C Preferred Shares

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

 Each share of Series C Preferred Stock is convertible, at the option of GV, into such number of shares of common stock of the Company as determined by dividing the Stated Value (as defined below) by the Conversion Price (as defined below).  The Conversion Price for each share is equal to a 50% discount to the average of the lowest three lowest closing bid prices of the Company’s common stock during the 10-day trading period prior to the conversion with a minimum conversion price of $0.002.  The stated value is $11.00 per share (the “Stated Value”).  The Series C Preferred Stock has no liquidation preference, does not pay dividends and the holder of Series C Preferred Stock shall be entitled to one vote for each share of common stock that the Series C Preferred Stock shall be convertible into.   GV has contractually agreed to restrict its ability to convert the Series C Preferred Stock and receive shares of the Company’s common stock such that the number of shares of the Company’s common stock held by it and its affiliates after such conversion does not exceed 4.9% of the then issued and outstanding shares of the Company’s common stock.

During the fiscal year ended December 31, 2014, GV Global Communications, Inc. converted 7,770 of its Series C Preferred Stock into 12,010 post-split (64,551,667 common shares pre-split). During the third quarter of 2014, the Company received 4,204 post-split (21,021,900 pre-split) common shares to adjust the shares issued to reflect the amount that both they and the Company believed that they were owed. At December 31, 2016, and at December 31, 2015, GV owns 700 Series C Preferred Shares.

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

As of December 31, 2017 and 2016, there were 700 Series C Preferred Shares outstanding.

Series D Preferred Shares

Per the terms of the Exclusive License Agreement and in consideration of the licensing agreement signed between the Company and Hermes Roll LLC, the Company issued 100,000 shares of Series D Preferred Stock of the Company (the “Preferred Shares”). The preferred stock has a value of $ 1,000 based upon the cost of the license; due to the holder of license is the related party of the Company. The Preferred Shares have no liquidation rights. The Holder of the Preferred Shares will be entitled to vote on all matters submitted to shareholders of the Company on an as-converted basis. The Preferred Shares have a conversion price of $0.01 (the “Conversion Price”) and a stated value of $10.00 per share (the “Stated Value”). Subject to the Company increasing its authorized shares of common stock to 500,000,000, 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. The issuance of the Preferred Shares was made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under Regulation D thereunder. Hermes is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.

On April 2, 2015, a third party converted 1,000 Series D Preferred shares into 1,000,000 common shares. On May 11th, 2015, Reko Holdings, LLC converted 4,000 shares of its Series D Preferred Stock into 4,000,000 restricted common shares. 

On November 31, 2015, Direct Communications gave a notice of conversion to Company stating its intention to convert 250 Series D Preferred Shares to 250,000 common shares, which were issued on or around that date.

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.

In addition, on August 9, 2016, Direct Communications, Inc. (“Direct Communications”), a holder of 8,950 shares of Series D Preferred Stock (the “Direct Communications Preferred Shares”) of the Company executed a conversion notice to convert the Direct Communications Preferred Shares into 8,950,000 shares of common stock of the Company at $0.01 per share.

The above issuances of common stock in connection with the conversions of the Series D Preferred Stock increases the number of shares of common stock of the Company by 26,350,000 shares.

As of December 31, 2017 and 2016, there were 66,000 Series D Preferred Shares outstanding.

Series G Preferred Shares

On December 29, 2017, Guardian Patch converted all of the principal and interest of its note into 2,000,000 shares of Series G Preferred Stock. The Series G Preferred Stock is entitled to vote on an as-converted basis, automatically converts to common stock upon any liquidation, dissolution or winding up and the Company may not declare a dividend until the Series G Preferred Stock has received a dividend. Each share of Series G Preferred Stock is convertible into one shares of common stock of the Company and contain standard anti-dilution rights. As long as at least 15% of the Series G Preferred Stock remain outstanding, without the consent of 67% of the Series G Preferred Stock, the Company may not incur indebtedness or liens, acquire its shares of common stock, enter into transactions with an affiliate or amend its Articles of Incorporation or Bylaws. Guardian LLC has agreed to restrict its ability to convert the Series G Preferred Stock and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and its affiliates after such conversion does not exceed 4.9% of the then issued and outstanding shares of common stock.

As of December 31, 2017 there are 2,000,000 Series G Preferred Shares outstanding.

