UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-33519

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

(Exact name of Registrant as specified in its charter)

 

Nevada	98-0360989
(State of Incorporation)	(I.R.S. Employer Identification No.)

 

2 Park Plaza, Suite 400, Irvine, CA 92614
(Address of principal executive offices)

 

(949) 769-3550

(Issuer’s telephone number)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o 

 

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

 

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer (Do not check if smaller reporting company) o	Smaller Reporting Company x

 

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

 

As of November 1, 2016, there were 48,531,459 shares of our common stock, par value $0.001, issued and outstanding.

 

As of November 1, 2016, there were no shares of our preferred stock, par value $0.001, issued and outstanding.

 

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

FORM 10-Q Quarterly Report

September 30, 2016

 

Table of Contents

 

		Page
Part I – Financial Information
Item 1.	Financial Statements	4
	Unaudited Consolidated Balance Sheets at September 30, 2016 and December 31, 2015	4
	Unaudited Consolidated Statements of Operations for the Nine Months Ended September 30, 2016 and 2015	5
	Unaudited Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II – Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Signatures		50
Certifications

 

 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends, and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, uncertainties associated with product research and development, product plans and performance, management’s assessment of market factors, and other risks identified in the Registrant’s filings with the Securities and Exchange Commission from time to time.

 

In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.

 

 

 

 

 

PART I -- FINANCIAL INFORMATION

ITEM 1 – UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). It is suggested that the following consolidated financial statements be read in conjunction with the accompanying notes and financial statements and notes thereto in the annual financial statements included on Form 10-K for Global Future City Holding Inc. for the fiscal year ended December 31, 2015, filed with the SEC on April 13, 2016.

 

GLOBAL FUTURE CITY HOLDING INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		September 30,				December 31,
		2016				2015
Assets:
Current assets
Cash and cash equivalents		$	384,412			$	655,405
Accounts receivable			39,222				–
Inventories			1,534,602				–
Deposits for inventory			267,338				879,504
Due from related parties			906,733				–
Deferred financing costs			–				14,489
Prepaid expenses			54,705				21,411
Total current assets			3,187,012				1,570,809
Property and equipment, net			584,137				249,325
Investment in Powerdyne			250,000				250,000
Service contract- related party, net			297,500				350,000
Other asset			170,517				19,359
Total assets		$	4,489,166			$	2,439,493
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable		$	406,142			$	326,700
Accrued expenses and deposits			186,914				138,677
Accrued compensation			219,653				211,905
Membership deposits and accrued benefits			–				10,020
Deferred revenue			318,605				600
Due to related parties			15,980				89,359
Notes payable			780,000				1,050,000
Total current liabilities			1,927,294				1,827,261
Total liabilities			1,927,294				1,827,261
Commitments and contingent liabilities
Shareholders’ equity:
Preferred stock, $0.001 par value: 20,000,000 shares authorized, no shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively.			–				–
Common stock, $0.001 par value: 150,000,000 shares authorized, 48,456,586, and 47,533,029 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively.			48,457				47,533
Additional paid-in capital			9,054,275				6,007,601
Accumulated deficit			(6,540,860	)			(5,442,902	)
Total shareholders’ equity			2,561,872				612,232
Total liabilities and shareholders’ equity		$	4,489,166			$	2,439,493

 

See accompanying Notes to Consolidated Financial Statements.

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
Revenue – related party commissions		$	125,917			$	–			$	3,516,960			$	–
Revenue – direct selling			3,600				–				24,875				–
Total revenue, net			129,517				–				3,541,835				–
Cost of product sales			102,531				–				106,792				–
Gross profit			26,986				–				3,435,043				–
Operating expenses:
Selling and marketing			132,113				2,239				1,040,464				86,887
General and administrative			1,205,010				175,676				3,412,811				396,850
Total operating expenses			1,337,123				177,915				4,453,275				483,737
Operating loss			(1,310,137	)			(177,915	)			(1,018,232	)			(483,737	)
Other (income) expense:
Interest expense, net			20,068				27,882				70,099				84,773
Loss (gain) on extinguishment of debt			–				–				9,627				(279,823	)
Other expense, net			–				600				–				1,800
Loss before income taxes			(1,330,205	)			(206,397	)			(1,097,958	)			(290,487	)
Provision for income taxes			–				–				–				–
Net loss		$	(1,330,205	)		$	(206,397	)		$	(1,097,958	)		$	(290,487	)
Basic and diluted net loss per common share		$	(0.03	)		$	(0.00	)		$	(0.02	)		$	(0.01	)
Weighted average number of common shares used in basic and diluted per share calculations			48,415,176				47,533,029				48,077,716				44,152,146

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended September 30,
		2016				2015
Cash flows from operating activities:
Net loss		$	(1,097,958	)		$	(290,487	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss (gain) on extinguishment of debt			9,627				(279,823	)
Common stock issued for services rendered			103,070				65,000
Common stock issued for employee compensation			200,067				–
Depreciation and amortization			89,829				6,059
Changes in operating assets and liabilities:
Accounts receivable			(39,222	)			51,256
Inventories and inventory deposits			(922,436	)			3,426
Due from related parties			(906,733	)			–
Prepaid and other			(184,452	)			5,178
Accounts payable			79,462				(69,675	)
Membership deposits and accrued benefits			(10,020	)			–
Deferred revenue			318,005				–
Accrued expenses			90,451				(24,165	)
Net cash used in operating activities			(2,270,310	)			(533,231	)
Cash flows from investing activities:
Cash paid for property and equipment			(379,245	)			–
Acquisition of Powerdyne EB-5 License			(25,000	)			(175,000	)
Net cash used in investing activities			(404,245	)			(175,000	)
Cash flows from financing activities:
Proceeds from the sale of common stock			2,658,086				3,000,000
Proceeds from capital contributions			–				289,885
Cash paid for deferred financing cost			14,489				(8,489	)
Net advances from related party			(24,013	)			(357,975	)
Repayments of notes payable			(245,000	)			–
Net cash provided by financing activities			2,403,562				2,923,421
Net increase in cash and cash equivalents			(270,993	)			2,215,190
Cash and cash equivalents at beginning of period			655,405				155,271
Cash and cash equivalents at end of period		$	384,412			$	2,370,461
Supplemental disclosure of non-cash investing and financing activities:
Forgiven accrued compensation		$	–			$	1,673,774
Conversion of notes payable and accrued interest		$	–			$	58,279
Issuance of note payable to seller of Powerdyne		$	–			$	250,000
Issuance of stock for related party advances settlement		$	–			$	47,075

 

See accompanying Notes to Consolidated Financial Statements.

 

 

 

 

 

GLOBAL FUTURE CITY HOLDING INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(UNAUDITED)

 

1.

Business Summary

 

Global Future City Holding Inc. (the “Company”, “we”, “our”, “us”) is a holding company focused in the areas of (i) consumer product sales through the GX-Life Direct-Selling Program offered by its wholly-owned subsidiary, GX-Life Global, Inc., and (ii) EB-5 investments for foreign investors who are interested in acquiring lawful permanent residence in the United States.

 

Our Company was incorporated in the State of Nevada on October 12, 2000 under the name Cogen Systems, Inc. We changed our name to Snocone Systems, Inc. on December 6, 2001. On April 1, 2005, Snocone Systems, Inc. and its wholly-owned subsidiary, WYD Acquisition Corp., a California corporation (the “Merger Sub”), completed and closed an Agreement and Plan of Merger with Who’s Your Daddy, Inc. (“WYD”), an unrelated, privately held California corporation, whereby the Merger Sub merged with and into WYD. After the merger, the separate existence of the Merger Sub ceased and, as such, WYD continued its corporate existence as a direct, wholly-owned subsidiary of Snocone Systems, Inc. under the laws of the State of California. On April 13, 2005, the shareholders of Snocone Systems, Inc. voted to change its name to Who’s Your Daddy, Inc., and effective June 1, 2010, the shareholders of Who’s Your Daddy, Inc. voted to change the Company’s name to FITT Highway Products, Inc. As discussed more fully under the section, “Merger with FITT” below, effective October 29, 2013, the Company merged with F.I.T.T. Energy Products, Inc. (“FITT”) whereby FITT merged into the Company, with the Company being the surviving entity. As stated under the section, “Name Change” below, effective October 29, 2014, the name of our Company was changed to Global Future City Holding Inc. and our trading symbol changed from FHWY to FTCY.

 

For a more detailed description of our business, please see the section titled, “Description of Business and Nature of Operations”, under Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

As a result of recurring losses and negative cash flows there is a substantial doubt about the Company’s ability to continue as a going concern. The company intends to fund its operations with additional equity and/or debt financing. Management is also making efforts to increase revenue generating activities from the Company’s MLM program. If we cannot raise additional short term capital, we may consume all of our cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company or at all. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that would be necessary if we are unable to continue as a going concern.

 

2.

Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company and its wholly owned subsidiaries, GX-Life Global, Inc., a Nevada corporation (“GX-Life”), and Global Future City Regional Center, LLC, a California limited liability company (“Regional Center”), have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on April 13, 2016.

 

All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements may have been reclassified to conform to the current period presentation.

 

Management may make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.

 

Fair Value of Financial Instruments

We follow the guidance of ASC 820 – Fair Value Measurement and Disclosure. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of our Company. Unobservable inputs are inputs that reflect our Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

  

 

 

Our financial instruments consisted primarily of (level 1) accounts payable, accrued expenses and deposits, accrued compensation, membership deposits and accrued benefits, deferred revenue and notes payable. The carrying amounts of our financial instruments generally approximate their fair values due to the short term nature of these instruments.

 

Revenue Recognition

Revenue from product sales are recorded when the products are shipped and title passes to independent members. Net revenues are determined after deducting promotional and other allowances in accordance with ASC 605-50. Product sales to members are made pursuant to a member agreement that provides for transfer of both title and risk of loss upon our delivery to the carrier that completes delivery to the members. This is commonly referred to as “F.O.B. Shipping Point.” Amounts received for unshipped product are recorded as deferred revenue. Our sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. We estimate and accrue a reserve for product returns based on our return policies and historical experience, with the expense recorded as a reduction to revenue.

 

Cash receipts for enrollment packages include nonrefundable enrollment fees for all new members and an additional deposit for upgrading to VIP status if a member so chooses under the terms of the GX-Life Global Compensation Plan that was in effect during the second quarter of 2016 (the “Q2 Plan”). The nonrefundable enrollment fee is deferred and recognized over the term of the arrangement, generally twelve months.

 

For historical members under the Q2 Plan, the VIP status upgrade is a deposit which is repayable to a member either in cash, product, or convertible into GX Coin. There is no revenue associated with the VIP status upgrade deposit initially; however, related party revenue is recognized on the commission earned when VIP members convert their historical membership or rewards points to GX-Coin under the Q2 Plan. The VIP status upgrade earns reward status points that are also subject to repayment in cash or convertible into GX Coin. Pursuant to ASC 605-50, a cost and liability for amounts owed in cash or cash equivalents benefits under nondiscretionary loyalty programs should be accrued with a related contra-revenue, as by transferring the right to cash or cash equivalent benefits, the entity effectively reduces the revenue from conversions of VIP status and related accrued benefits to GX Coin. Each VIP member entering the Q2 Plan through the second quarter of 2016 have elected to convert their respective deposit to GX-Coin by such time or during the third quarter of 2016. The Company recognizes revenue on the conversion upon the completion of our performance obligation as part of the conversion process, at which point all necessary revenue recognition criteria have been met.

 

Based on industry developments and best practices of direct selling programs, GX-Life implemented a revised compensation plan on July 15, 2016, and finalized and released such plan on August 1, 2016 (the “GX-Life Global Compensation Plan”). The GX-Life Global Compensation Plan removed the VIP status upgrade deposits and accordingly, the revenues from the conversion of VIP status upgrade deposits is expected to cease during the 2016 year after all deferrals are recognized. GX-Life will continue to generate revenue from the conversion of certain membership transactions to GX Coin where GX-Life is able to make a margin on the conversion.

 

From time to time, GX-Life may make modifications and enhancements to the GX-Life Global Compensation Plan to help motivate GX-Life Members. GX-Life may also enter into agreements for business or market development, which may result in additional compensation to specific GX-Life Members. GX-Life intends to continue to examine and adjust the GX-Life Global Compensation Plan to reflect marketplace competition, demand, and U.S. regulations and foreign jurisdictions. Because of this, GX-Life recognizes that the compensation and rewards available under the GX-Life Global Compensation Plan may be different across different jurisdictions.

 

Net Loss per Share

We present basic loss per share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. At September 30, 2016 and 2015, we had no outstanding options or warrants to purchase any of our common shares, respectively. As of September 30, 2016 and 2015 we had convertible debts which were excluded from the dilutive EPS calculations under the provisions of ASC 260 as the debts are convertible only at the option of the Company, the Company has commenced paying such in cash, and the Company has the intent and ability to pay the remaining debt in cash rather than converting to equity.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230)” – Classification of Certain Cash Receipts and Cash Payments. This guidance is intended to reduce diversity in practice with respect to eight specific cash receipts and cash payments and how they are classified in the statement of cash flows. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the expected impact of this new accounting standard on its financial statements.

 

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606)” – Narrow-Scope Improvements and Practical Expedients. The amendments in this Update clarify the objective of the collectability criterion in Step 1 of the new revenue recognition model.

 

 

 

The objective is to determine whether the contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration in exchange for the goods or services that will be transferred to the customer. The amendments in this Update also add a new criterion to paragraph 606-10-25-7 to clarify when revenue would be recognized for a contract that fails to meet the criteria in Step 1. That criterion allows an entity to recognize revenue in the amount of consideration received when the entity has transferred control of the goods or services, the entity has stopped transferring goods or services (if applicable) and has no obligation under the contract to transfer additional goods or services, and the consideration received from the customer is nonrefundable. Amendments in this Update permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts. The amendments in this Update clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments in this Update affect the guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.

  

The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. We believe those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to our Company, or (iv) are not expected to have a significant impact on us.

 

3.

Inventories

 

Inventories consist of the following at:

 

		September 30, 2016				December 31, 2015
Finished Goods		$	1,534,602			$	–
Deposits on Inventory			267,338				879,504
		$	1,801,940			$	879,504

 

4.

Accrued Expenses

 

Accrued expenses consist of the following at:

 

		September 30, 2016				December 31, 2015
Accrued interest		$	162,501			$	126,512
Accrued royalties and commissions			11,346				11,366
Other			13,067				799
		$	186,914			$	138,677

 

5.

Accrued Compensation

 

Accrued compensation consists of the following at:

 

		September 30, 2016				December 31, 2015
Accrued salaries		$	33,248			$	–
Accrued payroll taxes – delinquent			186,405				211,905
		$	219,653			$	211,905

 

6.

Membership Deposits

 

Membership deposits and accrued benefits consist of the following at:

 

		September 30, 2016				December 31, 2015
Beginning balance		$	10,020			$	–
VIP membership deposits			5,371,166				10,000
Accrued member benefits			129,501				20
Less: member conversions to GX-Coin			(5,510,687	)			–
Ending balance		$	–			$	10,020

 

 

 

7.

Notes Payable

 

Notes payable consists of the following at:

 

		September 30, 2016				December 31, 2015
Acquisition note – Powerdyne		$	–			$	50,000
Convertible promissory notes – debt acquisition			95,000				100,000
Notes payable – original bridge			120,000				120,000
Notes payable – bridge loan #1			230,000				355,000
Notes payable – bridge loan #2			85,000				175,000
Notes payable – bridge loan #3			250,000				250,000
			780,000				1,050,000
Less current portion			(780,000	)			(1,050,000	)
Long-term portion		$	–			$	–

  

Notes Payable Settlement Agreements

During the fourth quarter of 2014, we reached Settlement Agreements with most of our noteholders to restructure their notes. In the restructuring of our notes payable, which was one of our Company’s conditions for closing of the Sky Rover SPA, our noteholders agreed to a) forgo payment of nearly all of the interest which had been accrued but unpaid as of the dates of each settlement agreement, b) a new interest rate of 10% per annum, c) a new maturity date of August 1, 2015, and d) a Company option to convert into free-trading shares of our common stock at any time our common stock has a closing bid price per share of $1.00 or more for 20 consecutive trading days after the closing of the Sky Rover SPA. In addition, holders of the convertible promissory notes – debt acquisition, notes payable – bridge loan #2 and notes payable – bridge loan #3 also agreed to forgo any additional principal payable under their respective notes. As a result of these settlements, we recorded gains on extinguishment of debt totaling $952,400 in 2014. After modification of the notes described above, all notes are now considered convertible.

 

Convertible Promissory Notes – Debt Acquisition

During the first quarter of 2013, we entered into Debt Acquisition Agreements (“Debt Agreements”) with two parties affiliated with each other (the “Debt Funders”). Under the Debt Agreements, we issued convertible promissory notes totaling $150,000, $50,000 of which was subsequently converted to equity. The notes bore interest at 10% per annum and were repayable at two times the principal amount of the notes. Repayment was to be made by conversion into shares of our common stock based on a 20-day volume weighted average price with the minimum conversion price based on a market valuation for our Company of $10 million, and the maximum conversion price based on a market valuation of $20 million. The due date by which the Debt Funders were to convert the notes was December 31, 2013, but such conversion was not made. In December 2014, we entered into Settlement Agreements with the holders of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements. Accordingly, these notes are no longer convertible at the option of the holder.

 

Note Payable – Original Bridge

The notes, which had an original face value totaling $245,000, bear interest from 10% to 12% per annum and are repayable from a pool of 10% of gross proceeds from the sales of the Company’s energy drinks. In December 2013, a noteholder converted $75,000 of this debt to equity. Although we have received sales proceeds from selling energy drinks, no payments have been made to date on these notes payable. As such, the notes payable are in default and have been recorded as current liabilities in the accompanying Consolidated Balance Sheets for all periods presented. In 2014, we facilitated a share purchase agreement between Greenome Development Group, Inc. and a significant shareholder. Per the terms of the agreement, the Company was relieved of $50,000 in debt from the shareholder.

 

Note Payable – Bridge Loan #1 

This debt arose from an offering we initiated in 2010 of up to $1.0 million of units of securities, each unit consisting of a 12% unsecured promissory note and 0.083 shares of the Company’s common stock for every dollar invested. In connection with this offering, we issued notes with face value totaling $580,000. During the three-month periods ended December 31, 2013, and March 31, 2014, respectively, noteholders converted $175,000 and $50,000 into equity, respectively. The notes were repayable 12 months from the date of issue, and repayment was to come from a pool of 10% of cash receipts from the sales of the Company’s energy drinks. Although we have received sales proceeds from selling energy drinks, no payments have been made to date on these notes payable. In the fourth quarter of 2014, we entered into Settlement Agreements with the holders of $345,000 face value of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements.

