Metalert, Inc 10-Q for FY2020 Q2
Metalert, Inc. (MLRT)
About this 10-Q
Metalert, Inc filed this 10-Q on August 14, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $472.15K
- down 43.9% from $842.11K a year earlier
- Net income
- $23.26K
- down 93.7% from net income of $370.73K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2020
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-53046
GTX Corp
(Exact name of registrant as specified in its charter)
| Nevada | 98-0493446 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| 117 W. 9th Street, Suite 1214, Los Angeles, CA, 90015 |
| (Address of principal executive offices) (Zip Code) |
| (213) 489-3019 |
| (Registrant’s telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class registered: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| None | GTXO | None |
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 [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 [ ]
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 | [ ] |
| Non-accelerated filer | [ ] (Do not check if a smaller reporting company) | Smaller reporting company | [X] |
| 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 [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 128,601,415 common shares issued and outstanding as of August 14, 2020.
GTX CORP AND SUBSIDIARIES
For the quarter ended June 30, 2020
FORM 10-Q
| PAGE NO. | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Condensed Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
| Item 4. | Controls and Procedures | 27 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 27 |
| Item 1A. | Risk Factors | 27 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
| Item 3. | Defaults Upon Senior Securities | 28 |
| Item 4. | Mine Safety Disclosures | 28 |
| Item 5. | Other Information | 28 |
| Item 6. | Exhibits | 28 |
| Signatures | 29 | |
| 2 |
GTX CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 249,433 | $ | 125,200 | ||||
| Accounts receivable, net | 38,962 | 47,818 | ||||||
| Inventory | 220,405 | 36,192 | ||||||
| Investment in marketable securities | 5,494 | 59,224 | ||||||
| Other current assets | 143,247 | 10,383 | ||||||
| Total current assets | 657,541 | 278,817 | ||||||
| Property and equipment, net | 10,253 | 18,404 | ||||||
| Intangible assets | 10,000 | 15,000 | ||||||
| Total assets | $ | 677,794 | $ | 312,221 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 201,323 | $ | 203,126 | ||||
| Accrued expenses | 330,646 | 441,082 | ||||||
| Accrued expenses, related parties | 822,463 | 680,119 | ||||||
| Deferred revenues | 41,650 | 70,072 | ||||||
| Convertible promissory notes, past due | 889,820 | 1,099,278 | ||||||
| Convertible notes, related parties | 884,546 | 884,546 | ||||||
| Notes payable | 215,381 | 308,000 | ||||||
| Derivative liabilities | 70,950 | 223,536 | ||||||
| Total current liabilities | 3,456,779 | 3,909,759 | ||||||
| Long-term debt - CARE loans | 227,870 | - | ||||||
| Total liabilities | 3,684,649 | 3,909,759 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock series A, $0.001 par value; 1,000,000 shares authorized; 1,000,000 shares issued and outstanding at June 30, 2020 and December 31, 2019 | 100 | 100 | ||||||
| Preferred stock series B, $0.001 par value; 10,000 shares authorized, 250 and 150 issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 1 | 1 | ||||||
| Preferred stock series C, $0.001 par value; 1,000 shares authorized, 150 and 0 issued and outstanding at June 30, 2020 and December 31, 2019, respectively | - | - | ||||||
| Common stock, $0.0001 par value; 2,071,000,000 shares authorized; 112,352,119 and 71,419,795 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 11,235 | 7,142 | ||||||
| Additional paid-in capital | 20,761,158 | 19,954,738 | ||||||
| Accumulated deficit | (23,779,349 | ) | (23,559,519 | ) | ||||
| Total stockholders’ deficit | (3,006,855 | ) | (3,597,538 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 677,794 | $ | 312,221 | ||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
GTX CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Product sales | $ | 422,333 | $ | 84,707 | $ | 453,940 | $ | 104,109 | ||||||||
| Service income | 49,814 | 98,398 | 114,923 | 148,152 | ||||||||||||
| Licensing income | - | 659,000 | - | 692,750 | ||||||||||||