Warrants

The following is a summary of warrant activity:

The exercise price for warrant outstanding and exercisable at December 31, 2017:

The Company issued 9,000,000 warrants as consideration for the acquisition of the RWJ assets (see Note 3) and issued an aggregate of 13,000,000 warrants to two consultants for services rendered. The services, which include business development, analysis, and interaction with professionals, were principally related to assisting the Company with the acquisition of the RWJ assets (see Note 3). The fair value of the 13,000,000 warrants of $4,782,297 was determined using the Black-Scholes option pricing model with the following assumptions:

ITEM 6. SELECTED FINANCIAL DATA

As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item 6. Selected Financial Data.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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

Forward-Looking Statements

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

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

This section of the report should be read together with Footnotes of the Company audited financials. The audited statements of operations for the years ended December 31, 2017 and 2016 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 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. 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.

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.

Results of Operations:

Years Ended December 31, 2017 and December 31, 2016

A comparison of the statements of operations for the years ended December 31, 2017 and 2016 is as follows:

Sales for the year ended December 31, 2017 were $9,192,354 and the sales for the year ended December 31, 2016 were $165,000. The sales from 2016 to 2017 are not comparable since the increase of $9,027,354 or 5,471% is almost all the result of sales of $9,012,354 generated from the date of acquisition to December 31, 2017 from acquisition of assets from RWJ.

Our gross margins for the year ended December 31, 2017 were 5.9% as compared to 100.0% for the same period in 2016. The decrease in due to the sales generated by the RWJ assets that have a lower gross margin.

Operating expenses for the year ended December 31, 2017 were $7,845,344 compared to $1,528,176 for the same period in 2016. The increase of $6,317,168 or 413% is due to including the operating cost for the newly acquired acquisition and warrants valued at $4,782,297 being issued to consultants for services rendered during the year ended December 31, 2017.

Other expense for the year ended December 31, 2017 was $2,982,496, an increase of $2,759,446 from $223,050 for the same period in 2016. The increase is principally due to net charges to earnings resulting from the issuance of convertible notes with embedded conversion features that are accounted for as derivatives due to the variable conversion price.

Net loss for the year ended December 31, 2017 was $10,287,290 compared to $1,586,226 for the same period in 2016 due to the factors described above. The periods are not comparable due to the acquisition of RWJ Advanced Marketing, LLC in the third fiscal quarter of 2017.

Liquidity and Capital Resources

Our cash was $1,305,062 and $5,096 at December 31, 2017 and 2016, respectively. Cash provided by operating activities during the year ended December 31, 2017 was $228,711, compared to cash used in operating activities of $15,955 during the same period in 2016. Certain items are not comparable between the periods, including warrants issued for services in 2017, and the change in fair market value of the derivative liability, and financing costs 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 $757,377 at December 31, 2016 to a working capital deficit of $1,060,506 at December 31, 2017, principally as a result of an increase in accounts receivable and inventory. Cash flows used in investing activities were $78,352 during the year ended December 31, 2017, compared to $0 for the same period in 2016. The increase is due to the purchase of property and equipment, excluding assets purchased with the RWJ acquisition. Cash from financing activities for the year ended December 31, 2017 was $1,149,607, compared to $0 for the same period in 2016. The increase is due to the issuance of convertible notes and the sale of common stock in 2017. In 2017 the Company converted a payable to Guardian Patch LLC to a convertible note. This reclassification of the payable to a convertible note payable is a non-cash item; the note of $660,132, which includes accrued interest, was not funded by Guardian LLC during the period.

On December 29, 2017, Gopher Protocol Inc. (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.

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 7 ^th  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 1 ^st  day of each monthly anniversary beginning on the 1 ^st  day of the 7 ^th  month (and continuing monthly until all shares are sold) / closing price of the 1 ^st  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 $750,000 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.

We sustained net losses of $10,287,290 for the year ended December 31, 2017. In addition, we had a working capital deficit of $1,060,506 and accumulated deficit of $14,381,662 at December 31, 2017. We recently purchased the assets of RWJ Advanced Marketing, LLC in 2017 (see Note 3 to the financial statements) and ECS Prepaid LLC in 2018 (see Note 16 to the financial statements). Both these companies have historically generated significant revenues which we expect to continue in the future. In addition, during the past 120 days, the Company has raised approximately $3 million 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”).

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:

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

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

Dividends

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 appears at Page F-1, which appears after the signature page to this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Previous independent registered public accounting firm

On October 24, 2017 (the “Termination Date”), Gopher Protocol Inc. (the “Company”) terminated Anton & Chia, LLP (the “Former Auditor”) as the independent registered public accounting firm of the Company.