 

Note Payable – Bridge Loan #2

In November 2011, we initiated a Bridge Loan offering of up to $1.0 million of units of securities, each unit consisting of a 10% convertible promissory note (interest rate increasing to 18% upon an event of default) and 5.5 shares of our common stock for every dollar invested with repayment to be made at two times the principal amount of the notes. The notes mature at various dates, all of which are within twelve months of the date of issuance. In connection with this offering, we issued notes with principal amounts totaling $255,000 (repayment amounts totaling $510,000). During the three-month period ended December 31, 2013, $160,000 in repayment amounts were converted to equity. In the event we file a registration statement with the SEC and it is declared effective, we have the option to repay the original principal plus accrued interest in shares of our common stock calculated at the offering price within the registration statement.

 

 

 

The additional principal of $255,000 was accreted over the respective term of each of the notes. We also recorded an initial discount on the notes of $11,275 based on the estimated fair market value of our common shares on the date of issuance. As of March 31, 2015, and December 31, 2014, there was no remaining unamortized discount. In the fourth quarter of 2014, we entered into Settlement Agreements with the holders of $150,000 face value of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements.

  

Note Payable – Bridge Loan #3

In December 2012, we initiated a Bridge Loan offering of up to $1.0 million of units of securities, each unit consisting of a 10% convertible promissory note (interest rate increasing to 18% upon an event of default). During the second quarter of 2013, we issued a note with face value totaling $250,000 in connection with the offering and received proceeds of $225,000. The note was repayable at two times the principal amount of the note (repayment amount of $500,000) and matured on September 30, 2013. We had the option to repay the note in cash, shares of common stock of the merged entity, or a combination of cash and shares of common stock. Any portion of payment made in shares of our common stock are to be valued at the 20-day volume weighted adjusted market price of the stock of the merged entity.

 

We recorded an initial discount of $25,000 on this note which we amortized through September 30, 2013, the effective maturity date of the note. The additional principal of $250,000 was accreted through the effective maturity date of September 30, 2013. In the fourth quarter of 2014, we entered into Settlement Agreements with the holder of these notes, with the same terms as described under the above caption Notes Payable Settlement Agreements, with the exception that the modified note does not contain a conversion option.

 

Debt Offering

In May 2016, we commenced an offering (the “Offering”) in the principal aggregate amount of $10.0 million in the form of 12% Convertible Promissory Notes (the “Notes”). Each Note issued under the Offering will have a maturity date of twelve months from the date of the Note (the “Maturity Date”). The entire principal balance will automatically convert to the Company’s common stock at a conversion price of $3.50 per share, provided that the common stock closes at an average asking price (the “Closing Asking Price”) based on the 10-day volume weighted average price after the Maturity Date (the “Conversion Price”), greater than $3.50 per share. If the Closing Asking Price is less than $3.50, the Company has the option to repay the entire principal in the form of cash, shares of the Company’s common stock, or a combination of both cash and common stock based on the Conversion Price. The Note shall bear simple interest at the rate of 12% per annum and shall be payable in cash.  Accrued interest shall be payable on the last day of each calendar month during the term of the Note. The Offering shall terminate on September 30, 2016, unless earlier terminated or extended by the Company. As of the date of this filing, there were no Notes issued.

 

8.

Related Parties

 

Amounts due to/from related parties consist of the following at:

 

		September 30, 2016				December 31, 2015
Advances from CFO		$	15,980			$	89,359
Advances to Ex-CEO			26,413				–
Advances to Affiliate			880,320				–
		$	906,733			$	–

 

 

9.

Capital Stock

 

Common Stock

In connection with the closing of the Sky Rover SPA, the Company’s then newly-appointed, and now former CEO, Mr. Lei Pei, purchased 6,000,000 newly-issued shares of the Company’s common stock for $3,000,000 in cash in a separate transaction that closed on March 30, 2015.

 

Common Stock Issued for Employee Services

During the three and nine months ended September 30, 2016, the Company issued 36,000 and 97,000 free-trading shares of common stock for employee services rendered and recorded stock-based compensation of $53,985 and $200,067, respectively. There were no shares issued for the three and nine months ended September 30, 2015. 

  

Common Stock Issued for Consulting (Non-Employee) Services

During the three and nine months ended September 30, 2016, the Company issued 25,000 and 53,000 shares of common stock for consulting services rendered and recorded stock-based expense of $29,750 and $103,070, respectively. During the three and nine months ended September 30, 2015, the Company issued zero and 250,000 shares of common stock for consulting services rendered and recorded stock-based compensation for the three and nine month ended September 30, 2015 of zero and $65,000, respectively.

 

 

 

Other

During the nine months ended September 30, 2016, the Company issued 14,104 free-trading shares of common stock related to a debt settlement agreement and recorded a reduction of advances owed to our CFO in the amount of $49,364. During the three months ended September 30, 2015, the Company entered into settlement agreements with two vendors whereby 25,000 shares of common stock were issued to settle $49,189 of outstanding amounts due. The Company recorded a gain of $2,089 on these settlements.

 

During the nine months ended September 30, 2016, the Company received written and verbal commitments to purchase 1,000,000 shares under the S-1 for a total of $3,500,000. However, certain investors either did not (i) transmit their respective funds to purchase their shares, or (ii) provide the appropriate written documentation to the Company prior to the S-1 becoming ineffective. As a result, we were only able to appropriately sell 759,453 shares under the S-1 for a total of $2,658,086.

 

Contributed Capital

During the nine months ended September 30, 2015, the Company’s former Chief Executive Officer, Michael Dunn and its former Controller forgave accrued compensation due to each of them. As a result, the Company recorded contributed capital of $1,673,774 during this period.

 

During the nine months ended September 30, 2015, our former CEO Mr. Lei Pei paid $150,000 to sellers of Powerdyne in connection with the purchase price and subsequent installment payment due under the agreement. Mr. Pei was not issued a note or shares of common stock and as a result, the Company recorded this amount as contributed capital in the accompanying consolidated financial statements as of March 31, 2015.

 

During the nine months ended September 30, 2015, Sky Rover advanced $139,885 to the Company for expenses incurred by the Company due to the fact that the Sky Rover SPA closed later than originally anticipated. This amount was recorded as contributed capital upon the close of the Sky Rover SPA as no repayment was required.

 

10. Subsequent Events

 

S-1 Registration Statement

On May 8, 2015, we filed a Form S-1 Registration Statement with the SEC for the initial registration of 10 million shares of our common stock at $3.50 per share, as amended on June 8, 2016, and amended further on June 19, 2016 (collectively the “S-1”). The S-1 was declared effective by the SEC on July 6, 2015.

 

The Company has filed and continues to file Post-Effective Amendments to keep the S-1 current and effective. However, as of the date of this filing, the S-1 is currently ineffective and under review by the SEC.

 

The following summary below details the Post-Effective Amendments we have filed with the SEC as of the date of this filing:

 

·

On October 8, 2015, we submitted Post-Effective Amendment No. 1 to the S-1 incorporating new information resulting from certain transactions in connection with GX-Life, and the resignation of our former CEO, Lei Pei. The Post-Effective Amendment No. 1 was declared effective by the SEC on October 19, 2015.

 

·

On December 2, 2015, we submitted Post-Effective Amendment No. 2 to the S-1 incorporating certain information contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, that was filed with the SEC on November 17, 2015. The Post-Effective Amendment No. 2 was declared effective by the SEC on December 22, 2015.

 

·

On May 4, 2016, we submitted Post-Effective Amendment No. 3 to the S-1 incorporating certain information contained in our Annual Report on Form 10-K for the year ended December 31, 2015, that was filed with the SEC on April 13, 2016, information contained in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, that was filed with the SEC on May 16, 2016, and certain changes in circumstances involving the development and utilization of GX Coin in GX-Life’s Direct Selling Program. We disclosed in this Post-Effective Amendment that we had sold 1,013,500 shares of our common stock under this prospectus. This was due to the fact that subsequent to March 31, 2016, and while the S-1 was still effective, we had received written and verbal commitments to purchase 1,000,000 shares under the S-1 for a total of US$3,500,000. However, certain investors either did not (i) transmit their respective funds to purchase their shares, or (ii) provide the appropriate written documentation to the Company prior to the S-1 becoming ineffective. As a result, we were only able to appropriately document the sale of 759,453 shares under the S-1 for a total of US$2,658,086, and sold an additional 48,104 shares to certain individuals in exchange for noncash consideration.

 

 

 

 

·

On July 22, 2016, we submitted Amendment No. 1 to Post-Effective Amendment No. 3 with the SEC to maintain the registration of 9,192,443 shares of our Common Stock. The S-1 is currently under review and we will not sell any shares under the S-1 until it is deemed effective by the SEC. Reference to the S-1 is not an offer to sell the securities described therein, and the Company is not soliciting an offer to buy the securities in any state where the offer or sale is not permitted.

  

S-8 Registration Statement

On October 5, 2016, we filed a Form S-8 Registration Statement (the “S-8”) with the SEC to register 33,500 shares of our common stock at $1.01 per share. The S-8 was deemed effective as of the filing date pursuant to Rule 462 of the Securities Act.

 

Consulting Agreement

On October 1, 2016, the Company entered into a consulting agreement with C&S International Holdings, Inc. and its principal member, Christopher Stubbs (the “Stubbs Agreement”), whereby Mr. Stubbs will serve as the Vice President of Sales for GX-Life for a period of 90 days, after which Mr. Stubbs may become an employee of the Company.

 

Pursuant to the terms of the Stubbs Agreement, Mr. Stubbs will receive $13,000 per month for providing services to GX-Life, and shall be granted 2,000 shares of the Company’s common stock for each full month that Mr. Stubbs provides services to GX-Life. Mr. Stubbs is also entitled to receive a monthly scaled bonus based on the gross profit sales of GX-Life.

 

Sale of Securities (Regulation S)

On October 3, 2016, the Company sold 25,000 restricted shares of the Company’s common stock for $1.00 per share, for a total purchase price of $25,000 to a foreign individual. In connection with this stock issuance, the Company did not pay any underwriting discounts or commissions. None of the sale or issuance of the securities described or referred to herein was registered under the Securities Act. In making the sale or issuance without registration under the Securities Act, the Company relied upon the exemption from registration contained in Regulation S of the Securities Act.

 

Resignation of Officer and Director

On October 21, 2016, Mr. Ning (Sam) Liu resigned as the Company’s Chief Executive Officer, President, and Chairman of the Board of Directors as well as from all other positions held with the Company’s wholly-owned subsidiaries, effective immediately.

 

The Board approved and accepted Mr. Liu’s resignation from such positions on October 21, 2016. For more information, please refer to form 8-k filed on October 21, 2016.

 

Cancellation of Stock

On March 17, 2016, the Company entered into a consulting agreement whereby an individual was to provide consulting services in exchange for 25,000 shares of the Company’s common stock. The consultant never provided such consulting services for the Company. As a result, the parties entered into a termination agreement on June 27, 2016, whereby in exchange for the cancellation of the 25,000 shares issued to the consultant, the parties agreed to release all claims held against each other . The consultant’s 25,000 shares were effectively cancelled by the Company’s transfer agent on October 12, 2016.

 

Litigation Involving Ning Liu

On September 29, 2016, Xinai Zhao (“Plaintiff”) filed a complaint (the “Complaint”) against Mr. Ning Liu, the Company’s former Chief Executive Officer, President, and Chairman of the Board, Grand Opus Co., Ltd., a California corporation, Goldenrise Development, Inc., a California corporation, and the Company (collectively, the “Defendants”) in the Superior Court of the State of California, County of Los Angeles (Central District) and is seeking to recover no less than $212,992.92 in damages.

 

The Complaint alleges, among other things, that in 2009 Mr. Liu sold a total of 150,000 shares in three separate Chinese companies, and 200,000 shares in China Yongxin Pharmaceuticals Inc. (“CYXN”), a Delaware corporation, to the Plaintiff under false and misleading information. The Complaint also alleges that after CYXN’s stock was suspended and delisted on the Nasdaq Smallcap Market, Mr. Liu provided Plaintiff with 100,000 shares of the Company’s common stock (the “Shares”) around June 2016 to help recoup her loses in these investments.

 

The Company believes that the Complaint has no merit as it pertains to the Company because (i) the Company never sold the Shares to the Plaintiff, (ii) the Shares were gifted to the Plaintiff by Mr. Liu to help recoup her loses, (iii) the Company is not Mr. Liu’s alter ego, and (iv) the Plaintiff’s claims stem from the sole actions of Mr. Liu prior to serving as a director and officer of the Company. As previously discussed, Mr. Liu has resigned as the Company’s Chief Executive Officer, President, and Chairman of the Board on October 21, 2016.

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is intended to provide information about our financial condition and results of operations for the three and nine months ended September 30, 2016, and 2015. This information should be read in conjunction with our audited consolidated financial statements on Form 10-K, filed with the SEC on April 13, 2016, for the year ended December 31, 2015 and 2014, and other reports we’ve filed under the Exchange Act. Some of the information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, includes forward-looking statements based on our current management’s expectations. There can be no assurance that actual results, outcomes, or business conditions will not differ materially from those projected or suggested in such forward-looking statements.

 

Description of Business and Nature of Operations

  

Business Summary

 

We are a holding company focused in the areas of (i) consumer product sales through the GX-Life Direct-Selling Program offered by its wholly-owned subsidiary, GX-Life Global, Inc., and (ii) EB-5 investments for foreign investors who are interested in acquiring lawful permanent residence in the United States.

 

Prior Operations, Acquisitions, and Agreements

 

Prior Operations - FITT Energy

 

Historically, FITT marketed and distributed three, two-ounce energy drink shots, which are F.I.T.T. Energy for Life, F.I.T.T. Energy Extreme and F.I.T.T. Energy Rx. All three energy shots were designed in collaboration with Dr. Rand Scott, a Board Certified Anesthesiologist and Pain Management Specialist who has experience with the use of herbal products. At the recommendation of Dr. Scott, the Company incorporated a number of ingredients into the FITT products to reduce the amount of caffeine in each product.

 

Although the Company has implemented new business operations as further explained below, it has retained the FITT energy drink division by incorporating the sale of FITT energy drinks into the GX-Life Direct-Selling Program. None of FITT’s energy drink products are currently being or will be sold outside of the GX-Life Direct-Selling Program.

 

Prior Acquisitions and Agreements

 

We entered into the following agreements that helped pave and shape our business in its current direction:

 

Sky Rover Stock Purchase Agreement

 

On April 17, 2015, we completed the closing of a Stock Purchase Agreement (the “SPA”) with Sky Rover Holdings, Ltd., a corporation formed under the laws of the Republic of Seychelles (“Sky Rover”). Under the SPA, certain unaffiliated parties (collectively, the “Acquiring Shareholders”) cumulatively acquired approximately 87.3% of the outstanding shares of stock of our Company in exchange for our receipt of $400,000 in cash and the contribution of 4,000,000 E-Gold crypto-assets (“EGD”) to our then wholly-owned subsidiary, Global Modern Enterprise Limited, a Hong Kong entity (the “EGD Subsidiary”). In connection with the closing of the SPA, Mr. Lei Pei, an officer of Sky Rover, purchased 6,000,000 newly-issued shares of our common stock for $3,000,000 cash in a separate transaction that closed on March 30, 2015, which was meant to provide working capital for our business. Additionally, Mr. Pei, provided the initial down payment of $150,000 for the acquisition of Global Future City Regional Center, LLC (f/k/a Powerdyne Regional Center, LLC) which is described below. On August 17, 2015, Mr. Pei, resigned from the Company as its Chief Executive Officer, Chief Financial Officer and Chairman, and sold the 6,000,000 shares he owned in the Company in a private transaction.

 

In connection with the share purchase by Sky Rover, we intended to offer EGD in connection with a reward program (“Rewarded EGD”). We attempted to gain additional assurance that any sale or use of the EGD was in compliance with existing securities regulations, and on February 10, 2015, we filed a Request for No-Action relief (the “No-Action Request”) with the Securities and Exchange Commission (“SEC”) to obtain clarification that the SEC would not recommend enforcement action against us and our related subsidiaries regarding our use of the EGD. However, we were not able to obtain any such assurance or clarification, and the Company spun-off its EGD-related holdings on October 2, 2015 (as further explained below), and withdrew the No-Action Request on October 8, 2015.

 

GX-Life Share Exchange Agreement

 

On October 2, 2015, we completed a Share Exchange Agreement with GX-Life Global, Inc. (“GX-Life”), whereby we spun-off 100% of our ownership interest in the EGD Subsidiary (including the 4,000,000 EGD received under the SPA) in exchange for 100% of the outstanding common stock of GX-Life, a private company owned primarily by Ning Liu, and our CEO/CFO, Michael Dunn. GX-Life has developed a platform to support direct-selling opportunities throughout the world (the “GX-Life Direct Selling Program”).

 

 

 

In a related transaction, on October 2, 2015, the former shareholders of GX-Life sold all of their interests in the EGD Subsidiary to the Acquiring Shareholders in the Sky Rover SPA in exchange for 21,280,000 shares of our Company’s common stock previously acquired in the Sky Rover SPA. Collectively, these two transactions are referred to as the “GX-Life Transactions”. As a result of the GX-Life Transactions, much of the Sky Rover SPA has been effectively unwound, as the Company (i) did not create three (3) of the four (4) subsidiaries it had intended to create under the SPA, (ii) did not receive the IP Technology that was intended to calculate Rewarded EGD, and (iii) no longer owns or controls the EGD Subsidiary or the 4,000,000 EGD crypto-assets it received under the Sky Rover SPA. Furthermore, of the four (4) entities that received shares in the Company (Future Continental Limited, Discover Future Limited, Global Future Development Limited, and Master Power Holdings Group), only Master Power Holdings Group retained the 9,120,000 shares it received under the Sky Rover SPA.

 

The GX-Life Transactions effected a change in control of our Company, as the former shareholders of GX-Life acquired 21,280,000 shares of our common stock representing an aggregate voting power of 44.7%. Individually, following the GX-Life Transactions, (i) Michael Dunn holds a total of 24.1% of the voting power of our common stock, (ii) Ning Liu holds a total of 2.6% of the voting power of our common stock, and (iii) Tomoe Masuya holds a total of 32.9% of the voting power of our common stock. The former shareholders of GX-Life are all unaffiliated from one another and disclaim status as a "group" as defined by SEC Rules under Section 13(d) of the Exchange Act.

 

As described above, we had previously intended to market EGD in connection with a reward program. GX-Life believes that incorporating a crypto-asset other than EGD into a reward program would be important to GX-Life’s success. As a result, on October 21, 2015, GX-Life entered into a subscription agreement (the “Subscription Agreement”) with Great Coin, Inc., a Nevada corporation (“Great Coin”), a company co-owned by Ning Liu, and our CEO/CFO, Michael Dunn. Great Coin is a technology development company that focuses on the development of “GX Coins”, a cryptocurrency that functions as a store of value and medium of exchange, and the associated online cryptocurrency platform (the “GX Coin Platform”). Great Coin intends for GX Coins, as a cryptocurrency, to be tradable on the GX Coin Platform that is open to the public, and the ownership and transfer of GX Coins is intended to be recorded on an encrypted, distributed ledger system that is based on blockchain technology developed and made available by Ethereum Foundation, a Switzerland company (“Ethereum”). The software utilized by Ethereum to record GX Coin transactions on the GX Coin Platform is developed by third parties that are beyond the control of the Company, its subsidiaries, or Great Coin, and may contain material defects and vulnerabilities. In the event that Ethereum or its software changes, becomes obsolete, gets regulated adversely in one more jurisdictions, does not meet the expectations of its users, or suffers a breach in security, such event may have an adverse effect on the value of GX Coin and thereby our business.