| Total revenues | 472,147 | 842,105 | 568,863 | 945,011 | ||||||||||||
| Cost of products sold | 167,568 | 32,248 | 190,970 | 48,144 | ||||||||||||
| Cost of other revenue | 83,271 | 26,842 | 94,507 | 32,830 | ||||||||||||
| Cost of licensing revenue | - | 5,119 | - | 23,145 | ||||||||||||
| Total cost of goods sold | 250,839 | 64,209 | 285,477 | 104,119 | ||||||||||||
| Gross margin | 221,308 | 777,896 | 283,386 | 840,892 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 163,185 | 180,254 | 324,085 | 363,382 | ||||||||||||
| Professional fees | 115,140 | 138,817 | 161,081 | 355,231 | ||||||||||||
| Sales and marketing expenses | 6,389 | 1,857 | 13,149 | 3,420 | ||||||||||||
| General and administrative | 11,340 | 44,683 | 80,026 | 124,112 | ||||||||||||
| Total operating expenses | 296,054 | 365,611 | 578,341 | 846,145 | ||||||||||||
| Income/(loss) from operations | (74,746 | ) | 412,285 | (294,955 | ) | (5,253 | ) | |||||||||
| Other income/(expenses): | ||||||||||||||||
| Gain/(loss) on conversion of convertible notes | 91,782 | - | 129,261 | (11,250 | ) | |||||||||||
| Gain on marketable securities | 598 | - | 92,471 | 506 | ||||||||||||
| Amortization of debt discount | - | - | - | (20,024 | ) | |||||||||||
| Change in fair value of derivative | 14,000 | 37,012 | 152,586 | 4,739 | ||||||||||||
| Interest expense and financing costs | (8,372 | ) | (78,571 | ) | (49,193 | ) | (154,467 | ) | ||||||||
| Total other income/(expenses) | 98,008 | (41,559 | ) | 325,125 | (180,496 | ) | ||||||||||
| Net income/(loss) | 23,262 | 370,726 | 30,170 | (185,749 | ) | |||||||||||
| Deemed dividend to series-B preferred stockholders | (100,000 | ) | - | (100,000 | ) | - | ||||||||||
| Deemed dividend to series-C preferred stockholders | - | - | (150,000 | ) | - | |||||||||||
| Net income/(loss) attributable to common shareholders | $ | (76,738 | ) | $ | 370,726 | $ | (219,830 | ) | $ | (185,749 | ) | |||||
| Weighted average number of common shares outstanding - basic and diluted | 98,222,706 | 83,730,416 | 87,133,416 | 77,554,574 | ||||||||||||
| Net income/(loss) per common share - basic and diluted | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
GTX CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Three Months Ended June 30, 2020 and Six Months Ended June 30, 2020 (Unaudited)
For the Three Months Ended June 30, 2020 (Unaudited)
| Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 1,000,000 | $ | 100 | 200 | $ | 1 | - | $ | - | 80,101,587 | $ | 8,010 | $ | 20,107,613 | $ | (23,602,611 | ) | $ | (3,486,887 | ) | ||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | - | 9,000,000 | 900 | 133,100 | - | 134,000 | |||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of debt | - | - | - | - | - | - | 23,250,532 | 2,325 | 108,631 | - | 110,956 | |||||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | - | - | - | - | - | - | 3,793 | - | 3,793 | |||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financings | - | - | 50 | - | 150 | - | - | - | 200,000 | - | 200,000 | |||||||||||||||||||||||||||||||||
| Deemed dividend on fair value of warrants & conversion feature associated with preferred stock | - | - | - | - | - | - | - | - | 200,000 | (200,000 | ) | - | ||||||||||||||||||||||||||||||||
Fair Value of retention bonus shares | - | - | - | - | - | - | - | - | 8,021 | - | 8,021 | |||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | 23,262 | 23,262 | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 1,000,000 | $ | 100 | 250 | $ | 1 | 150 | $ | - | 112,352,119 | $ | 11,235 | $ | 20,761,158 | $ | (23,779,349 | ) | $ | (3,006,855 | ) | ||||||||||||||||||||||||
For the Six Months Ended June 30, 2020 (Unaudited)
| Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 1,000,000 | $ | 100 | 150 | $ | 1 | - | $ | - | 71,419,795 | $ | 7,142 | $ | 19,954,738 | $ | (23,559,519 | ) | $ | (3,597,538 | ) | ||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | 10,500,000 | 1,050 | 156,550 | - | 157,600 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of debt | - | - | - | - | - | - | 30,432,324 | 3,043 | 130,035 | - | 133,078 | |||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financing | - | - | 100 | - | 150 | - | - | - | 250,000 | - | 250,000 | |||||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | - | - | - | - | - | - | 3,793 | - | 3,793 | |||||||||||||||||||||||||||||||||
