MLRT 10-Q
Metalert, Inc. (MLRT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For
the quarterly period ended
OR
For the transition period from __________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered under Section 12(b) of the Act:
| Title of each class registered: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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.
Indicate by check mark whether the registrant has submitted electronically 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).
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 | ☐ | Accelerated filer | ☐ |
| ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common shares issued and outstanding as of November 14, 2024.
METALERT INC. AND SUBSIDIARIES
For the quarter ended September 30, 2024
FORM 10-Q
| 2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Investment in marketable securities | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Intangible assets, net | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued expenses, related parties | ||||||||
| Deferred revenues | ||||||||
| Short-term debt – line of credit | ||||||||
| Short-term debt - CARE loans | ||||||||
| Convertible promissory notes, net of discount | ||||||||
| Convertible notes, related parties, net of discount | ||||||||
| Notes payable | ||||||||
| Notes payable – related parties | ||||||||
| Total current liabilities | ||||||||
| Long-term debt - CARE loan | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock series A, $ par value; shares authorized; shares issued and outstanding at September 30, 2024 and December 31, 2023 | ||||||||
| Preferred stock series B, $ par value; shares authorized, and issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Preferred stock series C, $ par value; shares authorized, and issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Preferred stock series D, $ par value; shares authorized, and issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Service income | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of products sold | ||||||||||||||||
| Cost of other revenue | ||||||||||||||||
| Total cost of goods sold | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income/(expenses): | ||||||||||||||||
| Gain/(loss) on settlement of debt | ||||||||||||||||
| Gain/(loss) on marketable securities | ( | ) | ||||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense and financing costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income/(expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
| Net income/(loss) per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Three Months Ended September 30, 2024 and September 30, 2023 (Unaudited)
For the Three Months Ended September 30, 2024 (Unaudited)
| Series
A Preferred | Series
B Preferred | Series
C Preferred | Series
D Preferred | Common Shares | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Shares | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2024 | $ | | $ | | $ | $ | | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financings | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2023 (Unaudited)
| Series
A Preferred | Series
B Preferred | Series
C Preferred | Series
D Preferred | Common Shares | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Shares | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | | | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for the conversion of notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financing | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| 5 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Nine Months Ended September 30, 2024 and September 30, 2023 (Unaudited)
For the Nine Months Ended September 30, 2024 (Unaudited)
| Series
A Preferred | Series
B Preferred | Series
C Preferred | Series
D Preferred | Common Shares | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Shares | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 | $ | | $ | | $ | $ | | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financings | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2023 (Unaudited)
| Series
A Preferred | Series
B Preferred | Series
C Preferred | Series
D Preferred | Common Shares | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Shares | Shares | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Issued | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for financings | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for the conversion of notes | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
METALERT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Change in fair value of marketable securities | ||||||||
| Stock based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Gain on the settlement of debt and accrued interest | ||||||||
| Gain on extinguishment of debt | ||||||||
| Fair value of warrants issued for debt | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Other current and non-current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued expenses - related parties | ||||||||
| Accrued interest and financing costs | ( | ) | ||||||
| Deferred revenues | ( | ) | ||||||
| Due to/from Officers | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Intangible assets purchases | ||||||||
| Property, plant and equipment purchases | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from line of credit | ||||||||
| Proceeds from sale of preferred stock | ||||||||
| Proceeds from the issuance of debt | ||||||||
| Payments on line of credit | ( | ) | ( | ) | ||||
| Payments on debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Issuance of common stock for conversion of debt and interest | $ | $ | ||||||
| Debt discount on convertible notes | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
METALERT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, MetAlert, Inc., a Nevada Corporation, and its subsidiaries (the “Company”,
“MetAlert”, “we”, “us”, and “our”) were engaged in business operations that design, manufacture
and sell various interrelated and complementary products and services in the wearable technology and Personal Location Services marketplace.
MetAlert owns
Global Trek Xploration, Inc. is a wearable technology company which designs, manufactures, sells, and distributes tracking and remote patient monitoring solutions for humans, by utilizing patent protected proprietary hardware, software, connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people. Utilizing a miniature quad-band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular telephone. Our core products and services are supported by an IP portfolio of patents, patents pending, registered trademarks, copyrights, URL’s and a library of software source code, all of which is managed by Global Trek.
Level 2 Security Products, Inc. is in the high value non-human asset monitoring and recovery business for items such as firearms, vehicles, bikes, boats, ATVs, and a host of other valuable mobile assets which require oversight monitoring and theft recovery.