 

Great Coin has created seventy-five million (75,000,000) GX Coins using 256-bit encryption. To incorporate GX Coins into GX-Life's new business model, GX-Life originally agreed to purchase 5,000,000 GX Coins, at a price of $0.50 per GX Coin, for a total price of $2,500,000. In October 2015, GX-Life paid Great Coin $350,000 for 700,000 GX Coins under the Subscription Agreement. However, while Great Coin retained the $350,000 that was paid, the GX Coins were never delivered to GX-Life. Instead, the Subscription Agreement was superseded and replaced on February 17, 2016 by a Software License and Services Agreement (the “License Agreement”) between GX-Life and Great Coin, as amended on June 30, 2016 (the “Access and Services Agreement”). Under the Access and Services Agreement, GX-Life agreed to pay an upfront fee of $350,000 which was deemed paid by GX-Life's previous payment made to Great Coin in October 2015, and the remaining obligations under the Subscription Agreement were canceled. The material difference(s) between the License Agreement and Access and Services Agreement is that under the Access and Services Agreement, (i) GX-Life Members receive their entire commissions in the form of GX-Coins as stated in the conversion notice provided to GX-Life rather than receiving their entire commissions in the form of GX-Coins over the course of twenty weeks, and (ii) clarifies that the conversion fee paid by GX-Life to Great Coin shall be calculated without any reference to any discounts, rewards, or incentives that a GX-Life Member may receive under the GX-Life Global Compensation Plan.

 

Under the Access and Services Agreement, Great Coin has agreed to make available and manage the GX Coin Platform, in connection with which GX-Life Members will be able to receive their commissions in the form of either a debit card, Automatic Clearing House (“ACH”) deposit, or GX Coins. The GX Coin Platform will also allow GX-Life Members to sell GX Coins to other users of the GX Coin Platform, including the public and other GX-Life Members.

 

Acquisition of Global Future City Regional Center, LLC (formerly, Powerdyne Regional Center, LLC)

 

On March 26, 2015, the Company entered into a Membership Interest Purchase and Sale Agreement (the “Membership PSA”) with Powerdyne, Inc. (the “Selling Entity”), an entity which owned 100% of the membership interests in Powerdyne Regional Center, LLC (“Powerdyne” or “Regional Center”). Powerdyne is an EB-5 Regional Center (USCIS ID Number 1215250671) that was approved by the USCIS on March 28, 2013. The closing (“Closing”) of the Membership PSA occurred on March 27, 2015.

 

Under the terms of the Membership PSA, the Company purchased 100% of the membership interest of Powerdyne (the “Purchased Membership Interest”) from the Selling Entity for the total purchase price of $250,000 (the “Purchase Price”) of which $125,000 (the “Deposit”) was paid by the Company at the Closing with the balance to be paid in five (5) quarterly installments of $25,000 (the “Installment Payments”) due on April 1, 2015, July 1, 2015, October 1, 2015, January 1, 2016, and April 1, 2016. Notwithstanding anything to the contrary, such Installment Payments shall be accelerated by the amount of administrative fees paid by any EB-5 investor(s) until the remaining balance is paid in full. As collateral for the timely payment of the Installment Payments, the Company pledged and granted a security interest in the Purchased Membership Interest of Powerdyne to the Selling Entity, until the Purchase Price was paid in full. As of the date of this filing, all remaining payments have been made for total payments of $250,000.

 

 

 

Shortly after the Closing, the Company submitted an Amendment to Articles of Organization (the “Amended Articles”) of Powerdyne to change its name to “Global Future City Regional Center, LLC” to better align its identity and brand with the public company. Such Amended Articles was filed and approved by the California Secretary of State on April 9, 2015.

 

Current Business Operations

 

GX-Life Direct-Selling Program

 

GX-Life

 

GX-Life is a wholly-owned subsidiary of the Company that has developed a platform to support direct-selling opportunities throughout the world (the “GX-Life Direct Selling Program”) that incorporates the use of GX Coins, a cryptocurrency that functions as a store of value and medium of exchange that was developed by Great Coin, Inc., a company co-owned by Ning Liu, and our CEO/CFO, Michael Dunn, and the associated online cryptocurrency platform (the “GX Coin Platform”). To incorporate GX Coins into the GX-Life Direct Selling Program, GX-Life and Great Coin entered into an Access and Services Agreement, whereby Great Coin agreed to make available and manage the GX Coin Platform, in connection with which members ("GX-Life Members") of GX-Life's consumer products sales program (the "GX-Life Global Compensation Plan") will be able to receive their commissions (defined below) in the form of either a debit card, ACH deposit, or GX Coins. The GX Coin Platform will also allow GX-Life Members to sell GX Coins to other users of the GX Coin Platform, including the public and other GX-Life Members

 

GX-Life Products

 

GX-Life sells high quality consumer products concentrated in the areas of beauty, nutrition, energy drinks, and tea under the brand, “GX-Life”, via GX-Life’s Direct Selling Program to GX-Life Members and consumers and e-commerce channels on an international basis.

 

GX-Life obtains its beauty products of high-end moisturizers, serums, and creams designed to protect the skin and combat the signs of aging from Advanced Medical Research Laboratories, Inc. (“AMR”). AMR is a health and beauty contract manufacturer that creates beauty product formulas using the latest innovations in active ingredients. In this regard, GX-Life uses AMR’s services to create unique beauty formulas for all of GX-Life’s beauty products, including its foaming cleanser, night cream, eye cream, regenerative pump, and skin pump, and tailors each beauty product’s look, feel, bottling, labeling, and packaging according to GX-Life’s instructions. After a finished product is made, GX-Life places purchases orders to AMR to acquire beauty product inventory that GX-Life sells to its GX-Life Members and consumers.

 

In a similar fashion to GX-Life’s beauty products, GX-Life obtains its nutraceutical products from VFR Import Export, Inc (“VFR”). VFR is a vitamin and supplement contract manufacturer. In this regard, GX-Life uses VFR’s services to create unique formulas for all of GX-Life’s nutraceutical products, including its slim down caplets, berry shake, multi-vitamin, joint tablets, detox softgels, enxymas capsules, and probiotic capsules, and tailors each nutraceutical product’s taste, labeling, bottling, and packaging according to GX-Life’s instructions. After a finished product is made, GX-Life places purchases orders to VFR to acquire nutraceutical product inventory that GX-Life sells to its GX-Life Members and consumers.

 

Unlike GX-Life’s beauty and nutraceutical products, GX-Life created the formulas for its energy drink products which include GX-Life Sustain, GX-Life F.I.T.T. Extreme, and GX-Life F.I.T.T. Rx Gel packs in collaboration with Dr. Rand Scott. GX-Life provides Universal Nutrients, LLC, a contract manufacturer (“Universal Nutrients”), the raw materials, formulas, and instructions needed to create each energy drink. In order to obtain energy drink products, GX-Life merely places a purchase order and provides the raw materials to Universal Nutrients to create the energy drink product that GX-Life then sells to its GX-Life Members or consumers.

 

GX-Life obtains its tea products from Guangdong Authenmole Biotech, Inc. (“Authenmole”), a tea manufacturer located in the People’s Republic of China, to provide single-serve sachets of six Authentea® organic tea extracts, and three Herbalsoul herbal tea extracts, in addition to various teawares. GX-Life has no input on these products as GX-Life merely acts as a reseller of the tea products manufactured and produced by Authenmole.

  

 

 

Below is a list of products offered by GX-Life:

 

Category	Description
Beauty	Fruit Enzyme Foaming Cleanser 100mL (Tube)
Beauty	Moisture-Boosting Night Repair Cream 30mL (Jar)
Beauty	Line-Diffusing Diamond Eye Cream 15mL (Airless Pump)
Beauty	Regenerative Multi-Action Concentrate 30mL (Airless Pump)
Beauty	Skin-Brightening Diamond Illuminator 30mL (Airless Pump)
Nutrition/Supplements	GX-Life Slim Down 60 CT Caplets (Bottle)
Nutrition/Supplements	GX-Life Super Berry Shake 9.4oz Powder (Canister)
Nutrition/Supplements	GX-Life Multi-Vitamin 60 CT Softgels (Bottle)
Nutrition/Supplements	GX-Life Joint Support 60 CT Tablets (Bottle)
Nutrition/Supplements	GX-Life DetoxMax 60 CT Softgels (Bottle)
Nutrition/Supplements	GX-Life Enzymax 60 CT Capsules (Bottle)
Nutrition/Supplements	GX-Life Advanced Probiotics 60 CT Vegetarian Capsules (Bottle)
Energy Drink	GX-Life Sustain 1 oz. Gel Packet (30 CT) (Box)
Energy Drink	GX-Life F.I.T.T. Extreme 12 CT 30 mL Gel Packs (Box)
Energy Drink	GX-Life F.I.T.T. Rx Gel 30 CT 30 mL Gel Packs (Box)
Tea	Herbal Soul Super Clearance 30 Ct 1.0mL Sachets (Jar)
Tea	Herbal Soul Mag Health 30 CT 1.0mL Sachets (Jar)
Tea	Herbal Soul NuDibe 30 CT 1.0mL Sachets (Jar)
Tea	Authentea Assortment Pack 30 CT 0.6mL Sachets (Tin Box)
Tea	Authentea Jasmine 30 CT 0.6mL Sachets (Jar)
Tea	Authentea Apple Iced Green 30 CT 0.6mL Sachets (Jar)
Tea	Authentea Peach Iced Green 30 CT 0.6mL Sachets (Jar)
Tea	Authentea Blueberry Black 30 CT 0.6mL Sachets (Jar)
Tea	Authentea Organic Black 30 CT 0.6mL Sachets (Jar)
Tea	Authentea Organic Green 30 CT 0.6mL Sachets (Jar)
Teaware	10 Piece Tea Set
Teaware	8 Piece Tea Set
Teaware	7 Piece Tea Set

 

More information about GX-Life and the products that it offers can be found on our website at: www.gx-life.com

 

GX-Life Global Compensation Plan

 

Based on industry developments and best practices of direct selling programs, GX-Life revised and implemented its compensation plan on July 15, 2016, and finalized the GX-Life Global Compensation Plan on August 1, 2016. Under the current GX-Life Global Compensation Plan, VIP status levels have been removed, as well as VIP members’ ability to earn status reward points, reward points, and membership reward points, and the ability to convert such reward points into GX-Coins or fiat currency. GX-Life notified its members of its new compensation plan by uploading the GX-Life Global Compensation Plan on GX-Life’s website. After comparing and analyzing both the qualifications and requirements of GX-Life’s prior compensation plan and its current compensation plan, GX-Life converted historical “Standard” members under its prior compensation plan to “Associate” GX-Life Members under its current compensation plan, historical “Gold” members under its prior compensation plan were converted to “Bronze Star” GX-Life Members under its current plan, historical “Platinum” members under its prior compensation plan were converted to “Silver Star” GX-Life Members under its current plan, historical “Diamond” members under its prior compensation plan were converted to “Gold Pro” GX-Life Members under its current plan, and historical “Jade” members under its prior compensation plan were converted to “Platinum Director” GX-Life Members under its current plan.

 

GX-Life Members have the ability to earn sales commissions so long as the individual meets certain requirements pertaining to his or her membership status. All new GX-Life Members initially enroll in the GX-Life Global Compensation Plan at an Associate level after submitting a signed application to GX-Life and paying a US$79 annual membership fee to GX-Life (the “Annual Fee”). After being enrolled at an Associate level, GX-Life Members may advance to any of the following status levels at any time by meeting the corresponding requirements and earn the status level’s respective commission rates shown in the table below. All GX-Life Members may continue to participate in the GX-Life Global Compensation Plan by maintaining a minimum of $300 of Personal Volume in a 12-month period (“Minimum PV”) and by paying the Annual Fee when such fee becomes due and payable for the GX-Life Member. GX-Life Members that do not meet the Minimum PV will have their membership cancelled and will be removed as a GX-Life Member from GX-Life. Such GX-Life Member’s downline members will then be compressed to the next “upline” GX-Life Member who is in good standing.

  

 

 

The information set forth below only represents a summary of the GX-Life Global Compensation Plan. Commission rates, payouts, and other bonuses are subject to additional qualifications and requirements. You are encouraged to review GX-Life's Global Compensation Plan in its entirety. The GX-Life Global Compensation Plan may be found at www.gx-life.com:

 

Title	Qualifications	Commission Rate	GX Coin Purchase Reward
Associate	·    Submit signed application to the Company ·    Payment of $79 Annual Fee	·    Mentor Bonus	N/A
Bronze Advisor	·    $100 Personal Volume ·    1 Active Leg	·    Mentor Bonus ·    4% on GX-Life Member’s first downline level	10 GX Coins per month at 20% discount
Bronze Star	·    $100 Personal Volume ·    2 Active Legs ·    $500 in Downline Volume	·    Mentor Bonus ·    6 % on GX-Life Member’s first downline level ·    2% of GX-Life Member’s second Downline Member	25 GX Coins per month at 20% discount
Bronze Elite	·    $100 Personal Volume ·    3 Active Legs ·    $800 in Downline Volume	·    Mentor Bonus ·    7 % on GX-Life Member’s first Downline Member ·    3% of GX-Life Member’s second Downline Member ·    2% of GX-Life Member’s third Downline Member	50 GX Coins per month at 20% discount
Silver Advisor	·    $100 Personal Volume ·    3 Active Legs ·    $1,500 in Downline Volume	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    5% of GX-Life Member’s second Downline Member ·    3% of GX-Life Member’s third Downline Member ·    2% of GX-Life Member’s fourth Downline Member	100 GX Coins per month at 20% discount
Silver Star	·    $100 Personal Volume ·    3 Active Legs ·    $3,000 in Downline Volume	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    6% of GX-Life Member’s second Downline Member ·    5% of GX-Life Member’s third Downline Member ·    3% of GX-Life Member’s fourth Downline Member ·    2% on GX-Life Member’s fifth Downline Member	150 GX Coins per month at 20% discount
Silver Elite	·    $100 Personal Volume ·    3 Active Legs ·    $6,000 in Downline Volume	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	200 GX Coins per month at 20% discount
Gold Pro	·    $100 Personal Volume ·    3 Active Legs ·    $12,000 in Downline Volume ·    1 additional leg at Silver Elite or higher	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	500 GX Coins per month at 20% discount

  

 

 

Gold Leader	·    $100 Personal Volume ·    3 Active Legs ·    $30,000 in Downline Volume ·    2 additional legs at Silver Elite or higher	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	1,000 GX Coins per month at 20% discount
Gold Manager	·    $100 Personal Volume ·    3 Active Legs ·    $75,000 in Downline Volume ·    3 additional legs at Silver Elite or higher	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	2,000 GX Coins per month at 20% discount
Platinum Director	·    $100 Personal Volume ·    3 Active Legs ·    $200,000 in Downline Volume ·    3 additional legs at Silver Elite or higher, plus one new generation (new Silver Elite) per year	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	3,000 GX Coins per month at 20% discount
Platinum Executive	·    $100 Personal Volume ·    3 Active Legs ·    $600,000 in Downline Volume ·    3 additional legs at Silver Elite or higher, plus one additional leg at Gold Manager or higher, plus one new generation per year	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	4,000 GX Coins per month at 20% discount
Platinum President	·    $100 Personal Volume ·    3 Active Legs ·    $1,800,000 in Downline Volume ·    3 additional legs at Silver Elite or higher, plus two additional legs at Gold Manager or higher, plus one new generation per year	·    Mentor Bonus ·    8% on GX-Life Member’s first Downline Member ·    7% of GX-Life Member’s second Downline Member ·    6% of GX-Life Member’s third Downline Member ·    5% of GX-Life Member’s fourth Downline Member ·    3% on GX-Life Member’s fifth Downline Member ·    2% on GX-Life Member’s sixth Downline Member	5,000 GX Coins per month at 20% discount

  

GX-Life Members enrolling within the GX-Life Global Compensation Plan may purchase GX-Life products solely for their own personal consumption, for resale to customers, or both. Newly enrolled GX-Life Members are assigned into network positions that can be “under” other GX-Life Members, which is referred to as “downline” (such members, "Downline Members"). Downline Members can also enroll new GX-Life Members creating additional levels within the structure. GX-Life may pay commissions to GX-Life Members for enrolling new GX-Life Members in the form of a Mentor Bonus if the GX-Life Member meets the qualifications to receive the Mentor Bonus. GX-Life may seek new GX-Life Members by conducting introductory seminars about its business and products. Although GX-Life has not held any such seminars at this time, people are often attracted to become GX-Life Members after using GX-Life products. People seeking new opportunities for income can build a network of GX-Life Members and sell GX-Life products to customers. Financial incentives are provided by GX-Life to those who succeed in building their member network. However, GX-Life Members are not required to enroll other GX-Life Members as their Downline Member. GX-Life Members receive product samples, brochures, and other sales materials from GX-Life, but GX-Life Members are primarily responsible for enrolling and educating their new Downline Members with respect to GX-Life's products and the compensation that members receive under the GX-Life Global Compensation Plan, and how to build a successful membership network. GX-Life Members are also able to purchase products directly from GX-Life at wholesale prices via the internet.

  

 

 

Under the GX-Life Global Compensation Plan, Associates may earn sales commissions if they qualify for a Mentor Bonus. GX-Life Members who are above the Associate status level may earn sales commissions on their Downline Member’s product sales, subject to certain conditions, up to nine levels below them on their trees. GX-Life Members may earn commissions based on a product’s “Qualifying Volume” and “Commissionable Volume”. Qualifying Volume is equal to a product retail price. Commissionable Volume is the volume on which commissions are paid. Commissionable Volume is calculated based on the wholesale price that a GX-Life Member pays for a particular product. The wholesale price is typically 75% of the retail price of a product, however, the wholesale price may vary depending on the particular product. In addition to these commissions, GX-Life Members who have achieved Gold Pro status or above have the opportunity to earn a “Turbo Infinity Bonus”, whereby a percentage is paid on all commissionable volume on level seven and below, and a “Check-Match” bonus that provides members an additional cash bonus, subject to certain restrictions. Commissions for higher status levels range from 2% - 8% of sales volume depending on the GX-Life Member’s status level and position in his/her tree. GX-Life Members are paid monthly commissions for product sales purchased by a GX-Life Member’s Downline Member network across all geographic markets, except in China (see discussion entitled Selling Activities in China below), where such commissions, if any, are paid pursuant to the local laws and regulations within that country. GX-Life's Global Compensation Plan enables a GX-Life Member located in one country to sponsor other GX-Life Members located in other countries. As the GX-Life Member’s business expands or his/her status level increases, the GX-Life Member receives higher commissions payouts when his/her Downline Members sell GX-Life products to consumers. Commission increases occur when the number of levels of Downline Members included within the GX-Life Member’s commissionable group increases, and the number of memberships directly below the GX-Life Member increases.