| Fair value of retention bonus shares | - | - | - | - | - | - | - | - | 16,042 | - | 16,042 | |||||||||||||||||||||||||||||||||
| Deemed dividend | 250,000 | (250,000 | ) | - | ||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | 30,170 | 30,170 | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 1,000,000 | $ | 100 | 250 | $ | 1 | 150 | $ | - | 112,352,119 | $ | 11,235 | $ | 20,761,158 | $ | (23,779,349 | ) | $ | (3,006,855 | ) | ||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
GTX CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Three Months Ended June 30, 2019 and Six Months Ended June 30, 2019 (Unaudited)
For the Three Months Ended June 30, 2019 (Unaudited)
| Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 1,000,000 | $ | 100 | - | $ | - | - | $ | - | 80,960,744 | $ | 8,096 | $ | 19,647,513 | $ | (23,379,669 | ) | $ | (3,723,960 | ) | ||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of debt | - | - | - | - | - | - | 5,926,662 | 593 | 39,149 | - | 39,742 | |||||||||||||||||||||||||||||||||
| Issuance of preferred stock for financings | - | - | - | - | - | - | - | - | 27,500 | - | 27,500 | |||||||||||||||||||||||||||||||||
| Fair Value of common stock issued to management | - | - | - | - | - | - | - | - | 90,521 | - | 90,521 | |||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | 370,726 | 370,726 | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | 1,000,000 | $ | 100 | - | $ | - | - | $ | - | 86,887,406 | $ | 8,688 | $ | 19,804,683 | $ | (23,008,943 | ) | $ | (3,195,472 | ) | ||||||||||||||||||||||||
For the Six Months Ended June 30, 2019 (Unaudited)
| Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Paid-In | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 1,000,000 | $ | 100 | - | - | - | $ | - | 63,363,436 | $ | 6,336 | $ | 19,367,130 | $ | (22,283,194 | ) | $ | (3,449,628 | ) | |||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | 6,200,000 | 620 | 72,260 | - | 76,880 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of debt | - | - | - | - | - | - | 17,073,970 | 1,707 | 90,180 | - | 91,887 | |||||||||||||||||||||||||||||||||
| Issuance of common stock for financings | - | - | - | - | - | - | 250,000 | 25 | 3,075 | - | 3,100 | |||||||||||||||||||||||||||||||||
| Issuance of warrants for financings | - | - | - | - | - | - | - | - | 49,992 | - | 49,992 | |||||||||||||||||||||||||||||||||
| Issuance of warrants for services | - | - | - | - | - | - | - | - | 4,799 | - | 4,799 | |||||||||||||||||||||||||||||||||
| Fair Value of common stock issued to management | - | - | - | - | - | - | - | - | 213,247 | - | 213,247 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (185,749 | ) | (185,749 | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | 1,000,000 | $ | 100 | - | $ | - | - | $ | - | 86,887,406 | $ | 8,688 | $ | 19,804,683 | $ | (23,008,943 | ) | $ | (3,195,472 | ) | ||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
GTX CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net income / (loss) | $ | 30,170 | $ | (185,749 | ) | |||
| Adjustments to reconcile net income / (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 13,151 | 29,924 | ||||||
| Gain on marketable securities | (92,471 | ) | (634,506 | ) | ||||
| Fair value of common stock issued for services | 157,600 | 81,679 | ||||||
| Change in fair value of derivative | (152,586 | ) | (4,740 | ) | ||||
| Amortization of debt discount | - | 20,024 | ||||||
| Fair value of retention bonus shares | 16,042 | 213,247 | ||||||
| Gain on the settlement of debt | (129,261 | ) | - | |||||
| Fair value of warrants issued for services | 3,793 | - | ||||||
| Interest added to convertible note balance | 49,250 | 64,342 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 8,856 | (6,820 | ) | |||||
| Inventory | (184,213 | ) | (19,463 | ) | ||||
| Other current and non-current assets | (132,864 | ) | (10,103 | ) | ||||
| Accounts payable and accrued expenses | (86,358 | ) | (38,185 | ) | ||||
| Accrued expenses - related parties | 93,094 | 244,484 | ||||||
| Deferred revenues | (28,422 | ) | 299,000 | |||||
| Net cash used in operating activities | (434,219 | ) | 53,134 | |||||
| Cash flows from investing activities | ||||||||
| Proceeds from the sale of marketable securities | 146,201 | - | ||||||