LOCiMOBILE, Inc’s, digital assets are now under the management of the parent company MetAlert, and remain there, post dissolution, of the corporate entity (LOCiMobile, Inc.). The Company’s digital platform which has been at the forefront of Smartphone application (“App”) development since 2008 designs mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can then be tracked from any mobile device or through our proprietary tracking portal or on any connected device with internet access.
Basis of Presentation
The accompanying unaudited consolidated financial statements of MetAlert have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and applicable regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations have been included. Our operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K.
The accompanying consolidated financial statements reflect the accounts of MetAlert, Inc. and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated.
| 8 |
Going Concern
The
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company incurred losses and negative cash
flows from operations during the period ended September 30, 2024 and has negative working capital of $
The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to raise additional capital through the future issuances of debt or equity is unknown.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.
We derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware includes our SmartSole, GunAlert, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers accessing our Geo-Location cloud-based platform through subscription or license fee, that are billed monthly, quarterly, semi-annual or annually.
Product sales
At the inception of each customer sale, either online or through a purchase order, we assess the goods and services promised in our contracts and identify each distinct performance obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large majority of the Company’s sales, transfer of control occurs once the product has shipped and title and risk of loss have transferred to the customer.
Services Income
The Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
Other revenue can include various items, such as our professional services arrangements that are recognized on a time and materials basis. Professional services revenues recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services are performed. Additionally, we have had non-compete revenue from the sale of assets, engineering, and design work, all of which are recognized over the term of the agreed contracts.
| 9 |
Licensing Revenue
Licensing revenue recorded by the Company relates exclusively to the Company’s monetization of IP licenses. The Company recognizes revenue for licensing under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale or usage of the products or 2) satisfaction of the performance obligations.
Allowance for Doubtful Accounts
We
extend credit based on our evaluation of the customer’s financial condition. We carry our accounts receivable at net
realizable value. We monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments. We
determine these allowances by (1) evaluating the aging of our receivables; and (2) reviewing high-risk customer’s financial
condition. Past due receivable balances are written off when our internal collection efforts have been unsuccessful in collecting
the amount due. Our allowance for doubtful accounts was approximately $
Shipping and Handling Costs
Shipping and handling costs are included in cost of goods sold in the accompanying consolidated statements of operations.
Product Warranty
| 10 |
Use of Estimates
The preparation of the accompanying unaudited financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts, inventory valuation, tangible and intangible long-term asset valuation, warranty and other obligations and commitments. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.
Fair Value Estimates
Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
| Level 1 - | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |
| Level 2 - | Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life. | |
| Level 3 - | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
The carrying values for cash and cash equivalents, accounts receivable, investment in marketable securities, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities. The carrying values of notes payable and other financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements herein.
Concentrations
We currently rely on two manufacturers to supply us with our GPS SmartSole and two manufacturers to supply us with the GPS device included in the GPS SmartSole. The loss of either of these manufacturers could severely impede our ability to manufacture the GPS SmartSole.
We currently rely on one manufacturer to supply us with our GPS GunAlert and one manufacturer to supply us with the GPS device included in the GPS GunAlert. The loss of this manufacturer could severely impede our ability to manufacture the GunAlert tracking solution.
As
of September 30, 2024, the Company had four customers representing approximately
| 11 |
The Company accounts for share-based awards to employees and nonemployee directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”). Under ASC 718, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur.
Marketable Securities
The
Company’s securities investments that are acquired and held principally for the purpose of selling them in the near term are classified
as trading securities. Trading securities are recorded at fair value based on quoted market price (level 1) on the balance sheet in current
assets, with the change in fair value during the period included in earnings. As of September 30, 2024 and December 31, 2023 the fair
value of our investment in marketable securities was $
Derivative Liabilities
Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return, our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life of the option.
At
September 30, 2024 and December 31, 2023, the balance of the derivative liabilities was $
Basic loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted unless they are antidilutive. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Preferred B shares | ||||||||
| Preferred C shares | ||||||||
| Preferred D shares | ||||||||
| Conversion shares upon conversion of notes | ||||||||
| Total | ||||||||
Segments
The
Company operates in
| 12 |
Recently Issued Accounting Pronouncements
There are other new accounting pronouncements issued by the FASB that the Company has adopted or will adopt, as applicable, and the Company does not believe any of these accounting pronouncements have had, or will have, a material impact on its consolidated financial statements or disclosures.