 

From time to time, GX-Life may make modifications and enhancements to the GX-Life Global Compensation Plan to help motivate GX-Life Members. GX-Life may also enter into agreements for business or market development, which may result in additional compensation to specific GX-Life Members. GX-Life intends to continue to examine and adjust the GX-Life Global Compensation Plan to reflect marketplace competition, demand, and U.S. regulations and foreign jurisdictions. Because of this, GX-Life recognizes that the compensation and rewards available under the GX-Life Global Compensation Plan may be different across different jurisdictions.

 

GX Coin and GX Coin Rewards

 

GX-Life entered into an Access and Services Agreement (see discussion above) with Great Coin that would allow GX-Life to distribute rewards to GX-Life Members in the form of GX Coins. GX Coin is a cryptocurrency that functions as a store of value and medium of exchange that was created by Great Coin and is intended to be traded on the GX Coin Platform, where the price of GX Coin may fluctuate depending on traditional market forces. GX-Life intends to use GX Coins as part of the GX-Life Global Compensation Plan for GX-Life Members. In order to qualify for GX Coin related benefits, receive GX-Coins, or participate on the GX-Coin Platform (collectively, the “GX-Coin Benefits”), GX-Life Members must reside in a state or territory where Great Coin is approved and authorized to conduct business. Currently, only GX-Life Members who reside in California are eligible to receive the GX-Coin Benefits within the United States. GX-Life Members who reside in China may receive GX-Coin Benefits as well. All other GX-Life Members that reside outside of California or China will not be eligible to receive GX-Coin Benefits, and must receive their commissions in the form of a debit card or ACH deposit until Great Coin is approved and authorized to conduct business in the state or territory where such GX-Life Member resides.

 

Notwithstanding the limitations in connection with the GX-Coin Benefits, when GX-Life Members are eligible to receive commissions, GX-Life Members have the option of receiving commissions in the form of a debit card, ACH deposit, or GX Coins after deducting certain transactional fees. For example, if a GX-Life Member opts to receive $100 worth of commissions in the form of a debit card, the GX-Life Member would take the following steps: (i) the GX-Life Member must contact GX-Life his or her desire to receive a debit card, (ii) GX-Life will verify that the GX-Life Member has earned $100 worth of commissions, and (iii) upon confirmation, GX-Life will instruct ProPay, Inc., a third party service provider and registered ISO of Wells Fargo Bank, N.A., Walnut Creek, CA (“ProPay”), to issue the GX-Life Member a debit card. For GX-Life Members in the United States, ProPay charges an annual fee of $9.95, as well as a loading fee of $0.25 for issuing the debit card. For GX-Life Members located in China, ProPay charges an annual fee of $19.95, as well as a loading fee of $0.50 for issuing the debit card. As a result, a GX-Life Member located in the United States that requested to receive $100 worth of commissions in the form of a debit card would actually receive a debit card in the amount of $89.80 after paying the related transaction fees charged by ProPay. Pursuant to GX-Life’s ProtectPay Service Agreement with ProPay, ProPay is responsible for issuing and delivering the debit card to the GX-Life Member. GX-Life Members may also continue to pay certain ordinary transaction fees through their continued use of the debit card such as cash withdrawal fees, ATM inquiry fees, card replacement fees, and an account continuation fee. If a GX-Life Member opts to receive $100 worth of commissions in the form of an ACH deposit, the GX-Life Member would go through a similar experience to the three steps above, but ProPay would only charge a transaction fee of $0.35 to GX-Life Members located within the United States. As a result, a GX-Life Member located in the United States that requested to receive $100 worth of commissions in the form of an ACH deposit would actually receive an ACH deposit of $99.65 after paying the related transaction fee charged by ProPay. If a GX-Life Member opts to receive $100 worth of commissions in the form of GX Coins, the GX-Life Member will not pay a transaction fee for merely receiving the GX-Coins. However, when the GX-Life Member sells his or her GX-Coins on the GX Coin Platform, Great Coin will charge a per transaction fee of 1% on each trade executed on the GX-Coin Platform, and the transaction fee will be charged at the time of settlement of the requisite transaction.

 

 

 

As an additional benefit to GX-Life Members, commissions paid via GX Coin shall be eligible for the GX Coin Commission Discount (defined below). GX-Life Members have the opportunity to receive their commissions in GX Coins at a twenty percent (20%) discount (such program, the "GX Coin Commission Discount") from the "GX Coin Market Price" (i.e., the three day volume weighted average price (“VWAP”) for GX Coin on the GX Coin Platform); the GX Coin Commission Discount is capped at 1,000,000 (one million) GX Coins to GX-Life Members, on an aggregate basis, after which time GX-Life Members receiving commissions in the form of GX Coins will be subject to a valuation of such GX Coins at the GX Coin Market Price. Pursuant to this program, GX-Life Members are allowed to earn up to 100% of their total accrued commissions in the form of GX Coins. This benefit is independent of the GX Coin Purchase Reward discussed below. If a GX-Life Member no longer meets the requirements applicable to his/her status level, such GX-Life Member shall nonetheless retain access to the GX Coin Platform (including, without limitation, such former GX-Life Member's Platform Account and digital wallet) as a user that is not a GX-Life Member.

 

Additionally, GX-Life Members may purchase a limited number of GX Coins (such program, the "GX Coin Purchase Reward"), at a twenty percent (20%) discount from the GX Coin Market Price. Under the GX Coin Purchase Reward, GX-Life Members may be able to purchase 10-5,000 GX Coins per month, depending on the GX-Life Member’s status level. The GX Coin Purchase Reward is capped at 1,000,000 (one million) GX Coins to GX-Life Members, on an aggregate basis, after which time GX-Life Members would purchase GX Coins at the GX Coin Market Price.

  

Under GX-Life’s prior compensation plan, certain members were designated as “VIP Members” and accumulated membership points. Under the current GX-Life Global Compensation Plan, the historical VIP Member status designation no longer exists, and GX-Life Members are no longer able to earn membership points. To accommodate the former VIP Members who had already accumulated membership points, GX-Life allowed former VIP Members to exchange their membership points for value in either fiat currency or GX Coin, although no GX-Life Member elected to exchange their respective membership points into fiat currency. From January 2016 through July 2016, all former VIP Members exchanged their respective membership points for GX Coins. Historical membership points with an aggregate value of US$5,459,718 were exchanged for 5,510,687 GX Coins (the “Converted GX-Coins”), and as a result, the Company earned US$3,632,586 in related party commissions in connection with the Converted GX-Coins. Furthermore, none of the Converted GX-Coins were issued under the GX Coin Commission Discount, and as a result, there are still 1,000,000 GX Coins available under the GX Coin Commission Discount as of the filing date of this report.

 

GX-Life Members who acquire GX Coins may (i) keep the GX Coin in their respective digital wallets, or (ii) sell the GX Coin in exchange for fiat currency by utilizing the GX Coin Platform.

 

The GX Coin Platform

 

GX-Life Members and other users that are not GX-Life Members may utilize Great Coin’s GX Coin Platform by applying for access to the GX Coin Platform, agreeing to additional terms and conditions as necessary, and opening an account on the GX Coin Platform (a "Platform Account"), all of which may be completed online. Once a user's Platform Account is established, a unique and encrypted digital wallet that stores GX Coins will be issued by Great Coin to such user. Upon the completion of Great Coin’s administrative review and registration approval process, each user (including GX-Life Members) may begin to use its Platform Account to sell (or purchase) GX Coins in exchange for fiat currency. As discussed above, neither the Company nor GX-Life administers or controls the GX Coin Platform, and GX-Life’s ability to access the GX Coin Platform for use by GX-Life Members is based on the Access and Services Agreement between GX-Life and Great Coin.

 

The Access and Services Agreement takes the form of a service contract under applicable accounting guidance, and when a GX-Life Member elects to receive his or her commissions in the form of GX Coins, GX-Life will record revenue based on its revenue recognition policies. The amount payable to Great Coin by GX-Life for the delivery of GX Coins to the GX-Life Member is an amount equal to: (i) 20% of the GX Coin Market Price of GX Coins delivered to such GX-Life Member for the first US$4,000,000 worth of GX Coins delivered, and (ii) 50% of the GX Coin Market Price of GX Coins delivered thereafter, in each case without reference to the GX Coin Commission Discount, the GX Coin Purchase Reward or any other discounts or incentives that may apply at the time such GX Coins are delivered.

 

For example, if a GX-Life Member has earned US$100 in commissions and elects to receive those commissions in the form of GX Coins (and assuming that the 20% discount is available under the GX Coin Commission Discount because the GX-Life Members have not yet received commissions in the form of GX Coins in an aggregate amount of 1,000,000 GX Coins), GX-Life will deliver a notice to Great Coin that instructs Great Coin to deliver US$125 worth of GX Coins into such GX-Life Member’s wallet. If GX Coins are valued at US$1 at the time such notice is delivered, Great Coin will be obligated to deliver 125 GX Coins into such GX-Life Member’s wallet. Assuming that less than US$4,000,000 in aggregate value of GX Coins have been delivered to that point, GX-Life will be obligated to pay US$25 to Great Coin, and GX-Life would recognize US$75 of revenue. Assuming that more than US$4,000,000 in aggregate value of GX Coins have been delivered to that point, GX-Life will be obligated to pay US$62.50 to Great Coin, and GX-Life would recognize US$37.50 of revenue.

 

 

 

As of March 15, 2016, Great Coin began accepting applications for digital wallets and commenced operations on the GX Coin Platform as of May 6, 2016. As of March 22, 2016, Great Coin was registered with the US Department of the Treasury’s Financial Crimes Enforcement Network ("FinCEN") as a money services business, as such term is defined under applicable FinCEN regulations.

 

More information about Great Coin and the GX Coin Platform can be found at: www.gx-coin.com.

  

Member Support

 

GX-Life is committed to providing a high level of support services tailored to the needs of GX-Life Members in each marketplace GX-Life is serving. GX-Life attempts to meet the needs and build the loyalty of GX-Life Members by providing personalized member services and a member service call center. GX-Life also maintains a prompt and easy-to-use product return policy (see “Product Warranties and Returns”). GX-Life believes that maximizing a GX-Life Member’s efforts by providing effective member support is the hallmark of GX-Life’s network marketing system that helps GX-Life Members build a profitable business supports GX-Life’s success.

 

GX-Life seeks to understand and satisfy the needs of GX-Life Members through product training meetings, regular conventions, web-based messages, member focus groups, regular telephone conference calls and other personal contacts with GX-Life Members. GX-Life's user-friendly websites provide product fulfillment and tracking services that result in timely product distribution that builds GX-Life Members’ reputation and highly rated customer satisfaction.

 

To help maintain communication with GX-Life Members, GX-Life expects to offer the following support programs:

 

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Teleconferences – teleconferences with associate field leadership on various subjects such as technical product discussions, member organization building and management techniques.

 

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Internet – GX-Life maintains a website at www.gx-life.com. On this website, the user can read company news, learn more about various products, sign up to be a GX-Life Member, place orders, and track the fulfillment and delivery of their orders.

 

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Product Literature – a variety of literature available to GX-Life Members, including product catalogs, informational brochures, pamphlets and posters for individual products, which are both printed and available online.

 

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Broadcast E-mail and Text Messages – announcements will be sent via e-mail and/or text messages to GX-Life Members who opt in to receive this form of communication.

 

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Social Media Tools – in some countries, GX-Life will maintain country-specific social media sites to foster a community environment around GX-Life's product offering and business opportunity.

  

Technology and Internet Initiatives

 

GX-Life believes that the internet is important to its business as more consumers communicate online and purchase products over the internet as opposed to traditional retail and direct sales channels. As a result, GX-Life has committed significant resources to its e-commerce capabilities, and the abilities of GX-Life Members to take advantage of the internet as most of GX-Life's sales take place via the internet. GX-Life offers a global web page that allows a GX-Life Member to have a personalized replicating website through which he or she can sell products in all of the countries in which GX-Life does business. Links to these websites can be found at GX-Life's main website for GX-Life Members at www.gx-life.com.

 

Member Ethics Policy

 

GX-Life's member policies and procedures establish the standards by which GX-Life Members conduct GX-Life business in each market. GX-Life communicates with GX-Life Members regarding business activities in an attempt to provide GX-Life Members with a “level playing field” so that one GX-Life Member may not be disadvantaged by the activities of another. GX-Life expects the highest level of professional conduct by GX-Life Members to present products and business opportunities in an ethical and professional manner. GX-Life Members are expected to become fully educated about GX-Life products they sell so that any presentations to customers are consistent with, and limited to, the product claims and representations made in GX-Life's literature.

 

GX-Life Members are independent contractors, not employees, and may act independently of GX-Life. Further, GX-Life Members may resign or terminate their membership at any time without notice. See “Risk Factors.”

  

 

 

Government Regulations – Consumer Products

 

Direct Selling Activities

 

Direct selling activities are regulated by various federal, state and local governmental agencies in the United States and other countries. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes. The laws and regulations in GX-Life's current markets often:

 

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impose cancellation/product return, inventory buy-backs and cooling-off rights for consumers and GX-Life Members;

 

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require GX-Life or GX-Life Members to obtain a license from, or register with, governmental agencies;

 

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impose reporting requirements; and

 

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impose requirements upon GX-Life, such as requiring GX-Life Members to maintain levels of retail sales to qualify to receive commissions, to ensure that GX-Life Members are being compensated for sales of products and not for recruiting new GX-Life Members.

 

The laws and regulations governing direct selling are modified from time to time, and, like other direct-selling companies, GX-Life may be subject from time to time to government reviews, examinations or investigations in GX-Life's various markets related to the GX-Life Direct-Selling Program. This can require GX-Life to make changes to its business model and aspects of the GX-Life Global Compensation Plan in the markets impacted by such changes and examinations.

 

Based on advice of GX-Life's engaged outside professionals in existing markets, the nature and scope of inquiries from government regulatory authorities and GX-Life's history of operations in those markets to date, GX-Life believes its method of distribution complies in all material respects with the laws and regulations related to direct selling of the countries in which GX-Life currently operates.

 

Selling Activities in China

 

GX-Life's expansion of operations into China is subject to risks and uncertainties related to general economic, political and legal developments in China, among other things. The Chinese government exercises significant control over the Chinese economy, including but not limited to controlling capital investments, allocating resources, setting monetary policy, controlling foreign exchange and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry segments or companies and issuing necessary licenses to conduct business. Accordingly, any adverse change in the Chinese economy, the Chinese legal system or Chinese governmental, economic or other policies could have a material adverse effect on GX-Life’s business in China and its prospects generally.

 

At the end of 2005, China adopted new direct selling and anti-pyramiding regulations that are restrictive and contain various limitations, including a restriction on the ability to pay multi-level compensation to independent members. The Chinese government continues to scrutinize the activities of direct-selling companies. Because the regulatory environment in China is complex, GX-Life may be required to utilize a different business model from that which it offers in other markets in order for GX-Life’s operations in China to comply with applicable rules and regulations.

 

To allow GX-Life to operate under these regulations, GX-Life has created and introduced a model specifically for China to avoid conducting direct-selling activities in China. Consumers and GX-Life Members purchase GX-Life products via GX-Life's Hong Kong-based website or GX-Life's e-commerce retail platform in China. GX-Life believes that neither its Hong Kong-based website nor its e-commerce platform in China require a direct-selling license in China, which GX-Life currently does not hold. These features are not common to the business model that GX-Life employs elsewhere in the world and, until GX-Life receives a direct-selling license to conduct business in China, GX-Life's business model in China will continue to incorporate some or all of these features.

 

In order to obtain a direct selling license in China, the regulations require GX-Life to apply for various approvals to conduct a direct selling enterprise in China. The process for obtaining the necessary licenses to conduct a direct selling business is protracted and cumbersome and involves multiple layers of Chinese governmental authorities and numerous governmental employees at each layer. While direct selling licenses are centrally issued, such licenses are generally valid only in the jurisdictions within which related approvals have been obtained. Such approvals are generally awarded on local and provincial bases, and the approval process requires involvement with multiple ministries at each level. If GX-Life is able to obtain a direct selling license in China, GX-Life believes that the incentives inherent in the direct-selling model in China would incrementally benefit its existing business. Increased sales in China that could be derived from obtaining a direct selling license may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers and branch offices. For these reasons, GX-Life is unable to predict whether and when it will be successful in obtaining a direct selling license to operate in China, and if GX-Life is successful, when it will be permitted to conduct direct-selling operations and whether such operations would be profitable.

  

 

 

Additionally, although certain regulations have been published with respect to obtaining and operating under such approvals and otherwise conducting business in China, other regulations are pending and there continues to be uncertainty regarding the interpretation and enforcement of Chinese regulations. The regulatory environment in China is evolving, and officials in the Chinese government exercise broad discretion in deciding how to interpret and apply regulations. GX-Life cannot be certain that its business model will continue to be deemed by national or local Chinese regulatory authorities to be compliant with any such regulations. The Chinese government rigorously monitors the direct selling market in China, and in the past has taken serious action against companies that the government believed were engaging in activities they regarded to be in violation of applicable law, including shutting down their businesses and imposing substantial fines. As a result, there can be no guarantee that the Chinese government’s current or future interpretation and application of the existing and new regulations will not negatively impact GX-Life’s business in China, result in regulatory investigations or lead to fines or penalties against GX-Life or the Company.

 

Despite China’s complex rules and regulations governing direct selling activities in China, no material changes to GX-Life’s business model have been required so far. However, GX-Life expects to receive continued guidance and direction as it works with foreign counsel to address its business model and any changes that need to be made to comply with China’s direct-selling regulations.

 

As of the filing date of this report, approximately 74% of GX-Life’s total sales of consumer products are attributed to sales in China and Hong Kong.

 

Regulation of GX-Life’s Products – United States and Overseas

 

Although GX-Life is not required to obtain governmental approval, including the U.S. Food and Drug Administration’s (“FDA”) approval, prior to selling its products to consumers, GX-Life’s products and related promotional and marketing activities are subject to extensive governmental regulation by numerous governmental agencies and authorities in the United States, including the FDA, the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the United States Department of Agriculture, State Attorneys General, and other state regulatory agencies. In GX-Life’s foreign markets, the products are generally regulated by similar government agencies.

 

GX-Life’s personal care products are subject to various laws and regulations that regulate cosmetic products and set forth regulations for determining whether a product can be marketed as a “cosmetic” or requires further approval as an over-the-counter (“OTC”) drug. In the United States, regulation of cosmetics is under the jurisdiction of the FDA. The Food, Drug and Cosmetic Act defines cosmetics by their intended use, as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body . . . for cleansing, beautifying, promoting attractiveness, or altering the appearance.” Among the products included in this definition are skin moisturizers, eye and facial makeup preparations, perfumes, lipsticks, fingernail polishes, shampoos, permanent waves, hair colors, toothpastes and deodorants, as well as any material intended for use as a component of a cosmetic product. Conversely, a product will not be considered a cosmetic, but may be considered a drug if it is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, or is intended to affect the structure or any function of the body. A product’s intended use can be inferred from marketing or product claims. The other markets in which GX-Life operates have similar regulations.  In China, personal care products are placed into one of two categories, “general” and “drug.” Products in both categories require submission of formulas and other information with the health authorities, and drug products require human clinical studies. The product registration process in China for these products can take from nine to more than 18 months or longer.  Such regulations in any given market can limit GX-Life’s ability to import products and can delay product launches as GX-Life goes through the registration and approval process for those products.