| Net cash provided by investing activities | 146,201 | - | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from CARE loans | 227,870 | - | ||||||
| Proceeds from line of credit | 139,319 | 71,510 | ||||||
| Proceeds from issuance of preferred stock | 250,000 | - | ||||||
| Payments on debt | (204,938 | ) | (6,000 | ) | ||||
| Net cash provided by financing activities | 412,251 | 65,510 | ||||||
| Net change in cash and cash equivalents | 124,233 | 118,644 | ||||||
| Cash and cash equivalents, beginning of period | 125,200 | 69,856 | ||||||
| Cash and cash equivalents, end of period | $ | 249,433 | $ | 188,500 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income taxes paid | $ | - | $ | - | ||||
| Interest paid | $ | 9,219 | $ | 11,764 | ||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Issuance of common stock for conversion of debt | $ | 133,078 | $ | 90,888 | ||||
| Debt discount related to derivative liabilities | $ | - | $ | 20,024 | ||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
GTX CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
During the periods covered by these financial statements, GTX Corp and its subsidiaries (the “Company”, “GTX”, “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. GTX owns 100% of the issued and outstanding capital stock of its two subsidiaries - Global Trek Xploration, Inc. and LOCiMOBILE, Inc.
Global Trek Xploration, Inc. focuses on the design, manufacturing and sales distribution of its hardware, software, and connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring and tracking platform, which provides real-time tracking and monitoring of people and high valued assets. 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 intellectual property (“IP”) portfolio of patents, patents pending, registered trademarks, copyrights, URLs and a library of software source code, all of which is also managed by Global Trek.
LOCiMOBILE, Inc., is the Companies digital platform which has been at the forefront of Smartphone application (“App”) development since 2008. With a suite of mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can be tracked from handset to handset or through our tracking portal or on any connected device with internet access. LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems and continues to launch consumer and enterprise apps.
Basis of Presentation
The accompanying unaudited consolidated financial statements of GTX 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 three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2019, which are included in our Annual Report on Form 10-K.
The accompanying consolidated financial statements reflect the accounts of GTX Corp and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated.
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 a stockholders’ deficit of $3,006,855 and negative working capital of $2,799,238 as of June 30, 2020 and used cash in operations during the period then ended of $434,219. The Company anticipates further losses in the development of its business. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan until such time as revenues and related cash flows are sufficient to fund our operations.
| 8 |
The Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying the Company’s audited financial statements for the year ended December 31, 2019. 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. The ability to obtain additional financing, the successful development of the Company’s contemplated plan of operations, or its ability to achieve profitable operations are necessary for the Company to continue operations, and there is no assurance that these can be achieved. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
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.
The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time.
All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.
The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
We derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware includes our SmartSole, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and subscription or license fees for our platform. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related to our solutions. IP licensing is related to our agreement with Inventergy whereby we have partnered in order to monetize our IP portfolio.