3. INVESTMENT IN MARKETABLE SECURITIES
4. INVENTORY
Inventories consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
5. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Software | $ | $ | ||||||
| Website development | ||||||||
| Software development | ||||||||
| Equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the period ended September 30, 2024 and 2023 was $
6. INTANGIBLE ASSETS
Intangible assets, net, consists of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Trademarks | $ | $ | ||||||
| Tooling and molds | ||||||||
| Website development | ||||||||
| Software development | ||||||||
| Acquired patents and trademarks | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
Amortization
expense for the period ended September 30, 2024, was $
| 13 |
As part of the Level 2 Securities LLC acquisition, the Company determined the value of the IP (various tooling, product and software development, trademarks, and patents costs) at this early stage, pre-revenue, by taking the accumulated selected costs, summing them by category, and calculating each categories percent of the total, to come up with a list of capitalizable assets that had value as part of the merger. These accumulated capitalized costs were then applied an obsolescence factor to discount those values, allowing for an arm’s length, non-bargain purchase price. This allocation of the IP was done using the cost approach as the economic benefit to MetAlert are the avoided costs spent to date, and thus would not have to spend those development costs going forward ourselves.
This method is especially relevant when there are no reliable forecasts for the business at date of acquisition or said forecasts would involve a lot of speculation. We then determined that a 5-year amortization period for these assets would be considered reasonable.
7. NOTES AND LOANS PAYABLE
The following table summarizes the components of our short-term borrowings:
| September 30, 2024 | December 31, 2023 | |||||||
| (a) Term loan | $ | $ | ||||||
| (b) Revolving line of credit | ||||||||
| (b) Revolving line of credit | ||||||||
| Total | $ | $ | ||||||
(a) Term loans
In
2022, the Company entered into an unsecured short-term loan agreements with various third parties for an aggregate principal balance
of $
In
September of 2019, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of
$
(b) Lines of Credit
The
Company obtained a revolving line of credit agreement with an accredited investor of $
The
line bears interest of
8. CONVERTIBLE PROMISSORY NOTES
As
of September 30, 2024 and December 31, 2023, the Company had a total of $
| September 30, 2024 | December 31, 2023 | |||||||
| Convertible Notes – with fixed conversion, past due | $ | $ | ||||||
| Convertible Notes – with fixed conversion | ||||||||
| Convertible Notes – with fixed conversion and OID | ||||||||
| Convertible Note – with variable conversion | ||||||||
| Notes issued in relation to acquisition – with fixed conversion | ||||||||
| Less: Debt discount | ( | ) | ( | ) | ||||
| Total convertible notes, net of debt discount | $ | $ | ||||||
| 14 |
Included
in Convertible Notes - with fixed conversion terms, are loans provided to the Company from various investors. These notes carry
simple interest rates ranging from
During
the twelve months ending December 31, 2023, noteholders converted $
During
the twelve months ended December 31, 2023, an additional $
A
noteholder invested $
On
July 25, 2023, and August 30, 2023, a noteholder invested $
During
the twelve months ended December 31, 2023, the Company consolidated various past-due convertible promissory notes in an aggregate amount
of $
During
the twelve months ended December 31, 2023, the Company issued $
On
August 2, 2024, the Company entered into a Securities Purchase Agreement (“SPA”) for $
As
of September 30, 2024, and December 31, 2023 $
| 15 |
9. CARE Loans
| September 30, 2024 | December 31, 2023 | |||||||
| EIDL loan – short term | $ | $ | ||||||
| EIDL loan – long term | ||||||||
| Total CARE loans | $ | $ | ||||||
Economic Injury Disaster Loan
On
June 10, 2020, the Company executed a secured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster
Loan program in the amount of $
A minimum instalment interest payment plan was offered by the SBA, and we are making those payments while we are waiting for confirmation of an adjustment or the forgiveness of the loan. As of September 30, 2024 and December 31, 2023, short term amounts due under the loan include planned principle payments in the next twelve months and any payments considered past due.