 

The markets in which GX-Life operate all have varied regulations that distinguish foods and nutritional health supplements from “drugs” or “pharmaceutical products.” Because of the varied regulations, some products or ingredients that are recognized as a “food” in certain markets may be treated as a “pharmaceutical” in other markets. These regulations may require GX-Life to either modify a product or refrain from selling the product in a given market. As a result, GX-Life must regularly modify the ingredients and/or the levels of ingredients in its products for certain markets. In some circumstances, the regulations in foreign markets may require GX-Life to obtain regulatory approval prior to the introduction of a new product or limit GX-Life’s use of certain ingredients altogether. There has been an increased movement in the United States and other markets to expand the regulation of dietary supplements. This could impose additional restrictions or requirements in the future. Because of this increased regulatory focus, GX-Life’s internal review efforts have been enhanced in order to comply with its understanding of current regulations.

  

FDA regulations require current good manufacturing practices (“cGMP”) for dietary supplements. The regulations ensure that dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are accurately labeled. The regulations include requirements for establishing quality control procedures for GX-Life and its vendors and suppliers, designing and constructing manufacturing plants, and testing ingredients and finished products. The regulations also include requirements for record keeping and handling consumer product complaints. If dietary supplements contain contaminants or do not contain the type or quantity of dietary ingredient they are represented to contain, the FDA would consider those products to be adulterated or misbranded.

 

 

 

GX-Life’s business and products is subject to additional FDA regulations, such as those implementing an adverse event reporting system (“AER’s”), which requires GX-Life to document and track adverse events and report serious adverse events, which are events involving hospitalization or death, associated with consumers’ use of GX-Life’s products.

 

Most of GX-Life’s major markets also regulate advertising and product claims regarding the efficacy of products. This is particularly true with respect to GX-Life’s dietary supplements because GX-Life typically markets them as foods or health foods. For example, in the United States, GX-Life is unable to claim that any of its nutritional supplements will diagnose, cure, mitigate, treat or prevent disease. In the United States, the Dietary Supplement Health and Education Act, however, permits substantiated, truthful and non-misleading statements of nutritional support to be made in labeling, such as statements describing general well-being resulting from consumption of a dietary ingredient or the role of a nutrient or dietary ingredient in affecting or maintaining a structure or a function of the body. Most of the other markets in which GX-Life operates have not adopted similar legislation, although GX-Life may be subject to more restrictive limitations on the claims it can make about its products in these markets.

 

U.S. Federal Commodities Regulation.

 

As a result of our strategic partnership with Great Coin and GX-Life's use of GX Coin as a component of the GX-Life Global Compensation Plan, it is possible that our Company and/or any one or more of our affiliates could be subject to regulation by the U.S. Commodity Futures Trading Commission (the “CFTC”), depending on the CFTC’s views of the regulation of cryptocurrencies. In such event, the GX Coin Platform, which will be managed by Great Coin, may be required to be registered as a “swap execution facility”, as such term is defined by the Commodity Exchange Act, and we and/or one or more of our affiliates may be required to register with the CFTC.

 

Moreover, the CFTC retains enforcement authority over any contract or sale of any commodity in interstate commerce. Because the definition of "commodity" under the Commodity Exchange Act includes cryptocurrencies, the CFTC retains broad antifraud and anti-manipulation enforcement authority with respect to GX Coin transactions.

 

Except with respect to the CFTC's broad antifraud and anti-manipulation enforcement authority (discussed above), "spot" or "cash" contracts for commodities (including cryptocurrencies) are generally beyond the regulatory scope of the CFTC, so long as such contracts result in the immediate sale and delivery of the commodity. How the CFTC views what constitutes "actual delivery" in the context of cryptocurrencies is still a developing area of law and regulation. As a result, the CFTC's regulatory and enforcement authority and scope with respect to cryptocurrencies is still a moving target and subject to change as the market and the regulatory oversight landscape develops.

 

Money Transmitter Laws.

 

As a result of GX-Life’s use of GX Coin in connection with the GX-Life Global Compensation Plan, our Company and/or any one or more of our affiliates may have to register with FinCEN as a money services business, as such term is defined under applicable FinCEN regulations, and obtain state money transmitter (or its equivalent) licenses, as required by the relevant state laws.

 

Other Regulatory Issues.

 

As a United States entity selling in foreign jurisdictions, GX-Life and/or the Company is subject to foreign exchange control, transfer pricing, and custom laws that regulate the flow of funds between our subsidiaries and use for product purchases, management services and contractual obligations, such as the payment of member commissions. As is the case with most companies that operate in GX-Life’s product categories, GX-Life might receive inquiries from time to time from government regulatory authorities regarding the nature of its business and other issues, such as compliance with local direct selling, transfer pricing, customs, taxation, foreign exchange control, securities and other laws.

 

Effect of Governmental Regulations

 

GX-Life is subject to general business and governmental regulations and laws relating to its business and products. Existing and future laws and regulations may impede the products that GX-Life sells to its consumers. These regulations and laws may cover items such as: e-commerce, product labeling, product ingredients, pricing, distribution, reporting, consumer protections, and other similar regulations. Unfavorable outcomes of these issues may negatively impact the Company’s business and results of operations.

  

Product Warranties and Returns – Consumer Products

 

GX-Life's refund policies and procedures closely follow industry and country-specific standards, which vary greatly by country. For example, in the United States, the Direct Selling Association recommends that direct sellers permit returns during the twelve-month period following the sale, while in Hong Kong the standard return policy is 14 days following the sale. GX-Life's return policies typically conform to local laws or the recommendation of the local direct selling association. In most cases, GX-Life Members who timely return unopened product that is in resalable condition may receive a refund. The amount of the refund may be dependent on the country in which the sale occurred, the timeliness of the return, and any applicable re-stocking fee. However, GX-Life Members must notify GX-Life about any product returns in writing, and such returns may lead to the GX-Life Member’s termination or a reduction in the GX-Life Member’s commissions with GX-Life. Furthermore, GX-Life may alter its return policy in response to special circumstances from time to time.

 

 

 

GX-Life’s Industry

 

GX-Life is engaged in the direct-selling industry, selling wellness, herbal, beauty, lifestyle and home products to consumers. More specifically, GX-Life is engaged in what is called network marketing. This type of organizational structure and approach to marketing and sales include companies selling lifestyle enhancement products, skin-care products, nutrition supplements, and energy and tea products to consumers. Generally, direct selling is based upon an organizational structure in which independent members purchasing a company’s products are compensated for sales made directly to consumers.

 

Competition

 

The direct-selling and/or network marketing industry include very diverse companies, with giant multinational corporations as well as smaller, local operators competing amongst each other. Bigger companies include Nu Skin Enterprises, Inc., USANA Health Sciences, Inc., and Herbalife, Ltd, which have much greater name recognition and financial resources than GX-Life does and also have many more members. These companies are publicly traded. GX-Life faces significant competition from a wide variety of medium and small-sized privately held companies, many of whom compete directly with GX-Life. With the exception of GX-Life’s tea products, all cosmetic, nutrition, supplement, and energy drink products are made in the United States. GX-Life believes that the distribution of these “Made in USA” products gives it a competitive advantage over its peers that do not distribute such products because GX-Life believes that these products are in great demand in the Chinese, Taiwanese and Hong Kong markets. Furthermore, GX-Life believes that incorporating GX Coins into the GX-Life Global Compensation Plan gives GX-Life a competitive advantage because it differentiates and distinguishes GX-Life from other competing businesses that do not offer GX Coins or similar types of programs.

 

GX-Life's ability to compete with other companies depends, in significant part, on GX-Life's success in attracting and retaining GX-Life Members. There can be no assurance that GX-Life's programs for attracting and retaining GX-Life Members will be successful. The pool of individuals interested in GX-Life's business model is limited in each market, and it is further reduced to the extent that other companies successfully attract these individuals into their businesses. Although GX-Life believes that it offers an attractive opportunity for GX-Life Members, there can be no assurance that other companies will not be able to recruit existing GX-Life Members or deplete the pool of potential members in a given market.

 

Furthermore, the network and direct-selling channel tends to sell products at a higher price compared to traditional retailers, which poses a degree of competitive risk. There is no assurance that GX-Life would continue to compete effectively against retail stores, internet-based retailers, or other direct sellers.

 

As of the filing date of this report, approximately 26% of GX-Life’s sales are attributed to sales in the United States, 69% of GX-Life’s sales are attributed to sales in China, and 5% of GX-Life’s sales are attributed to sales in Hong Kong. GX-Life has not made any other sales in any other country. Moving forward, GX-Life intends to focus its sales efforts within the United States and expects that substantially all of its sales will be within the United States. 

 

Current Membership Status of GX-Life

 

As of November 1, 2016, GX-Life currently has 117 GX-Life Members, of which 12 are Associate members, and 105 are GX-Life Members in higher status levels. On average, GX-Life enrolls approximately 11 new GX-Life Members per month. As of November 1, 2016, GX-Life has received approximately $5.5 million where the majority of the funds received were based on deposits from previously enrolled GX-Life Members under the prior compensation plan in the GX-Life Direct-Selling Program.

 

EB-5 Business

 

Acquisition of Global Future Regional Center, LLC (f/k/a Powerdyne Regional Center, LLC)

 

On March 26, 2015, the Company entered into a Membership Interest Purchase and Sale Agreement (the “Membership PSA”) with Powerdyne, Inc. (the “Selling Entity”), an entity which owned 100% of the membership interests in Powerdyne Regional Center, LLC (“Powerdyne” or “Regional Center”). Powerdyne is an EB-5 Regional Center (USCIS ID Number 1215250671) that was approved by the USCIS on March 28, 2013. The closing (“Closing”) of the Membership PSA occurred on March 27, 2015.

  

Shortly after the Closing, the Company submitted an Amendment to Articles of Organization (the “Amended Articles”) of Powerdyne to change its name to “Global Future City Regional Center, LLC” to better align its identity and brand with the Company. Such Amended Articles was filed and approved by the California Secretary of State on April 9, 2015.

 

 

 

The Regional Center

 

Congress created the EB-5 program in 1990 to benefit the U.S. economy by attracting investments from qualified foreign investors. Under the program, each investor is required to demonstrate that at least 10 new jobs were created or saved as a result of the EB-5 investment, which must be a minimum of $500,000 if the funds are invested and are at “risk” in certain high-unemployment or rural areas. In 1992, Congress enhanced the economic impact of the EB-5 program by permitting the designation of regional centers to pool EB-5 capital from multiple foreign investors for investment in USCIS-approved economic development projects within a defined geographic region. Today, approximately 95% of all EB-5 capital is raised and invested by regional centers.

 

An EB-5 regional center is an organization, designated and regulated by the USCIS, which facilitates investments in job-creating economic development projects by pooling capital raised under the EB-5 immigrant investor program. Regional centers can be publicly owned, (e.g. by a city, state, or regional economic development agency), privately owned, or be a public-private partnership. Regional centers use economic analysis models, including those developed by the U.S. Department of Commerce, to demonstrate that job creation targets required by law have been achieved. For investments made through regional centers, at least 10 direct, indirect, or induced jobs must be created.

 

The Company plans to continue to expand the Regional Center’s emerging EB-5 business by funding the Regional Center’s business ventures (such as purchasing real estate development property). The Regional Center feels it is well-positioned to take advantage of potential real estate developments and plans to support the real estate developments with investments from foreign investors through the EB-5 program.

 

Powerdyne’s existing status as a designated regional center prior to its acquisition by the Company allows the Company to avoid the costly regional center designation process and begin the Regional Center’s EB-5 investment process. First, the Regional Center plans to find qualified foreign investors looking to take advantage of the EB-5 process. The Regional Center will then conduct due diligence on the investor and the investor will select a qualified project to invest in as well as conduct its own related due diligence. Each regional center operates in a fixed geographic area covering certain approved businesses or “projects.” Each investor, along with other qualified investors, must invest at least $500,000 in this “new commercial enterprise” either directly or through a separate “job creating entity” to create at least 10 full time positions per investor in order to qualify under the EB-5 guidelines. There are specific, employment-related factors that must be met to qualify as an approved project. The Regional Center then plans to manage the development of the projects and related entities and submit a comprehensive business plan to the USCIS for approval. The Regional Center is currently approved in San Bernardino County and Riverside County, California and is capable of expanding into counties that border the aforementioned counties as well.

 

Upon the Regional Centers and investor’s completion of the due diligence process, the parties’ execute subscription documentation and related transactional documents and the investor contributes its initial investment funds. The EB-5 investor then will receive the assistance of an immigration attorney to complete the EB-5 process following the completion of the investment. The EB-5 investor will also have to show that the invested capital has been obtained through lawful means. The EB-5 petition must be accompanied by an extensive source of fund report, usually prepared by an attorney or auditor, including but not limited to supporting documentations such as foreign business registration records, corporate, partnership and personal tax returns filed within the last 5 years, evidence identifying the sources of capital, and investor’s level of income during the previous 5 years, etc.

 

Acquiring lawful permanent residence (“Green Card”) through EB-5 is a 3 step process. First, the successful applicant must obtain approval of his or her Form I-526 Petition for an Alien Entrepreneur. According to the information posted on the USCIS website, the average processing time for the immigrant investor program office as of February 28, 2015, to process the investor’s I-526 application is approximately 14.2 months. After the I-526 application is approved by USCIS, the investor must file an I-485 application to adjust status to lawful permanent resident, or apply for an immigrant visa at a U.S. Consulate or embassy outside of United States. The EB-5 applicants (and his or her derivative family members) are granted conditional permanent residence for a 2-year period upon approval of the I-485 application or upon entry into the United States with an EB-5 immigrant visa. Third, a Form I-829 Petition by an Entrepreneur to Remove Conditions must be filed 90 days prior to the 2-year anniversary of the granting of the EB-5 applicant’s conditional Green Card. If this petition is approved by the USCIS, the EB-5 applicant will be issued a new Green Card without any further conditions attached to it, and will be allowed to permanently live and work in the United States. According to the information posted on the USCIS website, the average processing time for the immigrant investor program office as of February 28, 2015, to process the investor’s I-829 application is approximately 12.3 months.

 

The Company intends that the Regional Center will operate by acquiring qualified investment projects (i.e.: real estate development projects) only if the projects meet the Regional Center’s then-existing internal requirements and other requirements related to the Regional Center’s business operations including but not limited to, requirements regarding the location of the project, the length of time to complete the project, and the attractiveness of the project to foreign investors. The Regional Center does not state or guarantee a specific amount of return that a foreign EB-5 investor may receive on his or her investment, or guarantee that the principal amount invested will be returned at a specific time. Furthermore, the Regional Center discloses to the EB-5 investor that his or her entire investment is “at risk” where it may be possible that all or part of the capital investment made may be lost.

  

 

 

The Regional Center intends to derive revenue by collecting management fees for overseeing the development of a qualified investment project. However, there are no assurances that the Company will be able to successfully deploy the Regional Center’s EB-5 business plan or that the execution of said plan will be profitable. As of the date of this filing, the Regional Center has initiated the review of projects which may meet its EB-5 requirements, but has not yet selected an EB-5 investment project that meets its internal criteria. The Regional Center may never be able to select an EB-5 investment project that meets its internal criteria, which is subject to change at any time. There are currently zero (0) foreign investors in the Regional Center’s EB-5 program, and there may never be any foreign investors in the Regional Center’s EB-5 program.

 

The statements contained in this Description of Business section are Forward-Looking Statements. Please refer to the “Risk Factors” and “Forward- Looking Statements” sections for more information.

 

Critical Accounting Policies

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. We believe the most critical accounting issues that require the most complex and difficult judgments and that are particularly susceptible to significant change to our financial condition and results of operations include those issues included in Management’s Discussion and Analysis of Results of Operations in the Company’s report on Form 10-K for the year ended December 31, 2015, filed with the SEC on April 13, 2016. Such policies have not changed during the nine months ended September 30, 2016.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230)” – Classification of Certain Cash Receipts and Cash Payments. This guidance is intended to reduce diversity in practice with respect to eight specific cash receipts and cash payments and how they are classified in the statement of cash flows. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the expected impact of this new accounting standard on its financial statements.

 

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606)” – Narrow-Scope Improvements and Practical Expedients. The amendments in this Update clarity the objective of the collectability criterion in Step 1 of the new revenue recognition model. The objective is to determine whether the contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration in exchange for the goods or services that will be transferred to the customer. The amendments in this Update also add a new criterion to paragraph 606-10-25-7 to clarity when revenue would be recognized for a contract that fails to meet the criteria in Step 1. That criterion allows an entity to recognize revenue in the amount of consideration received when the entity has transferred control of the goods or services, the entity has stopped transferring goods or services (if applicable) and has no obligation under the contract to transfer additional goods or services, and the consideration received from the customer is nonrefundable. Amendments in this Update permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts. The amendments in this Update clarity that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments in this Update affect the guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.

 

The FASB issues ASU to amend the authoritative literature in ASC. There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.

 

 

 

Results of Operations

 

For the Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015

 

		For the Three Months Ended September 30,
		2016				2015				$ Change				% Change
Revenue, net		$	129,517			$	–			$	129,517				100	%
Cost of product sales			102,531				–				102,531				100
Gross profit			26,986				–				26,986				100
Selling and marketing			132,113				2,239				129,874				*
General and administrative			1,205,010				175,676				1,029,334				586
Interest expense, net			20,068				27,882				(7,814	)			(28	)
Other			–				600				(600	)			(100	)
Net loss		$	(1,330,205	)		$	(206,397	)		$	(1,123,808	)			(544	)%

 

* Not Meaningful
 

Revenues

		For the Three Months Ended September 30,
		2016				2015
Related party commissions (1)		$	125,917			$	–
Loyalty program related benefits (1)			–				–
Product sales (2)			–				–
Membership fees (2) (3)			3,600				–
Total revenue, net		$	129,517			$	–

 

(1)

With respect to member conversions under the Q2 Plan, the Company receives a related party conversion commission of 80% of the conversion price, up to $4,000,000 in conversion proceeds and 50% of the conversion price thereafter. The commission revenue is net of all related accrued member benefits in accordance with ASC 605-50.

 

(2)

In certain circumstances, the Company has waived membership fees and starter kit fees for some VIP members that were under the Q2 plan.

 

(3)

Membership fees are amortized over a twelve-month period.

   

Revenues, net

Revenues were $129,517 and zero for the three months ended September 30, 2016 and 2015, respectively. The increase is due to related party commissions earned through the members’ conversion of the remaining deposits to GX-Coin during the quarter. There was no starter kit revenue and $3,600 of membership fees which we amortize over the requisite membership period or twelve months.

 

Cost of Product Sales

Cost of product sales were $102,531 and zero for the three months ended September 30, 2016 and 2015, respectively. This amount primarily relates to the write-off of raw materials, which mainly consist of labels, boxes, and containers, that the Company is in the process of redesigning as part of a new marketing campaign.