Product sales
At the inception of each contract, 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 product has shipped and title and risk of loss have transferred to the customer.
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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.
The majority of our professional services arrangements 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.
IP Licensing Revenue
Licensing revenue recorded by the Company relates exclusively to the Company’s License and Partnership agreement with Inventergy which provides for ongoing royalties based on monetization of IP licenses. The Company recognizes revenue for royalties 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. The Company has satisfied its performance obligations and therefore recognizes licensing revenue when the sales to which the license(s) relate are completed. During the period ended June 30, 2020 the Company did not recognize any licensing revenue, there was $659,000 of licensing revenue in 2019.
Disaggregation of Net Sales
The following table shows the Company’s disaggregated net sales by product type:
| June 30, 2020 | June 30, 2019 | |||||||
| Product sales | $ | 453,940 | $ | 104,109 | ||||
| Service income | 114,923 | 148,152 | ||||||
| IP and consulting income | - | 692,750 | ||||||
| Total | $ | 568,863 | $ | 945,011 | ||||
The following table shows the Company’s disaggregated net sales by customer type:
| June 30, 2020 | June 30, 2019 | |||||||
| B2B | $ | 427,879 | $ | 153,114 | ||||
| B2C | 140,984 | 72,519 | ||||||
| Military | - | 26,628 | ||||||
| IP | - | 692,750 | ||||||
| Total | $ | 568,863 | $ | 945,011 | ||||
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.
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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.
The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities.
Concentrations
We currently rely on one manufacturer to supply us with our GPS SmartSole and one manufacturer 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.
For the six months ended June 30, 2020, the Company had three customers representing approximately 30%, 28% and 14% of sales, respectively, and four customers representing approximately 21%, 16%, 10% and 10% of total accounts receivable, respectively, as of the period then ended. The Company had two customers representing approximately 82%, and 6% of sales, respectively, for the six months ended June 30, 2019, and three customers representing approximately 37%, 23%, and 12% of total accounts receivable, respectively, as of the period then ended.
Stock-based Compensation
The Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, 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.
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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 June 30, 2020 and December 31, 2019, the fair value of our investment in marketable securities was $5,494 and $59,224, respectively.
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.
Net Loss Per Common Share
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:
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| Warrants | 55,750,000 | 15,316,000 | ||||||
| Preferred B shares | 100,000,000 | - | ||||||
| Preferred C shares | 13,333,333 | - | ||||||
| Conversion shares upon conversion of notes | 45,757,746 | 107,872,177 | ||||||
| Total | 214,841,079 | 123,188,177 | ||||||
Segments
The Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.
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Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a small business filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
3. INVESTMENT IN MARKETABLE SECURITIES
In June 2019, the Company acquired 22,222 shares of Inpixon’s restricted common stock (after giving effect to a 1:45 stock split) valued at $634,000. As of December 31, 2019, after the sale of 10,889 Inpixon shares, the Company owned 11,333 Inpixon shares with a fair value of $58,374. During the period ended June 30, 2020, the Company sold 8,500 of its Inpixon shares for total proceeds of $146,201 and recognized a gain from the sale of these shares of $102,420. The Company was able to obtain observable evidence that the remaining 2,833 shares had a market value of $4,551 as of June 30, 2020, as such, the Company recorded a loss from the decrease in the fair value of the shares of $10,640, resulting in a net gain from their investment in Inpixon shares of $91,780 during the current period ended June 30, 2020.
4. INVENTORY
Inventories consist of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Raw materials | $ | 603 | $ | 690 | ||||
| Finished goods | 219,802 | 35,502 | ||||||
| Total Inventories | $ | 220,405 | $ | 36,192 | ||||
5. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Software | $ | 25,890 | $ | 25,890 | ||||
| Website development | 91,622 | 91,622 | ||||||
| Software development | 294,751 | 294,751 | ||||||
| Equipment | 1,750 | 1,750 | ||||||
| Less: accumulated depreciation | (403,760 | ) | (395,609 | ) | ||||
| Total property and equipment, net | $ | 10,253 | $ | 18,404 | ||||
Depreciation expense for the period ended June 30, 2020 and 2019 was $8,151 and $29,924, respectively, and is included in general and administrative expenses.