10. RELATED PARTY TRANSACTIONS
Convertible Notes Due to Related Parties
During
the period ended September 30, 2024, there was
During
the period ended December 31, 2023, the related parties converted $
Accrued
wages and costs - In order to preserve cash for other working capital needs, various officers, members of management, employees and directors
agreed to defer portions of their wages and sometimes various out-of-pocket expenses. As of September 30, 2024, and December 31, 2023,
the Company owed $
Officer Loans
On
November 18, 2022, an officer loaned the Company $
During
the period ended December 31, 2023, the same office loaned another $
During
the period ended September 30, 2024, the officer loaned the Company $
During the period ended December 31, 2023, a second officer loaned the
Company $
For
the period ending September 30, 2024, the outstanding balance on officer loans was $
11. EQUITY
The Company has shares of preferred stock authorized. From this pool the following preferred shares have been classified as:
Preferred Stock – Series A
The Company is authorized to issue of Series A preferred shares, which shares have voting rights equal to two-thirds of all the issued and outstanding shares of common stock. Holders of Series A preferred shares, shall be entitled to vote on all matters of the corporation, and shall have the majority vote of the board of directors.
| 16 |
As of all dates presented in these financial statements, it was determined that the Preferred A shareholders having the majority vote, can agree to increase the number of authorized shares, if needed, to settle any convertible debt, and thus any derivative liabilities are not necessary to reserve for this.
Preferred Stock – Series B
The Company is authorized to issue shares of preferred stock to be designated available for Series B preferred shares that have a stated value of $ each and are convertible into common shares at fixed price of $. Holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Company’s Common Stock. No other dividends shall be paid on shares of Series B Preferred Stock, and they shall have no voting rights and have liquidation preference.
Preferred Stock – Series C
The
Company authorized to issue shares of preferred stock to be designated available for Series C preferred shares that have a stated
value of $ each and are convertible into common shares at fixed price of $
Preferred Stock – Series D
The Company is authorized to issue shares of preferred stock to be designated available for Series D preferred shares that have a convertible value into shares of the Company’s common stock. The holder(s) of the shares of Series D Preferred Stock shall have no other rights, privileges or preferences with respect to the Series D Preferred Stock.
During
the period ended December 31, 2023, the Company issued Series D preferred shares and to an accredited investor for their $
During
the three month ended March 31, 2024, the Company issued Series D preferred shares and to an accredited
investor for their $
Common Stock
During
the period ending September 30, 2024, the Company issued shares of its common
stock to consultants for services valued at $
During
the period ending September 30, 2023, the Company issued shares of its common stock, with a value of $
| 17 |
Common Stock Warrants
A summary of the Company’s warrant activity and related information is provided below:
| Exercise Price $ | Number of
Warrants | |||||||
| Outstanding and exercisable at December 31, 2023 | – | |||||||
| Warrants exercised | ||||||||
| Warrants granted | ||||||||
| Warrants expired | - | ( | ) | |||||
| Outstanding and exercisable at September 30, 2024 | - | |||||||
| Stock Warrants as of September 30, 2024 | ||||||||||||||
| Exercise | Warrants | Remaining | Warrants | |||||||||||
| Price | Outstanding | Life (Years) | Exercisable | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
During
the period ended September 30, 2024, the Company did not issue any warrants, with
Common Stock Options
Under the Company’s 2008 Equity Compensation Plan (the “2008 Plan”), we are authorized to grant stock options intended to qualify as Incentive Stock Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified options, restricted and unrestricted stock awards and stock appreciation rights to purchase up to shares of common stock to our employees, officers, directors and consultants, with the exception that ISOs may only be granted to employees of the Company and its subsidiaries, as defined in the 2008 Plan.
The 2008 Plan provides for the issuance of a maximum of shares, of which, after adjusting for estimated pre-vesting forfeitures and expired options, approximately were available for issuance as of September 30, 2024.
options were granted or outstanding as of the period ending September 30, 2024.
12. COMMITMENTS & CONTINGENCIES
Bonuses
The
Company has an employment agreement with its CEO which, among other provisions, provide for the payment of a bonus, as determined by
the Board of Directors, in amounts ranging from
Contingencies
From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events. As of September 30, 2024, there was no pending or threatened litigation against the Company.
13. SUBSEQUENT EVENTS
Subsequent to September 30, 2024, the Company issued shares of
common stock valued at $
| 18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report include forward-looking statements. These forward looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including but not limited to: variability of our revenues and financial performance; risks associated with product development and technological changes; the acceptance our products in the marketplace by existing and potential future customers; general economic conditions. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
Introduction
Unless otherwise noted, the terms “MetAlert, Inc.”, the “Company”, “we”, “us”, and “our” refer to the ongoing business operations of MetAlert, Inc. and our wholly-owned subsidiaries, Global Trek Xploration, and Level 2 Security Products, Inc.