 

Selling and Marketing Expenses

Selling and marketing expenses were $132,113 for the three months ended September 30, 2016, an increase of $129,874, from $2,239 for the three months ended September 30, 2015. The increase is primarily a result of the continued ramp-up of our direct selling program and were primarily attributable to promotional costs of $56,931, non-employee stock-based expense of $29,750, warehouse costs of $23,349, and travel costs of $15,916.

 

 

 

General and Administrative Expenses

 

		For the Three Months Ended September 30,
		2016				2015				$ Change				% Change
Compensation and benefits		$	481,769			$	2,513			$	479,256				*	%
Legal and professional services			571,765				147,426				424,339				288
Occupancy			78,630				4,630				74,000				1,598
Investor relations			32,284				19,250				13,033				68
Other			40,562				1,857				38,705				2,084
Total General and Administrative Expenses		$	1,205,010			$	175,676			$	1,029,334				586	%

 

* Not Meaningful

 

General and administrative expenses were $1,205,010 for the three months ended September 30, 2016, an increase of $1,029,334 or 586 percent, from $175,676 for the three months ended September 30, 2015. The increases in costs are a result of our continued ramp-up of our direct selling program and include legal, consulting and professional services of $571,765, employee compensation and benefits expenses of $481,769, inclusive of employee stock compensation expense of $53,985, occupancy costs of $78,630, investor relations expenses of $32,284, and other expenses of $40,562.

 

Interest Expense, net

Interest expense, net was $20,068 for the three months ended September 30, 2016, a decrease of $7,814 or 28 percent, from $27,882 for the three months ended September 30, 2015. The decrease was primarily attributable to a reduction of our notes payable.

 

For the Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015

 

		For the Nine Months Ended September 30,
		2016				2015				$ Change				% Change
Revenue, net		$	3,541,835			$	–			$	3,541,835				100	%
Cost of product sales			106,792				–				106,792				100
Gross profit			3,435,043				–				3,435,043				100
Selling and marketing			1,040,464				86,887				953,577				1,097
General and administrative			3,412,811				396,850				3,015,961				760
Interest expense, net			70,099				84,773				(14,674	)			(17	)
Gain on extinguishment of debt			9,627				(279,823	)			289,450				103
Other			–				1,800				(1,800	)			(100	)
Net (loss) income		$	(1,097,958	)		$	(290,487	)		$	(807,471	)			(278	)%

 

Revenues

 

		For the Nine Months Ended September 30,
		2016				2015
Related party commissions (1)		$	3,646,462			$	–
Loyalty program related benefits (1)			(129,502	)			–
Product sales (2)			14,550				–
Membership fees (2) (3)			10,325				–
Total revenue, net		$	3,541,835			$	–

 

(1)

With respect to member conversions under the Q2 plan, the Company receives a related party conversion commission of 80% of the conversion price, up to $4,000,000 in conversion proceeds and 50% of the conversion price thereafter. The commission revenue is net of all related accrued member benefits in accordance with ASC 605-50.

 

(2)

In certain circumstances, the Company has waived membership fees and starter kit fees for some VIP members.

 

(3)

Membership fees are amortized over a twelve-month period.

   

 

 

Revenues, net

Revenues were $3,541,835 and zero for the nine months ended September 30, 2016 and 2015, respectively. These increases are directly related to the new member’s in our direct selling program and related deposits, membership and starter kit fees under the Q2 plan. The primary increase relates to $3,516,960 of related party commissions earned through the members’ conversion of deposits (including accrued rewards points) to GX-Coin during the period. We also recorded $14,550 in starter kit revenue and $10,325 of membership fees which we amortize over the requisite membership period or twelve months.

 

Cost of Product Sales

Cost of product sales were $106,792 and zero for the nine months ended September 30, 2016 and 2015, respectively. This amount primarily relates to the write-off of raw materials, which mainly consist of labels, boxes, and containers, that the Company is in the process of redesigning as part of a new marketing campaign.

 

Selling and Marketing Expenses

Selling and marketing expenses were $1,040,464 for the nine months ended September 30, 2016, an increase of $953,577 or 1,097 percent, from $86,887 for the nine months ended September 30, 2015. These costs are primarily a result of the continued ramp-up of our direct selling program and include travel expenses of $597,878, promotional product costs of $181,213, warehouse costs of $72,115, and non-employee stock-based expenses for shares issued to marketing consultants of $103,070.

 

General and Administrative Expenses

 

		For the Nine Months Ended September 30,
		2016				2015				$ Change				% Change
Compensation and benefits		$	1,194,298			$	7,538			$	1,186,760				*	%
Legal and professional services			1,725,834				294,252				1,431,582				487
Occupancy			231,448				29,685				201,763				680
Investor relations			116,639				41,459				75,180				181
Other			144,592				23,916				120,676				505
Total General and Administrative Expenses		$	3,412,811			$	396,850			$	3,015,961				760	%

 

* Not Meaningful

 

General and administrative expenses were $3,412,811 for the nine months ended September 30, 2016, an increase of $3,015,961 or 760 percent, from $396,850 for the nine months ended September 30, 2015. The increases in costs are a result of our continued ramp-up of our direct selling program and include legal, consulting and professional services of $1,725,834, employee compensation and benefits expenses of $1,194,298, inclusive of employee stock compensation expense of $200,067, occupancy costs of $231,448, investor relations expenses of $116,639, and other expenses of $144,592.

 

Interest Expense, net

Interest expense, net was $70,099 for the nine months ended September 30, 2016, a decrease of $14,674 or 17 percent, from $84,773 for the nine months ended September 30, 2015. The decrease was primarily attributable to the reduction of our notes payable.

  

Loss (Gain) on Extinguishment of Debt

There was a loss on extinguishment of debt of $9,627 for the nine months ended September 30, 2016 as a result of a settlement with one of our noteholders. The gain on extinguishment of debt $279,823 for the nine months ended September 30, 2015 was attributable to settlements and write-offs of accounts payable of $194,040, accrued expenses of $25,783, notes payable of $45,000, advances from related parties of $15,000, and vendor settlements of $2,089. The accounts payable write-offs were a result of certain payables reaching or expected to reach their statute of limitations for the vendor to legally enforce the liability or are contested invoices where the Company believed they were erroneously or incorrectly billed, or the services were not performed in accordance with the agreement, and a favorable outcome is probable.

 

Liquidity and Capital Resources

 

Liquidity

As a result of recurring losses and negative cash flows there is a substantial doubt about the Company’s ability to continue as a going concern. The company intends to fund its operations with additional equity and/or debt financing. Management is also making efforts to increase revenue generating activities from the Company’s MLM program. If we cannot raise additional short term capital, we may consume all of our cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company or at all. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that would be necessary if we are unable to continue as a going concern.

 

As of September 30, 2016, our principal source of liquidity is from cash proceeds from our sale of common stock.

 

 

 

As of September 30, 2015, our principal source of liquidity was from the receipt of $3,000,000 from Mr. Lei Pei through the sale of 6,000,000 shares of newly issued common stock. The receipt of the $3,000,000 was received on March 30, 2015, and has been used to fund our operating costs, operating and marketing of our newly acquired businesses, general corporate purposes, working capital requirements, and expansion plans through the end of 2015. Prior to this stock sale, we funded our operations through the issuance of issuance of debt instruments and sales of our common stock.

 

As of September 30, 2016, our cash and cash equivalents were $384,412 and we had working capital of $1,259,718. We will continue to seek to raise capital through the issuance of stock and debt to fund the requirements of our businesses.

 

During the nine months ended September 30, 2016, we reduced our notes payable by $270,000 through repayments. For the nine months ended September 30, 2015 we reduced our notes payable by $45,000 through a debt write-off and note settlement.

 

Equity

During the three months ended March 31, 2015, we issued 6,000,000 shares of common stock resulting in $3,000,000 in cash proceeds to us.

 

During the nine months ended September 30, 2016, the Company received written and verbal commitments for 1,000,000 shares under the S-1 for a total of $3,500,000. However, certain investors either did not (i) transmit their respective funds to purchase their shares, or (ii) provided the appropriate written documentation to the Company prior to the S-1 becoming ineffective. As a result, we were only able to appropriately document the sale of 759,453 shares under the S-1 for a total of $2,658,086, and sold an additional 48,104 shares to certain individuals in exchange for noncash consideration.

 

During the three months ended September 30, 2016, the Company issued an aggregate 25,000 restricted shares to one individual as compensation for consulting services and recorded non-employee stock compensation expense of $29,750.

 

Additionally, on July 29, 2016, we filed a Form S-8 Registration Statement (the “S-8”) with the SEC to register 32,500 shares of our common stock at $1.69 per share. The S-8 was deemed effective as of the filing date pursuant to Rule 462 of the Securities Act. The shares were issued on August 4, 2016.

 

Cash Flows

The following table sets forth our cash flow information as follows:

  

		For the Nine Months Ended September 30,
		2016				2015				$ Change				% Change
Operating activities		$	(2,270,310	)		$	(533,231	)			(1,737,079	)			(325.8	)%
Investing activities			(404,245	)			(175,000	)			(229,245	)			(131.0	)%
Financing activities			2,403,562				2,923,421				(519,859	)			(17.8	)%

  

Operating Activities

During the nine months ended September 30, 2016, we had net cash outflows from operating activities of $2,270,310, an increase in outflows of $1,737,079 or 325.8 percent compared to outflows of $533,231 for the nine months ended September 30, 2015. The increase in outflows primarily relates to our net loss for the period, purchases of inventory related to our direct selling business, and higher prepaid expenses, offset by increases in stock compensation and loss on extinguishments of debt.

 

Investing Activities

During the nine months ended September 30, 2016, we had net cash outflows from investing activities of $404,245, an increase of $229,245 or 131.0 percent compared to outflows of $175,000 for the nine months ended September 30, 2015. The increase in cash outflow primarily relates to property and equipment purchased related to continued ramp-up of the Company’s operations.

 

Financing Activities

During the nine months ended September 30, 2016, we had net cash inflows from investing activities of $2,403,562, a decrease of $519,859 or 17.8 percent compared to inflows of $2,923,421 for the nine months ended September 30, 2015. The decrease primarily relates to reduction in capital we received from the sale of our common stock from the prior period and repayments to noteholders, partially offset by reductions in related party advances.

  

Off Balance Sheet Arrangements

 

None.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

    

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

  

 

 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Kevin McAllister

On June 3, 2016 (the “Filing Date”), Kevin McAllister (“Claimant”) filed a claim against the Company and its CFO and director, Michael Dunn, as an individual (collectively, the “Defendants”), for (i) breach of contract and (ii) fraud with the Superior Court of California, County of Orange, in Santa Ana, California. Claimant alleges that he entered into a written contract, a convertible promissory note (the “McAllister Note”), with the Company on or around December 4, 2014, but that the Company breached the McAllister Note by failing to make certain payments owed to Claimant under the terms of the note. Claimant is also alleging that Defendants agreed to perform its duties under the McAllister Note, but because Defendants have not performed or paid Claimant yet, Claimant alleges that Defendants never intended to pay the amounts owed under the McAllister Note. Furthermore, Claimant alleges that the Company has misrepresented information in its financial statements that the McAllister Note (and other debt), has or will be paid, when the Company allegedly refuses to pay such note (and other debt). Claimant is seeking approximately $182,583 in damages as well as costs of collection, attorney’s fees, punitive damages, and expenses.

 

On June 30, 2016, the Claimant and Defendants entered into a settlement agreement (the “Settlement Agreement”) whereby the Company agreed to pay Claimant $160,000 (the “Settlement Amount”) in full satisfaction of any and all claims related to the Action. The Settlement Amount was paid to Claimant on July 1, 2016. On July 7, 2016, a Request for Dismissal to dismiss the entire Action against the Defendants from all causes of action was filed with prejudice in the Superior Court of California, County of Orange, in Santa Ana, California. Although the Company settled the Action with Claimant, the Company believes that Claimant’s lawsuit was without merit.

 

Xinai Zhao re: Ning Liu

 

On September 29, 2016, Xinai Zhao (“Plaintiff”) filed a complaint (the “Complaint”) against Mr. Ning Liu, the Company’s former Chief Executive Officer, President, and Chairman of the Board, Grand Opus Co., Ltd., a California corporation, Goldenrise Development, Inc., a California corporation, and the Company (collectively, the “Defendants”) in the Superior Court of the State of California, County of Los Angeles (Central District) and is seeking to recover no less than $212,992.92 in damages.

 

The Complaint alleges, among other things, that in 2009 Mr. Liu sold a total of 150,000 shares in three separate Chinese companies, and 200,000 shares in China Yongxin Pharmaceuticals Inc. (“CYXN”), a Delaware corporation, to the Plaintiff under false and misleading information. The Complaint also alleges that after CYXN’s stock was suspended and delisted on the Nasdaq Smallcap Market, Mr. Liu provided Plaintiff with 100,000 shares of the Company’s common stock (the “Shares”) around June 2016 to help recoup her loses in these investments.

 

The Company believes that the Complaint has no merit as it pertains to the Company because (i) the Company never sold the Shares to the Plaintiff, (ii) the Shares were gifted to the Plaintiff by Mr. Liu to help recoup her loses, (iii) the Company is not Mr. Liu’s alter ego, and (iv) the Plaintiff’s claims stem from the sole actions of Mr. Liu prior to serving as a director and officer of the Company. As previously discussed, Mr. Liu has resigned as the Company’s Chief Executive Officer, President, and Chairman of the Board on October 21, 2016.

 

To our knowledge, no governmental authority is contemplating any legal proceedings against us.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information in this report before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition, and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part of your investment.

 

RISKS RELATED TO OUR COMPANY, BUSINESS AND INDUSTRY

 

Risks Related to the EB-5 Program operated by our subsidiary, Powerdyne

 

Limited Operating History in EB-5 Program.

 

The EB-5 Program operated by Powerdyne is start-up in nature, and as such, Powerdyne has limited operating history on which to base an evaluation of its business and prospects. Currently, no viable EB-5 projects have been identified. There are currently zero (0) investors enrolled in Powerdyne’s EB-5 Program. In light of Powerdyne’s limited operating history, its prospects should be considered in light of the risks that can be encountered by companies in their early stages of development. No assurance can be given that Powerdyne’s operations will operate at a profit.

 

Risks of Governmental Regulation.

 

Powerdyne’s operations will be subject, both directly and indirectly, to federal, state, and local governmental regulation. It is possible that (i) the enactment of new laws, (ii) changes in the interpretation or enforcement of applicable codes, rules and regulations, or (iii) enforcement action against other EB-5 businesses by governmental agencies may have a substantial adverse effect on the operations and/or Powerdyne’s value. No assurance can be given that any of the regulations or controls which presently affect Powerdyne will not be changed, and it has no control over the possibility of any such change.

 

The EB-5 Program is a U.S. government program that is highly regulated and requires frequent interaction between Powerdyne’s management and government officials.

 

The EB-5 Program was created in 1990 by the U.S. Congress, which has accorded broad regulatory powers to the Department of Homeland Security and in particular to the USCIS in administering the EB-5 Program. The regional center pilot program was first created in 1992. Any changes to a regional center’s scope including geographic area, industry, economic methodology or any other type of material deviation from the original designation application require the filing of an amendment application with USCIS. While management will strive to coordinate with USCIS to achieve its investors’ immigration goals, there can be no assurance that USCIS employees will take a consistent position as to many of the issues arising under the EB-5 Program, and there can be no assurance that USCIS regulations, precedent case law and policies will not change in the future, and that Powerdyne will not be required to substantially change its investment policies in the future.

 

The EB-5 Program and other immigration laws can be discontinued or changed at any time and may adversely affect the EB-5 immigrant investor.

 

The U.S. Congress and/or other government agencies may discontinue or change some provisions of the entire EB-5 Program.

 

Powerdyne could have its designation terminated by the USCIS.

 

The USCIS may terminate the designation of Powerdyne at any time (i) if the USCIS determines that Powerdyne is no longer promoting job creation or the kind of local economic development for which it was initially certified to perform, (ii) if the USCIS determines that Powerdyne is non-compliant with the immigration regulations, such as failing to file an I-924A annual return, failing to provide the USCIS with updated information annually, cumulatively, or as otherwise requested by the USCIS to demonstrate that Powerdyne is continuing to promote economic growth, regional productivity, or domestic capital investment in the approved geographic area, failing to actively engage in projects or have limited number of investors, failing to create jobs, and instead, merely engage in job preservation, failing to have its investors be actively involved in the business affairs of the particular EB-5 project, or (iii) if the USCIS determines that Powerdyne has engaged in fraud or misrepresentation.

 

On July 15, 2015, the USCIS issued a Notice of Intent to Terminate (“NOIT”) Powerdyne for (i) failing to notify the USCIS in a timely manner of the change in ownership of Powerdyne, and (ii) that Powerdyne has not created any economic development at the time the NOIT was issued. Powerdyne filed an official response to the NOIT on August 14, 2015 to address these matters. Between August 2015 to date, Powerdyne has submitted multiple inquiries to the USCIS and the Office of Citizenship and Immigration Services Ombudsman (“Ombudsman”) asking for a status update related to the NOIT. ​On September 14, 2016, Ombudsman notified Powerdyne that its case is actively being reviewed, but that the USCIS was unable to provide a specific time frame of when this issue would be resolved. Although Powerdyne believes that its designation as a qualified regional center will not be terminated, it is possible that the USCIS could revoke Powerdyne’s designation. However, as of the filing date of this report, Powerdyne is still listed as an approved regional center on the USCIS’ website.

 

 

 

The failure of the EB-5 investor to obtain a Visa following the Regional Center investment may cause problems to the Company’s business and reputation and open the Company up to litigation.

 

After investing with the EB-5 Regional Center, there is the risk that a specific project does not qualify an investor for the EB-5 Visa. The I-829 application may be denied. There are several possible reasons for the denial of the application:

 

·

The investor’s capital was not fully invested thereby failing to meet the investor’s minimum capital requirements of the EB-5;

 

·

Material changes were made in the course of the investment which were inconsistent with the job plan submitted with the application;

 

·

Jobs were not created as outlined in the economic impact analysis or within the period of time outlined in the business plan submitted with the application;

 

·

Insufficient job creation;

 

·

Jobs were created outside of a “Targeted Employment Area” as defined in the economic impact analysis; or

 

·

Other factors related to the history, background or personal situation of the specific investor unrelated to the Regional Center’s implementation of the EB-5 program.

 

Each of the above factors, if not carefully monitored by the Company’s Regional Center, could result in the denial of an investor’s EB-5 visa application. The denial exposes the Company to litigation risks and could have a long-term impact on the viability, reputation and ultimate success of the Company’s business.

 

Certain investment projects operated by the Company’s Regional Center could be unsuccessful, go into bankruptcy or fail to become fully operational resulting in a loss of the Investor’s principal which may cause problems to the Company’s business and reputation and open the Company up to litigation.