Other than an explanatory paragraph included in the Former Auditor’s audit report for the Registrant’s fiscal years ended December 31, 2016 and 2015 relating to the uncertainty of the Company’s ability to continue as a going concern, the audit reports of the Former Auditor on the Company’s financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.

During the years ended December 31, 2016 and 2015 and through the date of this Current Report on Form 8-K, the Company has not had any disagreements with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the Former Auditor’s satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such years.

During the years ended December 31, 2016 and 2015 and through the Termination Date, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

New independent registered public accounting firm

On or around October 24, 2017 (the “Engagement Date”), the Company engaged BF Borgers CPA PC (“New Auditor”) as its independent registered public accounting firm for the Company’s fiscal year ended December 31, 2017. The decision to engage the New Auditor as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.

During the two most recent fiscal years and through the Engagement Date, the Company has not consulted with the New Auditor regarding either:

1.                   application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that the New Auditor concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or

2.                   any matter that was either the subject of a disagreement (as defined in Regulation S-K, Item 304(a)(1)(iv) and the related instructions) or reportable event (as defined in Regulation S-K, Item 304(a)(1)(v)).

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As a smaller reporting company, with revenues stemming from recent acquisitions, 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 December 31, 2017, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE

Executive Officers and Directors

Below are the names and certain information regarding Gopher Protocol’s executive officers and directors.

Gregory Bauer has served as executive director with W.L. Petrey Wholesale, Inc. since 2004 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.

Mr. Bauer became Chief Executive Officer in connection with acquisition of certain assets from RWJ Advanced Marketing LLC, and became Chief Financial Officer when Mr. Klinger resigned from that position at the end of the third fiscal quarter.

Michael Murray is a licensed and UST Certified NMLS Originator, a licensed mortgage banker, a real estate broker and a licensed general contractor. From 1998 through August 2012, Mr. Murray held the position of Broker and DRE Officer with Home Plus Realty, Inc. From August 2012 through May 2013, Mr. Murray held the positions of FHA Production and Save Team with Cashcall Mortgage, Inc. and since May 2013 to the present, Mr. Murray has been self-employed as a Consultant and Managing Broker. Mr. Murray received an M.A. in Public Relations from California Baptist University in May 2014 and a B.A. in Political Science from California Baptist University in May 2013.

Mr. Murray is an officer and shareholder of Hermes Roll LLC (“Hermes”), a Nevada limited liability company to be formed. On March 4, 2015, the Company entered into a Territorial License Agreement with Hermes, which is the basis for the Company’s current operations. On June 16, 2015, the Company and Hermes entered into an Amended and Restated License Agreement whereby the license was expanded globally, the Company agreed to invest $5,000,000 into Hermes for working capital and the Company was provided with an option to acquire 100% of the outstanding membership interest of Hermes in consideration of 20,000,000 shares of common stock of the Company through June 16, 2016. The Company and Hermes agreed that the ability to acquire 100% of the membership interest of Hermes will be reduced on a pro-rata basis contingent upon the amount of working capital invested by the Company. For example, in the event the Company provides Hermes with $2,500,000 in working capital, then the Company will be entitled to acquire 50% of the membership interest of Hermes in consideration of 10,000,000 shares of common stock of the Company.

Mr. Murray resigned as Chief Executive Officer in connection with the acquisition of certain assets from RWJ Advanced Marketing, but remains a Director of the Company.

Dr. Danny Rittman is a veteran software architect and integrated circuit technology expert with over 20 years of experience in the technology sector. From 2014 through the present, Dr. Rittman has served as the CTO and as a director of the Company, leading the Company’s technological direction and managing teams of mobile software developers. From 2012, through 2014, Dr. Rittman served as a Senior Integrated Circuit Consultant for Qualcomm / Max Linear, managing teams of integrated circuit designers within the mobile technology arena. From 2007 through 2012, Dr. Rittman served as the Founder and CTO of Micrologic Design Automation, leading the company’s technological direction, including architecture, design and development of EDA software tools. From 2002 through 2007, Dr. Rittman served as an Integrated Circuit CAD / Software Senior Consultant for IBM, managing IC back-end projects and leading back-end CAD and QA software tool development and implementation. From 1995 through 2002, Dr. Rittman served as the Founder and VP of R&D for Bindkey Technologies, leading the company’s technological direction, research and development of EDA software tools for integrated circuits and back-end design. Dr. Rittman received a BS in Electrical Engineering - VLSI Design from the University of Bridgeport, graduating Magna Cum Laude in 1992; a MS in Computer Science - VLSI Design, Specializing in Automation Algorithms, from La Salle University, graduating Magna Cum Laude in 1996; and a PhD in Computer Science - VLSI Design, specializing in EDA Concepts and Algorithms, from La Salle University, graduating Summa Cum Laude in 1998.