Organization and Presentation
Overview
MetAlert Inc., a Nevada Corporation, headquartered in Los Angeles, has developed a suite of products and solutions, powered by a proprietary real time tracking technology platform, allowing remote monitoring, location-based tracking, health data collection of humans, and theft recovery for high value assets. Many of the products have a wide range of applications, focusing on addressing two pressing global problems: remote patient monitoring for people with cognitive decline, and the safety and recovery of firearms and other high value assets. Approximately 3% of the world’s population has a form of cognitive impairment, such as Alzheimer’s, dementia, autism and traumatic brain injury. And there are over 400 million firearms just in the United States alone. Each represents sizeable markets which Metalert has patent protected products and solutions for, that generate revenues both from product sales and ongoing high margin recurring subscription service fees. The Company sells both B2B and B2C, with international distributors supporting customers across North American, South America and Europe.
The Company was originally founded in 2002 as Global Trek Xploration, Inc. and, as part of a reverse merger, became publicly traded in 2008 as a 100% wholly owned subsidiary of GTX Corp, a Nevada corporation, under its former name “Deeas Resources Inc.” In September 2022, the public Company changed its name from GTX Corp to MetAlert, Inc. and effected a 1-for-65 reverse stock split of its issued and outstanding stock (OTC Pinks: MLRT). After the name change the Company maintained its ownership of its two wholly owned subsidiaries. During the periods covered by this report, MetAlert, Inc. and its subsidiaries were engaged in business operations that design, manufacture and sell various interrelated and complementary products and services in the wearable technology and Personal Location Services marketplace.
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In September of 2023, we acquired Level 2 Security, LLC and merged it into a new 100% wholly owned subsidiary Level 2 Security Products, Inc. During that period, the operations of LOCiMobile, Inc., another 100% wholly owned subsidiary, was consolidated under Global Trek Xploration and the corporate entity was dissolved. MetAlert now owns 100% of the issued and outstanding capital stock of its two operating subsidiaries - Global Trek Xploration, Inc. and Level 2 Security Products, Inc. The LOCiMOBILE digital assets are now under the management of the parent company MetAlert and remain there, post dissolution, of the corporate entity (LOCiMobile, Inc.). The Company’s digital platform which has been at the forefront of Smartphone application (“App”) development since 2008 designs mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can then be tracked from any mobile device or through our proprietary tracking portal or on any connected device with internet access. In the first quarter of 2024, we launched the Gen 2 version of the GunAlert product, across multiples channels, such as direct-to-consumer, retailers, non-profits, and government agencies. Level 2 Security Products, Inc. is in the high value non-human asset monitoring and recovery business for items such as firearms, vehicles, bikes, boats, ATVs, and a host of other valuable mobile assets which require oversight monitoring and theft recovery.
Global Trek Xploration, Inc. is a wearable technology company which designs, manufactures, sells, and distributes tracking and remote patient monitoring solutions for humans, by utilizing patent protected proprietary hardware, software, connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people. Utilizing a miniature quad-band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal or on a web enabled cellular telephone. Our core products and services are supported by an IP portfolio of patents, patents pending, registered trademarks, copyrights, URL’s and a library of software source code, all of which is managed by Global Trek.
Other technology that the Company has developed or resells includes health and safety monitoring products and wellness products that are complementary to our main product lines and general mission.
Operations
The Company designs, develops, manufactures, sells, and distributes health and safety monitoring products and services, along with other related medical supplies and equipment, and asset theft and recovery products and services, all through a global business to business (“B2B”) and business to consumer (“B2C”) network of resellers, affiliates, distributors, nonprofit organizations, local, state, and federal government agencies, police departments, manufacturers reps, retailers and direct to consumer. Offering a variety of electronic and non-electronic devices and equipment, a proprietary Internet of things (“IoT”) enterprise monitoring platform and a licensing subscription business model. The Company provides a complete end to end solution of hardware, middleware, apps, connectivity, licensing, and professional services, letting our customers know where or how someone, or something, is at the touch of a button, delivering safety, security, and peace of mind in real-time. Except for our military products and recently acquired Level 2 Security devices, all of our consumer and enterprise tracking products funnel into the MetAlert IoT monitoring platform which supports end user customers in over 35 countries. The Company is also in the business of licensing intellectual property, monetizing its patent portfolio, and providing backend infrastructure logistic and subscription management services.
Results of Operations
The following discussion should be read in conjunction with our interim consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report.