 

Even if an investor successfully obtains an EB-5 Visa in this process, there is still investment risk associated with the EB-5 Program. Each investor contributes a significant amount of capital that is deployed by the Regional Center into various qualified development projects, including real estate projects and business investments. The inherent risk of an investment of this nature may result in investor’s capital not being returned, either in part or in full. There are several possible reasons for a failure to return investor capital:

 

·

The Regional Center project files for bankruptcy;

 

·

The project does not become fully operational thereby failing to generate sufficient return on capital to return principal to investors;

 

·

The project’s ultimate assets has a much lower market value than principal invested;

 

·

Insufficient revenue and inability to refinance may result in low capital reserves necessary to repay investors;

 

·

Competing projects with more experience and capital resources affect the viability of the Regional Center’s project (which is limited to a specific geographic region and thereby unable to relocate away from said competition); or

 

·

Market trends result in lower market demand for project.

 

Each of the above factors, if not carefully monitored by the Company, could result in the failure of the Regional Center’s projects. The failure of the investment, as with any business enterprise, exposes the Company to litigation risks and could have a long-term impact on the viability, reputation and ultimate success of the Company’s business.

  

 

 

We are exposed to the risks resulting from real estate ownership, which could increase our costs, reduce our profitability and limit our ability to respond to market conditions.

 

Much of the EB-5 Program’s principal assets will consist of real property. The Regional Center’s real estate ownership subjects the Company to additional risks not applicable to GX-Life's direct-selling business, including:

 

·

the illiquid nature of real estate coupled with the need for any real estate investment to qualify for EB-5 treatment, which limits our ability to promptly sell one or more of the real estate properties in our portfolio in response to changing financial conditions;

 

·

adverse changes in economic and market conditions;

 

·

real estate, insurance, zoning, tax, environmental and eminent domain laws, including the condemnation of our properties;

 

·

fluctuations in real estate values or potential impairments in the value of our assets;

 

·

the ongoing need for capital improvements and expenditures to maintain, renovate or upgrade our properties;

 

·

risks associated with mortgage debt, including the possibility of default, fluctuating interest rate levels and the availability of replacement financing;

 

·

risks associated with the possibility that expense increases will outpace revenue increases and that in the event of an economic downturn, the high proportion of fixed expenses among our costs will make it difficult to reduce our expenses to the extent required to offset declining revenues;

 

·

changes in laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance; and

 

·

events beyond our control, such as war, terrorist attacks and force majeure events, including earthquakes, tornados, hurricanes, fires or floods.

 

Economic and other conditions may materially adversely affect the valuation of our real estate properties resulting in impairment that could have a material adverse effect on our business, results of operations and earnings.

 

The Regional Center’s EB-5 program will likely hold goodwill, intangible assets and a significant amount of long-lived assets. We evaluate our tangible and intangible assets annually for impairment, or more frequently based on various triggers, including when a property has current or projected operating losses or when other material trends, contingencies or changes in circumstances indicate that a triggering event has occurred, such that an asset’s value may not be recoverable. During times of economic distress, declining demand and declining earnings often result in declining asset values. As a result, we have incurred and we may in the future incur impairment charges, which in the future could be material and adversely affect our results of operations and earnings. The resulting decline in the Regional Center’s EB-5 business may then have a substantial negative impact on the operating results of the Company as a whole which would likely result in a decrease of the Company’s stock price.

 

Risks Related to GX-Life Global

 

GX-Life’s failure to establish and maintain GX-Life Members for any reason could negatively impact sales of its products and could harm our financial condition and operating results.

 

GX-Life distributes its products to GX-Life Members, and GX-Life depends upon GX-Life Members directly for substantially all of its sales. GX-Life Members, including higher status level members, may voluntarily terminate their membership with GX-Life at any time. To increase our revenue, GX-Life must increase the number of, or the productivity of, GX-Life Members. Accordingly, our success depends in significant part upon GX-Life’s ability to recruit, retain and motivate a large base of GX-Life Members. The loss of a significant number of GX-Life Members for any reason could negatively impact sales of GX-Life’s products and could impair its ability to attract new GX-Life Members. GX-Life competes with other network marketing organizations to attract and retain members. GX-Life’s operating results could be harmed if its existing and new business opportunities and products do not generate sufficient interest to retain existing GX-Life Members and attract new GX-Life Members.

 

Because GX-Life cannot exert the same level of influence or control over its independent GX-Life Members as it could were they GX-Life’s own employees, GX-Life Members could fail to comply with applicable law or its member policies and procedures, which could result in claims against the Company or GX-Life that could harm our financial condition and operating results.

 

GX-Life Members are independent contractors and, accordingly, GX-Life is not in a position to directly provide the same direction, motivation and oversight as it could if GX-Life Members were its own employees. As a result, there can be no assurance that GX-Life Members will participate in GX-Life’s marketing strategies or plans, accept its introduction of new products, or comply with its member policies and procedures.

 

 

 

Extensive federal, state and local laws regulate GX-Life’s business, products and GX-Life Direct-Selling Program. Because GX-Life has expanded into foreign countries, its policies and procedures for independent members differ due to the different legal requirements of each country in which GX-Life does business. While GX-Life has implemented member policies and procedures designed to govern member conduct and to protect the goodwill associated with GX-Life, it can be difficult to enforce these policies and procedures because their independent status. Violations by GX-Life Members of applicable law or of GX-Life’s policies and procedures in dealing with customers could reflect negatively on its products and operations and harm GX-Life’s business reputation. In addition, it is possible that a court could hold GX-Life civilly or criminally accountable based on vicarious liability because of the actions of GX-Life Members.

 

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes could substantially harm our business and results of operations.

 

We will be subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations.

 

We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints both domestically and abroad, and our failure or GX-Life Members’ failure to comply with these constraints could lead to the imposition of significant penalties or claims, which could harm our financial condition and operating results.

 

In both domestic and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, advertising, importation, exportation, licensing, sale and storage of our products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and other similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions. There can be no assurance that we or GX-Life Members are in compliance with all of these regulations. Our failure or GX-Life Members’ failure to comply with these regulations or new regulations could disrupt GX-Life Members’ sale of our products, or lead to the imposition of significant penalties or claims and could negatively impact our business. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant loss of sales revenues.

 

Governmental regulations in countries where we plan to commence or expand operations may prevent or delay entry into those markets. In addition, our ability to sustain satisfactory levels of sales in our markets is dependent in significant part on our ability to introduce additional products into such markets. However, governmental regulations in our markets, both domestic and international, can delay or prevent the introduction, or require the reformulation or withdrawal, of certain of our products. Any such regulatory action, whether or not it results in a final determination adverse to us, could create negative publicity, with detrimental effects on the motivation and recruitment of GX-Life Members and, consequently, on sales.

  

The GX-Life Direct-Selling Program could be found to not be in compliance with current or newly adopted laws or regulations in one or more markets, which could prevent us from conducting our business in these markets and harm our financial condition and operating results.

 

The GX-Life Direct-Selling Program is subject to a number of federal and state regulations administered by the FTC and various federal and state agencies in the United States as well as regulations on direct selling in foreign markets administered by foreign agencies. We are subject to the risk that, in one or more markets, the GX-Life Direct-Selling Program could be found by federal, state or foreign regulators to not be in compliance with applicable law or regulations. There can be no assurances that federal, state, state attorneys general, or foreign regulators will not take action against us.

 

Regulations applicable to the GX-Life Direct-Selling Program or similar programs generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria. The regulatory requirements concerning such programs do not include “bright line” rules and are inherently fact-based and, thus, GX-Life is subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. While we believe we are in compliance with these regulations, there is no assurance that the FTC or other federal, state or foreign courts or agencies would agree.

 

The ambiguity surrounding these laws can also affect the public perception of GX-Life or the Company. The failure of the GX-Life Direct-Selling Program to comply with current or newly adopted regulations or any allegations or charges to that effect brought by federal, state, or foreign regulators could negatively impact our business in a particular market or in general and may adversely affect our share price. We are also subject to the risk of private party challenges to the legality of the GX-Life Direct-Selling Program. Programs of other companies have been successfully challenged in the past, while other challenges to such programs of other companies have been defeated. Adverse judicial determinations with respect to the GX-Life Direct-Selling Program, or in proceedings not involving us directly but which challenge the legality of similar programs, in any other market in which we operate, could negatively impact our business.

 

 

 

We could be harmed by data loss or other security breaches.

 

As a result of our services being web-based and the fact that we may process, store and transmit large amounts of data, including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including breaches of our vendors’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us and otherwise harm our business. We will use third party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support and other functions. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security.

 

We face risks related to system interruption and lack of redundancy.

 

We may experience occasional system interruptions and delays that make our websites and services unavailable or slow to respond and prevent us from efficiently fulfilling orders or providing services to third parties, which may reduce our net sales and the attractiveness of our products and services. If we are unable to continually add software and hardware, effectively upgrade our systems and network infrastructure and take other steps to improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our operating results.

 

 Our computer and communications systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system interruption, delays, and loss of critical data, and could prevent us from accepting and fulfilling customer orders and providing services, which could make our product and service offerings less attractive and subject us to liability. Our systems are not fully redundant and our disaster recovery planning may not be sufficient. In addition, we may have inadequate insurance coverage to compensate for any related losses. Any of these events could damage our reputation and be expensive to remedy.

 

We face inventory risk.

 

We will be exposed to inventory risks that may adversely affect our operating results as a result of seasonality, limitations on shelf-life, new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to our products and other factors. We endeavor to accurately predict these trends and avoid overstocking or understocking products we manufacture and/or sell. Demand for products, however, can change significantly between the time inventory or components are ordered and the date of sale. In addition, when we begin selling or manufacturing a new product, it may be difficult to establish vendor relationships, determine appropriate product or component selection, and accurately forecast demand. The acquisition of certain types of inventory or components may require significant lead-time and prepayment and they may not be returnable. We carry a broad selection and sizeable inventory levels of certain products, such as consumer electronics, and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.

 

Our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm our GX-Life Members, customer relationships and product sales, and harm our financial condition and operating results.

 

GX-Life’s business is subject to changing consumer trends and preferences. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. Our failure to accurately predict these trends could negatively impact consumer opinion of our products, which in turn could harm our customer and member relationships and cause the loss of sales. The success of our new product offerings and enhancements depends upon a number of factors, including our ability to:

 

·

accurately anticipate customer needs;

 

·

innovate and develop new products or product enhancements that meet these needs;

 

·

successfully commercialize new products or product enhancements in a timely manner;

 

·

price our products competitively;

 

·

manufacture and deliver our products in sufficient volumes and in a timely manner; and

 

·

differentiate our product offerings from those of our competitors.

 

 

 

If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could be rendered obsolete, which could negatively impact our revenues, financial condition and operating results.

 

If we fail to further penetrate existing markets, then the growth in sales of GX-Life’s products, along with our operating results, could be negatively impacted.

 

The success of GX-Life is to a large extent contingent on its ability to further penetrate existing markets which is subject to numerous factors, many of which are out of our control. Government regulations in both domestic and international markets can delay or prevent the introduction, or require the reformulation or withdrawal, of some of GX-Life’s products, which could negatively impact our business, financial condition and results of operations. Also, our ability to increase market penetration in certain countries may be limited by the finite number of persons in a given country inclined to pursue a direct selling business opportunity or consumers willing to purchase GX-Life products. Moreover, GX-Life’s growth will depend upon improved training and other activities that enhance GX-Life Member retention in the markets GX-Life operates in. Our efforts to support growth in international markets could be hampered to the extent that our infrastructure in such markets is deficient when compared to our infrastructure in our more developed markets. Therefore, we cannot assure you that our general efforts to increase our market penetration and GX-Life Member retention in existing markets will be successful. If we are unable to further penetrate existing markets, our operating results could suffer.

  

Our supplier relationships subject us to a number of risks.

 

We may have significant suppliers, including licensors, and in some cases, limited or single-sources of supply, that are important to our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content. We do not have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content, components or services, particular payment terms, or the extension of credit limits. If our current suppliers were to stop selling or licensing merchandise, content, components or services to us on acceptable terms, or delay delivery, including as a result of one or more supplier bankruptcies due to poor economic conditions, as a result of natural disasters or for other reasons, we may be unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

 

We may be subject to product liability claims if people or properties are harmed by the products we sell.

 

Some of the products we sell or manufacture may expose us to product liability claims relating to personal injury, death, or environmental or property damage, and may require product recalls or other actions. Certain third parties also sell products using our e-commerce platform that may increase our exposure to product liability claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.

 

We are subject to payments-related risks.

 

We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift certificates, direct debit from a customer’s bank account, consumer invoicing, physical bank check and payment upon delivery. As we offer new payment options to our customers, we may be subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected. We also offer co-branded credit card programs that represent a significant component of our services revenue. If one or more of these agreements are terminated and we are unable to replace them on similar terms, or at all, it could adversely affect our operating results.

 

Changes in tax laws, treaties or regulations, or their interpretation could adversely affect us.

 

A change in applicable tax laws, treaties or regulations or their interpretation could result in a higher effective tax rate on our worldwide earnings, and such change could be significant to our financial results.

 

 

 

We may be held responsible for certain taxes or assessments relating to the activities of GX-Life Members, which could harm our financial condition and operating results.

 

GX-Life Members are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on GX-Life to collect taxes, such as value added taxes and social contributions, and to maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of being responsible for social security, withholding or other taxes with respect to payments to GX-Life Members. In addition, in the event that local laws and regulations or the interpretation of local laws and regulations change to require us to treat GX-Life Members as employees, or that GX-Life Members are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors under existing laws and interpretations, we may be held responsible for social security contributions, withholding and related taxes in those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results.

 

Risks Related to GX-Life's Proposed Use of GX Coins in Connection With Commissions and the GX-Life Global Compensation Plan.

 

The loss or destruction of a GX Coin private key required to access GX Coin may be irreversible.

 

GX Coin is controllable by the possessor of both the unique public and private keys relating to the online digital or local wallet in which the GX Coins are held. Great Coin publishes the public key relating to digital wallets in use by users when it verifies the receipt of GX Coin transfers and disseminates such information into the GX Coin Platform, but individual users are required to safeguard the private keys relating to such digital wallets using Great Coin’s security system. To the extent such private keys are lost, destroyed or otherwise compromised, the users will be unable to access the related GX Coin and such private keys will not be capable of being restored by Great Coin. Any loss of private keys relating to digital wallets used to store the user’s GX Coin could adversely affect the value of GX Coin and adversely affect GX-Life’s business operations which are, in part, dependent on the value of GX Coin earned by GX-Life Members through the GX-Life Global Compensation Plan.

 

The further development and acceptance of the GX Coin Platform and other cryptocurrency trading systems, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of the GX Coin Platform may adversely affect the value of GX Coin and the Company’s related business operations.

 

Cryptocurrencies such as GX Coin, which may be used, among other things, to buy and sell goods and services, are a new and rapidly evolving industry of which the GX Coin Platform is a small part. The growth of the cryptocurrency industry in general and the GX Coin Platform in particular, is subject to a high degree of uncertainty. The factors affecting the further development of this industry, as well as the GX Coin Platform, include:

 

·

Continued worldwide growth in the adoption and use of GX Coin and other cryptocurrencies;

 

·

Government and quasi-government regulation of GX Coin and other cryptocurrencies and their use, or restrictions on or regulation of access to and operation of the GX Coin Platform or similar cryptocurrency trading systems;

 

·

Changes in consumer demographics and public preferences;

 

·

The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; and

 

·

General economic conditions and the regulatory environment relating to cryptocurrency trading systems.

 

The Company cannot be certain as to the impact of the expansion of GX Coin on the cryptocurrency trading industry and the GX Coin Platform. A decline in the popularity or acceptance of GX Coin or other cryptocurrency could adversely affect the value of GX Coin and have a detrimental impact on the GX-Life Global Compensation Plan.

  

If a malicious actor or botnet obtains control in excess of 50 percent of the processing power active on the GX Coin Platform, such actor or botnet could manipulate the source code of the GX Coin Platform in a manner that adversely affects the value of GX Coin or the ability of the Company to use GX Coin in its business operations.

 

To the extent that a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power on the GX Coin Platform, it could alter the source code on which the GX Coin Platform and all GX Coin transactions rely. To the extent that such malicious actor or botnet does not yield its majority control of the processing power on the GX Coin Platform, reversing any changes made to the source code may not be possible. Such changes could adversely affect the value of GX Coin or the ability of GX-Life to operate the GX-Life Global Compensation Plan.

 

 

 

Intellectual property rights claims may adversely affect the operation of the GX Coin Platform.

 

Third parties may assert intellectual property claims relating to the operation of cryptocurrencies and their source code relating to the holding and transfer of such assets. Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in the GX Coin Platform’s long-term viability or the ability of users to hold and transfer GX Coin may adversely affect the value of GX Coin. Additionally, a meritorious intellectual property claim could prevent users from accessing the GX Coin Platform or holding or transferring their GX Coin. As a result, an intellectual property claim against Great Coin could adversely affect the value of GX Coin or the ability of GX-Life to operate the GX-Life Global Compensation Plan.

 

The GX Coin Platform on which GX Coin trades is new and largely unregulated and may therefore be more exposed to fraud and failure than established, regulated trading platforms. To the extent that the GX Coin Platform is involved in fraud or experiences security failures or other operational issues, the GX Coin Platform’s failures may adversely affect the value of GX Coin.

 

The GX Coin Platform is new and largely unregulated. The price of GX Coin is based on the prevailing "spot" price in the GX Coin market and thus utilizes data from the GX Coin Platform.

 

Over the past three years, many cryptocurrency exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such exchanges were not compensated or made whole for the partial or complete losses of their account balances in such exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that make larger exchanges more stable, larger exchanges are more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems).

 

A lack of stability in the GX Coin Platform and the closure or temporary shutdown of the GX Coin Platform due to fraud, business failure, or hackers or malware may reduce confidence in the GX Coin Platform and result in greater volatility in the price of GX Coin. These potential consequences of the GX Coin Platform’s failure could adversely affect the value of GX Coin and reduce the incentive for consumers to participate in GX-Life Global Compensation Plan, which include, among other things, the option to redeem commissions for GX Coin.

 

Alternative cryptocurrency trading exchanges may gain more credibility and acceptance than the GX Coin resulting in a devaluation of GX Coin and the decreased effectiveness of the GX-Life Global Compensation Plan.

 

There are numerous different types of cryptocurrencies and related exchanges and platforms. Any one of these different exchanges may gain more use than the GX Coin Platform, thereby increasing the liquidity and value of the more accepted cryptocurrency which may, in turn, decrease the use, value and acceptance of GX Coin as a cryptocurrency, which will decrease the effectiveness of the GX-Life Global Compensation Plan (which provides GX-Life Members the option to receive commissions in the form of either a debit card, ACH deposit, or GX Coins) to act as an incentive to drive GX-Life's retail revenues through the GX-Life Direct-Selling Program. As a result, our business plan may not be implemented as planned.

 

Currently, GX Coin is tradable on the GX Coin Platform, which is not operated or controlled by the Company or GX-Life.

 

Neither the Company nor GX-Life administers or controls the GX Coin Platform, and GX-Life’s ability to access the GX Coin Platform for use by GX-Life Members is based on the Access and Services Agreement between GX-Life and Great Coin. The GX Coin Platform could be shut down entirely or otherwise become unavailable to GX-Life Members, which would have a material adverse effect on the Company and significantly impair the ability of GX-Life to operate the GX-Life Global Compensation Plan and the GX-Life Direct-Selling Program.