Mansour Khatib. From 2009 through 2012, Mr. Khatib served as the CEO and CFO of The Merchandise Company, located in Long Beach, California. From 2012 through the present, Mr. Khatib has served as a U.S. Business and Marketing Sales Representative for KB Racking, located in Toronto, Canada. From May 2013 through July 2014, Mr. Khatib served as VP of Marketing for Sun Energy Partners, LLC, developing solar rooftop projects. From July 2014 through the present, Mr. Khatib has served as the CTO for New Energy Ventures, LLC, a company that is developing utility scale projects in New Jersey, California, and smaller projects in Mexico, the Caribbean and Peru. Mr. Khatib received B.A. in Economics from Fachhochschule Wuppertal in Wuppertal, Germany in 1988 and a Bachelors in Electro Engineering & Computer Technology from University Aachen in Aachen, Germany in 1985.

Family Relationships

There are no family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer. None of our directors or executive officers have had direct or indirect material interest in any transaction or proposed transaction, in which the Company was or is a proposed participant, exceeding $120,000.

Involvement in Certain Legal Proceedings

To our knowledge, during the last ten years, none of our directors and executive officers has:

CORPORATE GOVERNANCE

Committees

The Board of Directors does not have a standing nominating committee. Nominations for election to the Board of Directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors in accordance with our bylaws and Nevada law. Meetings may be held from time to time to consider matters for which approval of our Board of Directors is desirable or is required by law.

Advisory Board

In connection with the Company’s desire to retain highly qualified individuals to advise the Company with respect to certain aspects of its business, the Company has adopted an Advisory Board Charter, effective September 1, 2016, and has appointed four (4) members to its newly created Advisory Board, in order to advise the Company on the roll-out of its technologies, including its Guardian Patch “GOPHERINSIGHT™” circuit prototype device (the “Patch”). Each of the Company’s Advisory Board members are seasoned veterans of the technology industry and are considered experts in their respective fields. 

Having been formed in September 2016, Advisory Board members received $3,000 each remuneration in the form of cash. The Company had its first advisory board meeting in the fourth quarter of fiscal 2016. The Advisory Board has since been dissolved, and had no meetings in 2017 beyond the initial meeting in 2016. No stock options were granted to any of the members of the advisory board.

Agreements with Officers and Directors 

On April 22, 2015, Michael Murray was appointed by the Company as the Chairman of the Board of Directors, CEO, and President of the Company. 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 is the owner of 9,900 shares of Series D Preferred Stock of the Company that is convertible at Mr. Murray’s election into 9,900,000 shares of common stock. During 2016 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. Said agreement is 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. Dr. Rittman owns 9,900 shares of Series D Preferred Stock of the Company that is convertible at Dr. Rittman’s into 9,900,000 shares of common stock. During 2016 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, which as of December 31, 2016 have not been met. As of the end of the fiscal year, the intellectual property developed by Dr. Rittman had not been assigned to the Company. 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 (i) 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.

The original Exclusive License Agreement will remain in place, while other agreements will be terminated and rendered null and void. Dr. Rittman will resign as an officer of the Company, but will remain as Director and technical consultant of the Company, and will accommodate the needs of the Company in return for compensation to be agreed by the parties. All intellectual property will remain in the possession of Dr. Rittman and his private partners, and the Company shall remain a licensee per the terms of the original Territorial License Agreement, and will develop the first product with Dr. Rittman and his partners.