Three Months Ended September 30, 2024 (“Q3 2024”) Compared to the Three Months Ended September 30, 2023 (“Q3 2023”)
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Product sales | 24,556 | 47 | % | 58,940 | 69 | % | ||||||||||
| Service income | 27,472 | 53 | % | 26,801 | 31 | % | ||||||||||
| Total revenues | 52,028 | 100 | % | 85,741 | 100 | % | ||||||||||
| Cost of products sold | 26,718 | 51 | % | 84,458 | 99 | % | ||||||||||
| Cost of service revenue | 5,997 | 12 | % | 1,206 | 1 | % | ||||||||||
| Cost of goods sold | 32,715 | 63 | % | 85,664 | 100 | % | ||||||||||
| Gross profit | 19,313 | 37 | % | 77 | 0 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 65,460 | 126 | % | 120,865 | 141 | % | ||||||||||
| Professional fees | 24,444 | 47 | % | 61,995 | 72 | % | ||||||||||
| Sales and marketing expenses | 5,403 | 10 | % | 5,372 | 6 | % | ||||||||||
| General and administrative | 57,747 | 111 | % | 65,232 | 76 | % | ||||||||||
| Total operating expenses | 153,054 | 294 | % | 253,464 | 296 | % | ||||||||||
| Gain (loss) from operations | (133,741 | ) | -257 | % | (253,387 | ) | -296 | % | ||||||||
| Other income (expense), net | (64,089 | ) | -123 | % | (176,174 | ) | -205 | % | ||||||||
| Net income (loss) | (197,830 | ) | -380 | % | (429,561 | ) | -501 | % | ||||||||
| 20 |
Revenues
Revenues were $52,028 for the three months ended September 30, 2024, compared to $85,740 for the three months ended September 30, 2023, representing a decrease of 39%. This decrease was primarily driven from delays in production on our SmartSoles, where delivery of the finished product until early October of 2024, and not receiving inventory for our newGunAlert version 2 until early October as well.
As a result, during the third quarter ended September 30, 2024, we did not meet our overall revenue goals. We did however see some positive trends with international subscriptions increasing their growth by 62% for the period ended Q3 2024 as compared to Q3 2023 indicating that the international distributors are selling their inventory into the marketplace in their respective countries. At the same time, we saw SmartSole B2C sales increasing by 59% in Q3 of 2024 partially attributable to a direct to consume advertising campaign we began in the 3rd quarter, as compared to Q3 2023,
We also worked on expanding our SmartSole distribution and began pilot programs in Spain and Portugal and with a large security company in Mexico City whose testing and evaluation period has successfully led to the Company in Mexico placing their first SmartSole order.
During the period ended September 30, 2024, the Company’s customer base and revenue streams were comprised of approximately 63% B2B (Wholesale Distributors and Enterprise Institutions), 37% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes).
During the period ended September 30, 2023, the Company’s customer base and revenue streams were comprised of approximately 51% B2B (Wholesale Distributors and Enterprise Institutions), 49% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes).
Cost of goods sold
Cost of goods sold were $32,715 for the three months ended September 30, 2024, compared to $85,664 for the three months ended September 30, 2023, representing a decrease of 62%.
We expect our margins to increase once we start ramping up our subscriptions and licensing and sell more of our proprietary products like our SmartSoles and GunAlert, where we have limited competition. Our overall gross margin was higher than in 2023, predominately because a greater portion of our revenues were subscription based where we recognize our highest profit margins.
| 21 |
We continue to work with all our suppliers to reduce unnecessary expenses related to production inefficiencies in order to position ourselves to maximize profits as we scale back up.
Wages and benefits
Wages and benefits decreased 44% in the three months ended September 30, 2024, as compared to three months ended September 30, 2023, predominantly because of cost cutting and time saving initiatives.
Professional fees
Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and shareholder communications. Such costs decreased $37,551 or 61% in the three months ended September 30, 2024, as compared to in the three months ended September 30, 2023. Professional fees have decreased primarily as a result of responsibilities being transferred from outside contractors and consultants to in-house personnel.
Sales and marketing expenses
Sales and marketing expenses remained comparable in the three months ended September 30, 2024, in comparison to the three months ended September 30, 2023.
General and administrative
General and administrative costs in the three months ended September 30, 2024, decreased by $7,485 or 11% in comparison to the three months ended September 30, 2023, mostly due to decreases in development and production expenses. While at the same time, the Company continues many cost saving measures, including the entire senior management team deferring salaries.
Other income/(expense), net
Other expenses, net decreased 64% or $112,085 in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. This decrease was primarily as a result of reductions in financing costs and reductions in amortizations of debt discounts.
Net income/(loss)
Net loss decreased by 54% or $231,731 from Q3 2024 in comparison to Q3 2023. This decrease, was primarily due to the lower revenues as we transition out of direct-to-consumer PPE sales into our core B2B business, the effort to get the new Level 2 Security Products out to market, reductions in amortizations of debt discounts and reduced financing costs.