 

There is no assurance that a viable trading market for GX Coin will ever develop.

 

The GX Coin Platform and/or its operator, Great Coin, could fail for any number of reasons, including a failure of the GX Coin Platform to gain any relevant traction or achieve any meaningful user base. If so, there may never be a viable trading market for GX Coin, and GX Coin could effectively become illiquid and valueless, indefinitely. Additionally, even if a viable trading market were ever to exist, the transfer of GX Coin may become subject to significant legal and/or contractual restrictions in ways that are difficult if not impossible to predict. Accordingly, GX-Life Members who receive GX Coins may never be able to liquidate such GX Coins or convert them into any other currency or store of value. The lack of a viable trading market for GX Coin would therefore cause substantial material harm to GX-Life Members who receive GX Coins and materially impair the ability of the Company and GX-Life to operate the GX-Life Global Compensation Plan and the GX-Life Direct-Selling Program.

 

 

 

GX Coin and the GX Coin Platform are built using the open source Ethereum software, which is developed by third parties beyond the control of the Company and may contain material defects and vulnerabilities.

 

The GX Coin and the GX Coin Platform are dependent on software that was not developed by the Company, including the Ethereum software. The Ethereum software specifically has been exposed as containing significant vulnerabilities that could materially impair its utility generally, and could make it unsuitable for use as the basis of GX Coin and the GX Coin Platform. Any vulnerabilities in the Ethereum software (whether those currently identified or any other vulnerabilities that could very well exist but have not yet been discovered and/or identified to the public) could cause material and fundamental defects in both GX Coin and the GX Coin Platform, which would cause substantial material harm to GX-Life Members who receive GX Coins and materially impair the ability of the Company and GX-Life to operate the GX-Life Global Compensation Plan and the GX-Life Direct-Selling Program.

 

Additional issuance of GX Coins to GX-Life Members and other individuals who trade on the GX Coin Platform could cause significant dilution that materially decreases the value of GX Coin, the utility of GX Coin, and the value of the Company’s use of GX Coins.

 

Over time, the Company expects that the amount of GX Coins owned by the public, including by GX-Life Members, will increase, for example as GX-Life Members choose to receive commissions in the form of GX Coins in connection with the GX-Life Global Compensation Plan. The increased supply of GX Coins over time could materially increase the supply of GX Coins in the market and accordingly materially decrease the market price for GX Coins. The value of GX Coins is central to the successful operation of the GX-Life Global Compensation Plan and the GX-Life Direct-Selling Program. Accordingly, a decrease in the price of GX Coins as a result of the additional issuance of GX Coins could materially adversely affect the ability of the Company and GX-Life to operate the GX-Life Global Compensation Plan and the GX-Life Direct-Selling Program.

 

General Risks Related to our Company

 

We have limited operating history with our Regional Center and GX-Life.

 

Our entry into operating the business lines affiliated with the Regional Center and GX-Life commenced in 2015. As a result, we have little financial information on which an investor can evaluate our business and prospects. There can be no assurance that our future proposed operations will be implemented successfully or that we will have the ability to generate profits. If we are unable to sustain our operations, you may lose your entire investment.  We face all the risks inherent in a new business, including the expenses, difficulties, complications and delays frequently encountered in connection with conducting operations, including capital requirements and management's potential underestimation of initial and ongoing costs.  We also face the risk that we will not be able to effectively implement our business plan.  In evaluating our business and prospects, these difficulties should be considered.  If we are not effective in addressing these risks, we will not operate profitably and we may not have adequate working capital to meet our obligations as they become due.

 

As of November 1, 2016, we have generated $0 in revenue from operating Global Future City Regional Center, LLC, and approximately $3.5 million in net revenue from operating GX-Life.

 

Our management and certain of our affiliates may have certain conflicts of interest in connection with the management of our business affairs, including, but not limited to, the following:

 

·

Our management and its affiliates must allocate their time between advising us and managing other investment activities and business activities in which they may be involved.

 

·

The compensation paid to management will be approved by our board of directors consistent with the exercise of the requisite standard of care applicable to directors under California law. Such compensation is payable, in most cases, whether or not our stockholders receive distributions and may be based in part on the value of assets acquired and sold with leverage.

 

·

Regardless of the quality of the assets acquired, the services provided to the Company, or whether we pay distributions to our stockholders, our managers may receive certain compensation or bonuses based on the management, acquisition and disposition of our portfolio companies.

 

Unfavorable economic conditions or other factors may affect our ability to raise capital or the performance of our subsidiaries.

 

Unfavorable economic conditions or other factors could increase our funding costs, limit our access to the capital markets, or result in a decline in the financial performance of our subsidiaries. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any.

 

 

 

We may not be able to compete successfully with other established companies offering the same or similar services and, as a result, we may not achieve our projected revenue and capital appreciation targets.

 

If we are unable to compete successfully with other businesses in our existing market, we may not achieve our projected revenue and/or user targets. We compete with both start-up and established companies. Compared to our business, some of our competitors may have greater financial and other resources, have been in business longer, have greater name recognition and be better established in the market.

 

If we have material weaknesses in the financial reporting of our company, it may cause us to restate our financial statements in the event such weaknesses are determined to not be acceptable to financial reporting requirements.

 

While our review of material weaknesses is ongoing, if we discover any weaknesses that could cause us to have to restate our financial statements, this could cause us to expend additional funds that would have a material impact on our ability to generate profits and on the profits of our business.

 

The failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to our branded products and services and other names and marks used by our business, which could adversely affect the value of the brand.

 

The success of our business depends on our continued ability to use our existing trade name in order to increase our brand awareness. In that regard, we believe that our trade name is valuable asset that is critical to our success. The unauthorized use or other misappropriation of our trade name could diminish the value of our business concept and may cause a decline in our revenue.

  

Any new indebtedness may adversely affect our financial condition, results of operations, limit our operational and financing flexibility and negatively impact our business.

 

Any revolving credit facility, and other debt instruments we may enter into in the future, may have negative consequences to our business, including but not limited to the following:

 

·

Our ability to obtain financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;

 

·

We may use a substantial portion of our cash flows from operations to pay interest on any new indebtedness, which will reduce the funds available to us for operations and other purposes;

 

·

Our level of indebtedness could place us at a competitive disadvantage compared to our competitors that may have proportionately less debt;

 

·

Our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; and

 

·

Our level of indebtedness may make us more vulnerable to economic downturns and adverse developments in our business.

 

We expect that we will depend primarily upon invested capital to provide funds to pay our expenses and to pay any amounts that may become due under any new credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by various financial, business, economic and other factors, many of which we cannot control.

 

We depend on the services of key executives, the loss of who could materially harm our business and our strategic direction if we were unable to replace them with executives of equal experience and capabilities.

 

Our senior executives are important to our success because they are instrumental in setting our strategic direction, operating our business, identifying, expansion opportunities and arranging any necessary financing. Losing the services of key executives could adversely affect our business until suitable replacements could be found. We do not maintain key person life insurance policies on any of our executives.

 

We expect to incur substantial expenses to meet our reporting obligations as a public company. In addition, failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting and could harm our ability to manage our expenses.

 

We estimate that it will cost approximately $60,000 annually to maintain the proper management and financial controls for our filings. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in our stock price and adversely affect our ability to raise capital.

 

 

 

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes could substantially harm our business and results of operations.

 

We are subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations.

 

We could be harmed by data loss or other security breaches.

 

As a result of our services being web-based and the fact that we process, store and transmit large amounts of data, including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including breaches of our vendors’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us and otherwise harm our business. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support and other functions. Some subsidiaries have previously experienced security breaches, and, although they did not have a material adverse effect on our operating results, there can be no assurance of a similar result in the future. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security.

 

Our future results may vary significantly which may adversely affect the price of our common stock.

 

It is possible that our quarterly revenues and operating results may vary significantly in the future and that period-to-period comparisons of our revenues and operating results are not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future performance. It is also possible that in some future quarters, our revenues and operating results will fall below our expectations or the expectations of market analysts and investors. If we do not meet these expectations, the price of our common stock may decline significantly.

 

Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and experience further dilution.

 

We are authorized to issue up to 150,000,000 shares of common stock, of which 48,531,459 shares of common stock are outstanding as of November 1, 2016. Our board of directors has the authority to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of the shareholders. Consequently, shareholder positions may be diluted.

 

Our shares are currently quoted on the OTCQB, but our securities will not be eligible for quotation if we are not current in our filings with the Securities and Exchange Commission.

 

As an OTCQB company, we are required to remain current in our filings with the SEC in order for shares of our common stock to be eligible for quotation over-the-counter. In the event that we become delinquent in our required filings with the SEC, quotation of our common stock will be terminated following a 30-day grace period if we do not make our required filing during that time. If our shares are not eligible for quotation on the over-the-counter bulletin board, investors in our common stock may find it difficult to sell their shares.

 

We are classified as a “Smaller Reporting Company,” and we cannot be certain if the reduced disclosure requirements applicable to such classifications will make our common stock less attractive to investors.

 

We are currently a “Smaller Reporting Company” (“SRC”). SRCs are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

 

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Securities

During the nine months ended September 30, 2016 and 2015, the Company issued 53,000 and 250,000 shares of common stock for consulting services rendered and recorded stock-based expense of $103,070 and $65,000, respectively, recorded in selling and marketing expenses in the consolidated statements of operations.

 

In connection with the above stock issuance(s), we did not pay any underwriting discounts or commissions. None of the sales or issuance(s) of the securities described or referred to above was registered under the Securities Act. We had or one of our affiliates had a prior business relationship with each person or entity above, and no general solicitation or advertising was used in connection with the sales or issuance(s). In making the sales or issuance(s) without registration under the Securities Act, we relied upon the exemption from registration contained in Section 4(a)(2) of the Securities Act.

  

Use of Proceeds from Registered Securities

 

Period	Type of Security	Total Number of Shares Purchased	Price Paid Per Share	Approximate Dollar Value of Shares That May Yet Be Purchased Under the S-1
March 1, 2016 – April 30, 2016	Common Stock	759,453 (1)	$3.50	$32,341,914.50
March 2016	Common Stock	14,104	(2)	$32,341,914.50
April 2016	Common Stock	34,000	(3)	$32,341,914.50
Total		807,557	$3.50

 

(1)

On May 8, 2015, we filed a Form S-1 Registration Statement with the SEC for the initial registration of 10 million shares of our common stock at $3.50 per share, as amended on June 8, 2016, and amended further on June 19, 2016 (collectively the “S-1”) (File No. 333-204005). The S-1 was declared effective by the SEC on July 6, 2015. On October 8, 2015, we submitted Post-Effective Amendment No. 1 to the S-1 incorporating new information resulting from certain transactions in connection with GX-Life, and the resignation of our former CEO, Lei Pei. The Post-Effective Amendment No. 1 was declared effective by the SEC on October 19, 2015. On December 2, 2015, we submitted Post-Effective Amendment No. 2 to the S-1 incorporating certain information contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, that was filed with the SEC on November 17, 2015. The Post-Effective Amendment No. 2 was declared effective by the SEC on December 22, 2015. The Company did not utilize any brokers or underwriters in connection with the shares sold under the S-1.   On May 4, 2016, we submitted Post-Effective Amendment No. 3 to the S-1 incorporating certain information contained in our Annual Report on Form 10-K for the year ended December 31, 2015, that was filed with the SEC on April 13, 2016, information contained in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, that was filed with the SEC on May 16, 2016, and certain changes in circumstances involving the development and utilization of GX Coin in GX-Life’s Direct Selling Program. We disclosed in this Post-Effective Amendment that we had sold 1,013,500 shares of our common stock under this prospectus. This was due to the fact that subsequent to March 31, 2016, and while the S-1 was still effective, we had received written and verbal commitments to purchase 1,000,000 shares under the S-1 for a total of US$3,500,000. However, certain investors either did not (i) transmit their respective funds to purchase their shares, or (ii) provided the appropriate written documentation to the Company prior to the S-1 becoming ineffective. As a result, we were only able to appropriately document the sale of 759,453 shares under the S-1 for a total of US$2,658,086.   On July 22, 2016, we submitted Amendment No. 1 to Post-Effective Amendment No. 3 with the SEC to maintain the registration of 9,192,443 shares of our Common Stock. The S-1 is currently under review and we will not sell any shares under the S-1 until it is deemed effective by the SEC. Reference to the S-1 is not an offer to sell the securities described therein, and the Company is not soliciting an offer to buy the securities in any state where the offer or sale is not permitted.

 

(2)

The Company issued 14,104 free-trading shares of common stock related to a debt settlement agreement and recorded a reduction of advances owed to our CFO in the amount of $49,364. The shares issued in connection with this issuance were for non-cash consideration.

 

(3)

The Company issued 34,000 free-trading shares of common stock to certain individuals that provided services to the Company. The shares issued in connection with this issuance were for non-cash consideration.

 

 

 

We received aggregate net proceeds from the offering of approximately $2,658,086, after deducting offering expenses payable by us. As of November 1, 2016, we have used approximately all of the net proceeds from the offering as follows: $1,040,464 for sales and marketing costs, $1,617,622 for general and administrative purposes. We have not used any of the net proceeds from the offering to make payments, directly or indirectly, to any director or officer of ours or any of their associates, to any person owning 10 percent or more of our common stock, or to any affiliate of ours. There has been no material change in our planned use of the net proceeds from the offering as described in our S-1.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

Subsequent Events

 

Ning Liu - Resignation

As reported on Form 8-K filed with the Commission on October 21, 2016, Mr. Ning (Sam) Liu resigned as the Company’s Chief Executive Officer, President, and Chairman of the Board, effective as of October 21, 2016. The Company’s board of directors approved and accepted Mr. Liu’s resignation.

 

On October 21, 2016, the Board appointed Mr. Michael Dunn, the Company’s current Chief Financial Officer, Chief Operating Officer, Secretary, Treasurer, and Director as the Company’s Chief Executive Officer, President, and Chairman of the Board.

 

 

 

 

 

 

 

ITEM 6. EXHIBITS

 

2.1	Agreement and Plan of Merger by and among Snocone Systems Inc., WYD Acquisition Corp. and Who’s Your Daddy, Inc., dated April 1, 2005 (1)
2.2	Merger and Reorganization Agreement, dated June 18, 2013, by and between FITT Highway Products, Inc. and F.I.T.T. Energy Products, Inc. (2)
2.3	Merger Agreement and Articles of Merger, with an effective date of October 29, 2014, by and between FITT Highway Products, Inc. and Global Future City Holding Inc. (3)
3.1	Amended and Restated Articles of Incorporation, dated December 4, 2001 (4)
3.2	Amended and Restated Bylaws, dated December 4, 2001 (4)
3.3	Amended and Restated Articles of Incorporation, dated April 27, 2005 (5)
3.4	Amended and Restated Articles of Incorporation, dated June 1, 2010 (6) (7)
10.1	Employment Agreement with Michael R. Dunn dated August 24, 2009 (8)
10.2	Employment Agreement with Robert E. Crowson, Jr. dated August 24, 2009 (8)
10.3	Share Exchange Agreement, dated May 6, 2014, by and between FITT Highway Products, Inc. and Greenome Development Group, Inc. (9)
10.4	Stock Purchase Agreement, dated September 19, 2014, by and between FITT Highway Products, Inc. and Sky Rover Holdings, Ltd. (10)
10.5	Financing Agreement, dated September 19, 2014, by and between FITT Highway Products, Inc. and Greenome Development Group, Inc. (10)
10.6	First Amendment to Stock Purchase Agreement between Global Future City Holding Inc. and Sky Rover Holdings, Ltd., dated February 17, 2015 (11)
10.7	Membership Interest Purchase and Sale Agreement by and between Global Future City Holding Inc. and Powerdyne, Inc., dated March 26, 2015 (12)
10.8	Second Amendment to Stock Purchase Agreement executed by and between Global Future City Holding Inc. and Sky Rover Holdings, Ltd., dated April 17, 2015 (13)
10.9	Resignation Agreement by and between Global Future City Holding Inc. and Lei Pei, dated August 17, 2015 (14)
10.10	Resignation Agreement by and between Global Future City Holding Inc. and Xiang Ling Yun, dated August 17, 2015 (14)
10.11	Resignation Agreement by and between Global Future City Holding Inc. and Junfei Ren, dated August 17, 2015 (14)
10.12	Share Exchange Agreement by and between GX-Life Global, Inc., GX-Life Global Shareholders, Global Modern Enterprise Limited and Global Future City Holding Inc., dated October 2, 2015 (15)
10.13	Private Stock Purchase Agreement between Exchange Agreement between Future Continental Limited, Discover Future Limited, Global Future Development Limited and the shareholders of Global Modern Enterprise Limited, dated October 2, 2015 (15)
10.14	Software License and Services Agreement by and between GX-Life Global, Inc. and Great Coin, Inc., dated February 17, 2016 (16)
10.15	Amendment and Restatement to Software License and Services Agreement (Access and Services Agreement) by and between GX-Life Global, Inc. and Great Coin, Inc., dated September 30, 2016(17)
10.16	Thomas Leffler Employment Agreement*
14.1	Amended and Restated Code of Conduct and Ethics, dated November 11, 2015 (18)
21.1	List of Subsidiaries (17)
99.1	Audit Committee Charter, dated November 11, 2015 (18)
99.2	Nominations and Governance Committee Charter, dated November 11, 2015 (18)
99.3	Compensation Committee Charter, dated November 11, 2015 (18)
99.4	Insider Trading Policy, dated November 11, 2015 (1)
99.5	Principles of Corporate Governance, dated November 11, 2015 (18)
31.1	Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certifications Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

  

 

 

 

*Filed concurrently herewith

	(1)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 7, 2005.
	(2)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on June 19, 2013.
	(3)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 29, 2014.
	(4)	Incorporated by reference from our Registration Statement on Form 10SB filed with the Commission on January 18, 2002.
	(5)	Incorporated by reference from our Schedule 14C Definitive Information Statement file with the Commission on June 28, 2005.
	(6)	Incorporated by reference from our Schedule 14C Definitive Information Statement file with the Commission on June 21, 2010.
	(7)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on July 21, 2010.
	(8)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 26, 2009.
	(9)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on May 9, 2014.
	(10)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on September 23, 2014.
	(11)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on February 20, 2015.
	(12)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 30, 2015.
	(13)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 20, 2015.
	(14)	Incorporated by reference form our Quarterly Report on Form 10-Q filed with the Commission on September 9, 2015.
	(15)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 8, 2015.
	(16)	Incorporated by reference from our Annual Report on Form 10-K filed with the Commission on April 13, 2016
	(17)	Incorporated by reference from our Amendment No. 1 to Post-Effective Amendment No. 3 on July 22, 2016
	(18)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 17, 2015

 

 

 

 

 

 

 

 

 

 

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

 

	GLOBAL FUTURE CITY HOLDING INC.
Dated: November 18, 2016
	By: /s/ Michael R. Dunn
	Its: Chief Executive Officer
Dated: November 18, 2016
	By: /s/ Michael R. Dunn
	Its: Chief Financial Officer