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 the LLC as consideration for the JV. Dr. Rittman’s partners have commenced development of the product via a private LLC that has been incorporated under the name “Guardian Patch LLC” (“LLC”). Certain private investors will provide all initial funding to the Company via the LLC for product development. The 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 the LLC, the Company and the LLC have formed a Joint Venture (“JV”) for the purposes of developing and marketing the Patch. The 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 the LLC. Moreover, the 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 the LLC, with which the Company is a JV partner, but is not equity member. The Company has agreed with the LLC that the same JV principles of the GPLLC 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 quarter ended December 31, 2016, 100% 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 April 16, 2016 (the “Effective Date”), Mansour Khatib and the Company entered into an Employment Agreement (the “Agreement”) pursuant to which Mr. Mansour Khatib agreed to serve as the Chief Marketing Officer of the Company. Mr. Mansour Khatib was also appointed as a director of the Company on the Effective Date. Pursuant to the terms of the Employment Agreement, Mr. Khatib will receive an annual salary of $100,000 upon the Company generating $1,000,000 in revenue during any three (3) month period. There is no understanding or arrangement between Mr. Khatib and any other person pursuant to which he was appointed as an executive officer and director. Mr. Khatib does not have any family relationship with any director, executive officer or person nominated or chosen by us to become a director or an executive officer. Mr. Khatib has not had direct or indirect material interest in any transaction or proposed transaction, in which the Company was or is a proposed participant, exceeding $120,000.

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 Guardian Patch 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.”  

On or around September 7, 2017, and in connection with the purchase of certain assets from RWJ Advanced Marketing LLC, the Company and Mr. 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.

On or around September 30, 2017, Mr. Klinger resigned as Chief Financial Officer to pursue other opportunities. Mr. Bauer became CFO on the same date.

Compliance with Section 16(a) of the Securities Exchange Act of 1934 

Section 16(a) of the Securities Exchange Act of 1934, requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. During the fiscal year ended December 31, 2016, our Chief Executive Officer, Chief Technical Officer, as well as two major shareholders, filed the required reports (on Form Rule 13d-101) under Section 16.

Code of Ethics 

We have adopted a Code of Ethics that applies to all officers, directors and employees. The Company will provide to any person without charge a copy of such code of ethics upon written request to the Company at its registered offices.

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth all compensation paid with respect of our Chief Executive Officer for the years ended December 31, 2017 and 2016.

Summary Compensation Table

The compensation discussed herein addresses all compensation awarded to, earned by, or paid to our named executive officer.

There are no other stock option plans, retirement, pension, or profit sharing plans for the benefit of our sole officer and director other than as described herein.

(1) Mr. Murray and Dr. Rittman each own 9,900 shares of Series D Preferred Stock of the Company that is convertible at their election into 9,900,000 shares of common stock. As of December 31, 2016, all of these shares have been converted into shares of the Company.

(2) Mr. Murray resigned as Chief Executive Officer on or around September 7, 2017, but remains as a Director. The warrant on 4,000,000 common shares is consideration for his role as Executive Vice President in charge of business development.

(3) Mr. Bauer was granted 2,000,000 common shares and a warrant for 4,000,000 shares of common stock in connection with the acquisition of certain assets of RWJ Advanced Marketing, LLC.

(4) Mr. Klinger resigned in September 2017.

Director Compensation

The following table sets forth all compensation awarded to, earned by or paid to the non-employee directors in 2017 for service as directors:

Outstanding Equity Awards at Fiscal Year-End

There are no outstanding equity awards outstanding at December 31, 2017 other than those disclosed above.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial ownership of the Common Stock as of April 11, 2018 by (i) each person known by the Company to own beneficially more than 5% of the outstanding Common Stock; (ii) each director of the Company; (iii) each officer of the Company and (iv) all executive officers and directors as a group. Except as otherwise indicated below, each of the entities or persons named in the table has sole voting and investment powers with respect to all shares of Common Stock beneficially owned by it or him as set forth opposite its or his name.

No Director, executive officer, affiliate or any owner of record or beneficial owner of more than 5% of any class of voting securities of the Company is a party adversary to the Company or has a material interest adverse to the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

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 (i) 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.

The original License Agreement will remain in place, while other agreements will be terminated and rendered null and void. Dr. Rittman will resign as an officer of the Company, but will remain as Director and technical consultant of the Company, and will accommodate the needs of the Company in return for compensation to be agreed by the parties. All intellectual property will remain in the possession of Dr. Rittman and his private partners, and the Company shall remain a licensee per the terms of the original Territorial License Agreement, and will develop the first product with Dr. Rittman and his partners.

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 the LLC as consideration for the JV. Dr. Rittman’s partners have commenced development of the product via a private LLC that has been incorporated under the name “Guardian Patch LLC” (“LLC”). Certain private investors will provide all initial funding to the Company via the LLC for product development. The 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 the LLC, the Company and the LLC have formed a Joint Venture (“JV”) for the purposes of developing and marketing the Patch. The 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 the LLC. Moreover, the 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 the LLC, with which the Company is a JV partner, but is not equity member. The Company has agreed with the LLC that the same JV principles of the GPLLC 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 quarter ended December 31, 2016, 100% 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 April 5, 2016, Erik Klinger was appointed by the Company to serve as the Chief Financial Officer of the Company.  