Nine Months Ended September 30, 2024 (“Q1 – Q3 2024”) Compared to the Nine Months Ended September 30, 2023 (“Q1 – Q32 2023”)
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Product sales | 66,105 | 46 | % | 149,562 | 72 | % | ||||||||||
| Service income | 78,404 | 54 | % | 57,710 | 28 | % | ||||||||||
| Total revenues | 144,509 | 100 | % | 207,272 | 100 | % | ||||||||||
| Cost of products sold | 43,044 | 30 | % | 151,239 | 73 | % | ||||||||||
| Cost of service revenue | 9,735 | 7 | % | 8,105 | 4 | % | ||||||||||
| Cost of goods sold | 52,779 | 37 | % | 159,344 | 77 | % | ||||||||||
| Gross profit | 91,370 | 63 | % | 47,928 | 23 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 197,261 | 137 | % | 363,359 | 175 | % | ||||||||||
| Professional fees | 91,865 | 64 | % | 113,917 | 55 | % | ||||||||||
| Sales and marketing expenses | 16,263 | 11 | % | 5,352 | 3 | % | ||||||||||
| General and administrative | 183,685 | 127 | % | 178,690 | 86 | % | ||||||||||
| Total operating expenses | 489,074 | 338 | % | 661,318 | 319 | % | ||||||||||
| Gain (loss) from operations | (397,344 | ) | -275 | % | (613,390 | ) | -296 | % | ||||||||
| Other income (expense), net | (205,490 | ) | -142 | % | (273,901 | ) | -132 | % | ||||||||
| Net income (loss) | (602,834 | ) | -417 | % | (887,291 | ) | -4280 | % | ||||||||
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Revenues
Revenues during the nine months ended September 30, 2024, decreased by 30% or $62,763 in comparison to the comparable 2023 period. This decrease was primarily driven from transitioning out of direct-to-consumer PPE sales into our core B2B business and the effort to get the new Level 2 Security Products out to market and from delays in finished goods production for our SmartSoles, where we did not receive inventory until early October of 2024, and not receiving inventory for our new GunAlert version 2 until early October as well.
As a result, during the nine months ended September 30, 2024, we did not meet our overall revenue goals. We did however see some positive trends compared to the comparable 2023 period, with international subscriptions increasing their growth by 62% for the period ended nine months ended September 30, 2024 indicating that international distributors are selling their inventory into the marketplace in their respective countries and at the same time we saw SmartSole B2C sales increasing by 25% in during the nine month ended September 30, 2024, compared to the 2023 period. Additionally, we are starting to see an increase in GunAlert subscriptions as six-month trail periods expire.
We also worked on expanding our SmartSole distribution and began pilot programs in the Netherlands, Spain and Portugal and with a large security company in Mexico City whose testing and evaluation period having been successfully completed and has led to Mexico placing their first SmartSole test order. The Mexico City customer is in the security business and has prompted us to identify other distributors, both domestic and international, who also operate in a similar space.
During the period ended September 30, 2024, the Company’s customer base and revenue streams were comprised of approximately 61% B2B (Wholesale Distributors and Enterprise Institutions), 39% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes).
During the period ended September 30, 2023, the Company’s customer base and revenue streams were comprised of approximately 79% B2B (Wholesale Distributors and Enterprise Institutions), 21% B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through Amazon, Google and iTunes).
| 23 |
Cost of goods sold
Cost of goods sold decreased by 67% or $105,565 during the nine months ended September 30, 2024, in comparison to the comparable 2023 period. This decrease was primarily due to the lower distributor hardware sales, which are larger volume orders, that are dependent upon the activation of SmartSoles sold into their respective markets, which affects the timeliness of their hardware orders to maintain adequate inventory levels.
We expect our margins to increase once we start ramping up our subscriptions and licensing, which we are starting to see in GunAlert subscription, and sell more of our proprietary products like our SmartSoles and GunAlert, where we have limited competition.
We continue to work with all our suppliers to reduce unnecessary expenses related to production inefficiencies in order to position ourselves to maximize profits as we scale back up.
Wages and benefits
Wages and benefits during the nine months ended September 30, 2024, decreased by 46% or $166,098 in comparison to the comparable 2023 period, because of cost cutting and time saving initiatives.
Professional fees
Professional fees consist of costs attributable to consultants and contractors who primarily spend their time on legal, accounting, product development, business development, corporate advisory services and investor relations. Such costs decreased $22,052 or 19% during the period ended September 30, 2024, as compared to the comparable 2023 period.