6. NOTES PAYABLE
The following table summarizes the components of our short-term borrowings:
| June 30, 2020 | December 31, 2019 | |||||||
| (a) Term loan | $ | 105,000 | $ | 160,000 | ||||
| (b) Term loan | 50,000 | 50,000 | ||||||
| (c) Revolving line of credit | 50,000 | 98,000 | ||||||
| (d) Revolving line of credit | 10,381 | - | ||||||
| Total | $ | 215,381 | $ | 308,000 | ||||
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(a) Term loan
In 2015, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of $200,000 at an interest rate of 14% per annum, with the interest adjusted as of December 2019 to 8.5%. The term loan became due on April 14, 2017 and as such, currently past due. At December 31, 2019, balance of the term loan was $160,000. During the six months ended June 30, 2020, we issued 4,000,000 shares of common stock to convert $30,000 of principal of the term loan. The Company also paid down the principal balance by $25,000 with brought the principal balance outstanding on the term loan as of June 30, 2020 to be $105,000. The balance of related accrued interest at June 30, 2020 was $108,102 with $4,287 having been paid down in 2020.
(b) Term loan
In September of 2019, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of $50,000 at an interest rate of 5% per annum in relation to an Asset Purchase Agreement. The term loan becomes due on September 13, 2020. The principal balance outstanding on the note as of June 30, 2020 and December 31, 2019 was $50,000, respectively.
(c) Line of Credit
The Company obtained a line of credit agreement with an accredited investor of $500,000 during 2018. There were three borrowings against the line as of December 31, 2018 for aggregate borrowings of $65,000 and two borrowing in 2019 for $65,000 for a total of $130,000. During the year ended December 31, 2019, the Company repaid $32,000 in principal and all of its accrued interest of $19,465, resulting in a balance due of $98,000 as of December 31, 2019. During the period ended June 30, 2020, the Company repaid $48,000 in principal and all of its accrued interest of $1,781, resulting in a balance due of $50,000 as of June 30, 2020.
The line bears interest of 17%. The line is based upon GTX providing the investor with purchase orders and use of proceeds, including production of goods schedules and loan repayment timelines. These loans/drawdowns are specifically for product, inventory and/or purchase order financing. Upon completion of the terms of the Line of Credit, GTX Corp. will issue to the investor 7,500,000 shares of GTX common stock or $75,000 of GTX common stock, whichever is greater.
(d) Line of Credit
The Company also has an unsecured line of credit, guaranteed by its CEO, with its business bank, Union Bank, whereby funds can be borrowed at a revolving adjustable rate of 2 points over prime, currently 5.25%, with a max borrowing amount of $100,000. The balance at December 31, 2019 was $0 while during the period ended June 30, 2020 the Company was advanced a total of $139,319 and had repaid $128,938 of the balance. As such the balance outstanding as of June 30, 2020 is $10,381
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7. CONVERTIBLE PROMISSORY NOTES – PAST DUE
As of June 30, 2020 and December 31, 2019, the Company had a total of $889,820 and $1,099,278, respectively, of outstanding convertible notes payable, which consisted of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| a) Convertible Notes – with fixed conversion terms | $ | 716,000 | $ | 894,000 | ||||
| b) Convertible Notes – with variable conversion | 173,820 | 205,278 | ||||||
| Total convertible notes | $ | 889,820 | $ | 1,099,278 | ||||
| a) | 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 0% to 14% per annum and with terms ranging from 1 to 2 years. In lieu of the repayment of the principal and accrued interest, the outstanding amounts are convertible, at the option of the note holder, generally at any time on or prior to maturity and automatically under certain conditions, into the Company’s common shares at $0.015 to $0.30 per share. These notes became due in 2017 and prior, and are currently past due. | |
| At December 31, 2019, balance of the convertible notes was $894,000. During the six months ended June 30, 2020, we issued 20,300,000 shares of common stock to convert $175,000 of principal of these outstanding convertible notes and $25,881 in accrued interest. Of the total Notes converted during the period, approximately $131,000 of the notes were converted at a conversion price that was higher than the market price of the shares on the date of conversion. As such, the Company issued 81,792 common shares with a fair value of $1,420 in settlement of the $131,000 debt, which resulted in a $129,261 gain on the conversion of the Notes. The Company also paid down $3,000 of the principal balance of the convertible notes, which brought the outstanding balance of the convertible notes to $716,000 as of June 30, 2020. These convertible notes are currently past due. |