On April 16, 2016 (the “Effective Date”), Mansour Khatib and the Company entered into an Employment Agreement (the “Agreement”) pursuant to which Mr. Mansour Khatib agreed to serve as the Chief Marketing Officer of the Company. Mr. Mansour Khatib was also appointed as a director of the Company on the Effective Date. Pursuant to the terms of the Employment Agreement, Mr. Khatib will receive an annual salary of $100,000 upon the Company generating $1,000,000 in revenue during any three (3) month period.

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 Guardian Patch 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.”  

For the fiscal year ended December 31, 2016, the Company generated $165,000 from the provision of IT services to Guardian Patch LLC, a related party.

On or around September 7, 2017, Greg Bauer became Chief Executive Officer of the Company. At the same time, Michael Murray resigned as CEO, although he remains an investor and a Director of the Company. At closing, the Company and Mr. 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.

On or around September 30, 2017, Erik Klinger resigned as Chief Financial Officer of the Company. At the same time, Mr. Bauer became the Chief Financial Officer of the Company.

Procedures for Approval of Related Party Transactions

Our Board of Directors is charged with reviewing and approving all potential related party transactions.  All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.

Director Independence

The Board of Directors is currently evaluating committee charters with the goal of establishing a Compensation Committee, Governance and Nominating Committee and an Audit Committee.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

On October 24, 2017 (the “Termination Date”), Gopher Protocol Inc. (the “Company”) terminated Anton & Chia, LLP (the “Former Auditor”) as the independent registered public accounting firm of the Company.

Other than an explanatory paragraph included in the Former Auditor’s audit report for the Registrant’s fiscal years ended December 31, 2016 and 2015 relating to the uncertainty of the Company’s ability to continue as a going concern, the audit reports of the Former Auditor on the Company’s financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.

During the years ended December 31, 2016 and 2015 and through the date of this Current Report on Form 8-K, the Company has not had any disagreements with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the Former Auditor’s satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such years.

During the years ended December 31, 2016 and 2015 and through the Termination Date of this Current Report on Form 8-K, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

New independent registered public accounting firm

On or around October 24, 2017 (the “Engagement Date”), the Company engaged BF Borgers CPA PC (“New Auditor”) as its independent registered public accounting firm for the Company’s fiscal year ended December 31, 2017. The decision to engage the New Auditor as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.

During the two most recent fiscal years and through the Engagement Date, the Company has not consulted with the New Auditor regarding either:

1.                   application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that the New Auditor concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or

2.                   any matter that was either the subject of a disagreement (as defined in Regulation S-K, Item 304(a)(1)(iv) and the related instructions) or reportable event (as defined in Regulation S-K, Item 304(a)(1)(v)).

Audit Fees

For the Company’s fiscal year ended December 31, 2017, we were billed approximately $25,000 by Prior Auditor and approximately $10,000 by New Auditor for professional services rendered for the review and audit, respectively, of our financial statements.

For the Company’s fiscal year ended December 31, 2016, we were billed approximately $47,174 by Prior Auditor for professional services rendered for the audit of our financial statements.

All Other Fees

The Company incurred $49,000 of additional fees from (1) a consultant whom assisted with the due diligence on the acquisition during the third fiscal quarter, and (2) from a consultant who assisted with ongoing accounting and analysis, including the derivative liability.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

● approved by our audit committee; or

● entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.

We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

SIGNATURES

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

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

GOPHER PROTOCOL, INC.

Consolidated Financial Statements

Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of Gopher Protocol, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Gopher Protocol, Inc. (the “Company”) as of December 31, 2017, the related statement of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s BF Borgers CPA PC

BF Borgers CPA PC

We have served as the Company’s auditor since 2017

Lakewood, CO

April 11, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Gopher Protocol, Inc.

We have audited the accompanying balance sheet of Gopher Protocol, Inc. (the “Company”) as of December 31, 2016 and the related statements of operations, changes in stockholders’ deficit and cash flow for the year then ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and the results of its operations, changes in stockholders’ deficit and its cash flow for the year ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, these conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

GOPHER PROTOCOL, INC.

CONSOLIDATED BALANCE SHEETS

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

GOPHER PROTOCOL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

GOPHER PROTOCOL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)