Sales and marketing expenses
Sales and marketing expenses increased by 204% or $10,911 during the nine months ended September 30, 2024, in comparison to the comparable 2023 period. The increase was primarily due to the release of the new GunAlert product line as we build brand awareness across multiple media platforms.
General and administrative
General and administrative costs during the nine months ended September 30, 2024, increased by $4,995 or 3% in comparison to the comparable 2023 period, mostly due to increases in amortization expense of intangible assets from the Level2 acquisition.
Other income/(expense), net
Other expense, net decreased 25% or $68,411 from the nine months ended September 30, 2024, to the comparable 2023 period. This decrease was primarily due to the of reductions in financing costs, reductions in amortizations of debt discounts and there being no gains on conversion or the extinguishment of debt during the period ending as compared to the previous year.
Net income/(loss)
Net loss decreased by 32% or $284,457 from the nine months ended September 30, 2024, to the comparable 3 2023 period as explained above.
Liquidity and Capital Resources
As of September 30, 2024, we had $29,308 of cash and cash equivalents, and a working capital deficit of $4,340,509, compared to $106,333 of cash and cash equivalents and a working capital deficit of $3,730,701 as of December 31, 2023.
| 24 |
During the nine months ended September 30, 2024, our net loss was $602,834 compared to a net loss of $887,291 for the nine months ended September 30, 2023. Net cash used in operating activities in the nine months ended September 30, 2024, and September 30, 2023, was $336,174 and $295,166, respectively.
Net cash used in investing activities during the nine months ended September 30, 2024 and 2023, was $4,875 and $42,408, respectively.
Net cash provided by financing activities during the nine months ended September 30, 2024, was $301,917 and consisted of $140,000 received for the issuance of debt, $200,000 received for the issuance of preferred shares, and payments to the line of credit of $12,153 and payments on debt of $25,930. Net cash provided by financing activities during the nine months ended September 30, 2023, was $350,556 and consisted of $275,000 received for the issuance of debt and $100,000 from the sale of preferred stock, $46,881 from the use of the line of credit, and payments to the line of credit of $29,021 and payments on debt of $42,304.
Because revenues from our operations have, to date, been insufficient to fund our working capital needs, we currently rely on the cash we receive from our financing activities to fund our growth, capital expenditures and to support our working capital requirements. The sale of our products and services is expected to enhance our liquidity in 2024, although the amount of revenues we receive in 2024 still cannot be estimated.
Until such time as our products and services can support our working capital requirement, we expect to continue to generate revenues from our other licenses, subscriptions, international distributors, hardware sales, professional services and new customers in the pipeline. However, the amount of such revenues is unknown and is not expected to be sufficient to fund our working capital needs. For our internal budgeting purposes, we have assumed that such revenues will not be sufficient to fund all of our planned operating and other expenditures during 2024. In addition, our actual cash expenditures may exceed our planned expenditures, particularly if we invest in the development of improved versions of our existing products and technologies, and if we increase our marketing expenses. Accordingly, we anticipate that we will have to continue to raise additional capital in order to fund our operations in 2024. No assurance can be given that we will be able to obtain the additional funding we need to continue our operations.
In order to continue funding our growth, IP, working capital needs and new product development costs, during the first nine months of 2024 we relied upon existing sales and our SPA to fund purchase orders. However, no assurance can be given that the investor will provide the funding, if and when requested by us.
Going Concern
The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has suffered net losses, negative cash flows from operations, and has a negative working capital deficit. The Company anticipates further losses in the development of its business. Please see the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023, for more information regarding risks associated with our business.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
We believe that our business and operations could be materially affected by inflation, as unexpected increases in our costs could affect how we manage operations
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Critical Accounting Policies and Estimates
There are no material changes to the critical accounting policies and estimates described in the section entitled “Critical Accounting Policies and Estimates” under Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”, we are not required to provide the information under this Item 3.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on the evaluation as of September 30, 2024, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
(a) Exhibits
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition | |
| 101.LAB | Inline XBRL Taxonomy Extension Label | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| METALERT, INC. | ||
| Date: November 14, 2024 | By: | /s/ ALEX MCKEAN |
| Alex McKean, | ||
| Chief Financial Officer (Principal Financial Officer) | ||
| Date: November 14, 2024 | By: | /s/ PATRICK BERTAGNA |
| Patrick Bertagna, | ||
| Chief Executive Officer | ||
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