| b) | Convertible notes payable with principal balance of $173,820 as of June 30, 2020 consist of loans provided to the Company from various investors. These notes are non-interest bearing and with terms ranging from 1 to 2 years. In lieu of the repayment of the principal and accrued interest, the outstanding amounts are convertible, at the option of the note holder, generally at any time on or prior to maturity and automatically under certain conditions, into the Company’s common shares at 60% of the lowest trading price in the prior 30 days. The Company determined that since the conversion floor of these notes had no limit to the conversion price, the Company could no longer determine if it had enough authorized shares to fulfil its conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion feature of these notes created a derivative at the date of issuance which was recorded as a valuation discount that was fully amortized as of December 31, 2019. At December 31, 2019, balance of the loan was $205,278. During the six months ended June 30, 2020, we issued 2,950,532 shares of common stock to convert $31,458 of these outstanding convertible notes. These notes became due in 2019 and prior, and are currently past due. |
8. CARE Loans
| June 30, 2020 | December 31, 2019 | |||||||
| a) PPP loan | $ | 67,870 | $ | - | ||||
| b) EIDL loan | 160,000 | - | ||||||
| Total CARE loans | $ | 227,870 | $ | - | ||||
Paycheck Protection Program Loan
On April 30, 2020, the Company executed a note (the “PPP Note”) for the benefit of MUFG Union Bank, NA (the “Lender”) in the aggregate amount of $67,870 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”). The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of the PPP Note, GTX is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP Note (the “Maturity Date”). The Maturity Date can be extended to five years if mutually agreed upon by both the Lender and GTX. The PPP Note contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP Note. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Note, collection of all amounts owing from GTX, or filing suit and obtaining judgment against GTX. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the U.S. Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible for GTX to apply for forgiveness of its PPP loan. No assurance can be given that GTX will be successful in obtaining forgiveness of the loan in whole or in part. The Company was in compliance with the terms of the PPP loan as of June 30, 2020.
Economic Injury Disaster Loan
On June 10, 2020, the Company executed an secured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster Loan program in the amount of $150,000. The loan is secured by all tangible and intangible assets of the Company and payable over 30 years at an interest rate of 3.75% per annum. Installment payments, including principal and interest, will begin June 10, 2021. As part of the loan, the Company also received an advance of $10,000 from the SBA. While the SBA refers to this program as an advance, it was written into law as a grant. This means that the amount given through this program does not need to be repaid.
9. RELATED PARTY TRANSACTIONS
Convertible Notes Due to Related Parties
Convertible Notes to Related Parties represent amounts due to members of Management for past services that were converted to notes payable in prior years. Under the note agreement, the holder shall have the right, but not the obligation, to convert up to 50% of the amount advanced and accrued interest into shares, warrants or options of common or preferred stock of the Company at $0.01 per security.
As of June 30, 2020 and December 31, 2019, the outstanding balance on the convertible promissory notes was $884,546. As of June 30, 2020 and December 31, 2019, interest of $235,725 and $221,988, respectively, is deferred on the above notes and included in accrued expenses to related parties.
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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 since 2011. As of June 30, 2020, and December 31, 2019, the Company owed $586,738 and $458,131, respectively, for such deferred wages and other expenses owed for other services which are included in the accrued expenses – related parties on the accompanying balance sheet.
