There has been a lot of talk of GTCH issuing shares, leading to massive dilution, during 2023. My theory has alway been that virtually all the 2023 additions of shares have been pursuant to share conversions under "toxic" convertible notes, especially the so-called IGOR Note. The 10-K confirms this is true.
The 10-K, on P-6, recaps that at the close of 2022, GTCH had O/S of 1,535,593,440 (about one tenth of today's O/S). A year later, at the close of 2023, the O/S had inflated up to 10,253,965,062. That means GTCH issued 8,718,371,622 shares during FY 2023. Did GTCH harvest any money from those issuances? No. P-6 also makes clear that during 2023 it issued 8,618,101,622 shares to holders of convertible notes, upon conversion of debt. It also issued 100,000,000 shares to a vendor for services. That's it. No other stock issuances.
So, who were the convertible note holders who got the 8.6 BILLION shares? Number one is the holder of the uber-toxic convertible note, called variously the IGOR Note or the GBT Technologies SA Note. That note holder got 6,309,235,284 shares! Two other convertible note holders, Stanley Hills and 1800 Diagonal Lending, got 1,157,809,793 and 1,002,897,711, respectively. There were a few other minor conversions.
So, for debt conversion to 6,309,235,294 share in 2023, you would think that the IGOR Note was almost paid down, right? Wrong! On 12/31/22 the unpaid balance under the IGOR Note was $6,395,531; one year (12/31/23) and 6,309,235,294 shares later, the unpaid balance stood at $5,175,496 (see page F-22). The IGOR Note contains a requirement that the note holder may never own more than 5% of the company. But, remarkably--and this is a toxic feature--it doesn't contain a lock-up period for shares gained on conversion or a less restrictive bleed-out provision that limits how many shares can be sold over time. So, in 2023, the holder of the IGOR Note received shares equal to 60% of the total O/S of the company, yet apparently never held--at any one time--more than 5% of the company's stock (which would violate the Note terms). Answer: conversion shares were quickly dumped on the market very soon after receipt, paving the way for another share conversion and dump. Rinse and repeat.
The second reason the IGOR Note is toxic is because its share conversion price is at a discount to average share prices. Thus, the lower the share price goes, the lower the "strike" price for debt conversions to stock. So, as the IGOR Note holder dumps his billions of shares into the market, causing the PPS to plummet, he is simultaneously reducing the strike price at which he can convert debt to shares in the future. Does this matter?
Page F-29 shows that on 12/31/22, the company had "derivative" liability a mere $1,714,143. This is essentially a measure of latent liability of the company under convertible notes. A year later, on 12/31/23, derivative liability of the company had climbed to $14,116,062--even though the company had paid down some of the balance under the toxic notes! As the footnote indicates, the rise in derivative liability is due to the dramatic drop in PPS during 2023.
I hold a largish position in GTCH. I believe in the company's theoretical potential. My fear has always been of the toxic note debt that is strangling strangling GTCH, and shocking diluting retail shareholder. So for me, I don't look for favorable PRs or joint ventures with possible future upsides. I look for one thing only: the day when GTCH receives some actual cash from the sale of a patent or technology and uses that cash to pay off its toxic convertible notes. When that day happens, GTCH will have an enormous anchor removed. Until then, everything else is just a popcorn fart.