10. DERIVATIVE LIABILITIES
Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has issued certain convertible notes which conversion prices are based on a future market price. However, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. As a result, the conversion option is classified as a liability and bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
At December 31, 2019, the balance of the derivative liabilities was $223,536. At June 30, 2020, the balance of the derivative liabilities was $70,950 resulting in a decrease of $152,586 that was reflected in other income on the accompanying statement of operations for the period then ended.
At June 30, 2020 and December 31, 2019, the derivative liabilities were valued using a Black-Scholes-Merton pricing model with the following assumptions:
| June 30, 2020 | December 31, 2019 | |||||||
| Conversion feature: | ||||||||
| Risk-free interest rate | 0.18 | % | 1.56 | % | ||||
| Expected volatility | 265.59 | % | 297.87 | % | ||||
| Expected life (in years) | .1 to .773 years | .1 to .773 years | ||||||
| Expected dividend yield | - | - | ||||||
| Fair Value: | ||||||||
| Conversion feature | $ | 70,950 | $ | 223,536 | ||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining contractual term of the notes. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
11. EQUITY
The Company has 10,000,000 shares of preferred stock authorized. From this pool the following preferred shares have been classified as:
Preferred Stock – Series A
During the year ended December 31, 2018, the Company authorized 1,000,000 of Series A preferred shares, which shares have voting rights equal to two-thirds of all the issued and outstanding shares of common stock, shall be entitled to vote on all matters of the corporation, and shall have the majority vote of the board of directors. The subject preferred stock lacks any dividend rights, does not have liquidation preference, and is not convertible into common stock. During the year ended December 31, 2018, the Company issued one million Series A preferred shares to certain officers and board members. The shares remain outstanding as of June 30, 2020.
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Preferred Stock – Series B
During the year ended December 31, 2019, the Company authorized 10,000 shares of preferred stock to be designated available for Series B preferred shares that have a stated value of $1,000 each and are convertible into common shares at fixed price of $0.0025. Holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred Stock equal (on an as-if-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. During the year ended December 31, 2019, the Company issued 150 Series B preferred shares.
During the period ended June 30, 2020, the Company issued 100 Series B preferred shares and 10,000,000 warrants to an accredited investor for their financings for an aggregate value of $100,000. The Series B preferred shares and warrants shall have a fixed conversion price per share equal to $0.0025 per share of common stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock. The warrants are exercisable through March 2025. The Company considered the accounting effects of the existence of the conversion feature of the Series B Preferred Stock, and the issuance of warrants at the date of issuance. In accordance with the current accounting standards, the Company determined that it should account for the fair value of the conversion feature and relative fair value of the issued warrants (up to the face amount of the Series B Preferred Stock) as a deemed dividend of $100,000 and a charge to paid in capital.
Preferred Stock – Series C
During the period ended June 30, 2020, the Company authorized 1,000 shares of preferred stock to be designated available for Series C preferred shares that have a stated value of $1,000 each and are convertible into common shares at fixed price of $0.015. Holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series C Preferred Stock equal (on an as-if-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 C Preferred Stock, and they shall have no voting rights and have liquidation preference. During the year ended December 31, 2019, the Company had no Preferred C shares.
During the period ended June 30, 2020, the Company issued 150 Series C preferred shares and 10,000,000 warrants to an accredited investor for their financings for an aggregate value of $150,000. The Series C preferred shares and warrants shall have a fixed conversion price equal to $0.015 per share of common stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock. The warrants are exercisable through April 2023. The Company considered the accounting effects of the existence of the conversion feature of the Series C Preferred Stock, and the issuance of warrants at the date of issuance. In accordance with the current accounting standards, the Company determined that it should account for the fair value of the conversion feature and relative fair value of the issued warrants (up to the face amount of the Series C Preferred Stock) as a deemed dividend of $150,000 and a charge to paid in capital.
Common Stock
During the period ended June 30, 2020 the Company issued 10,500,000 shares of common stock with a fair value of $157,600 at the date of grant for services. During the period ended June 30, 2019 the Company issued 6,200,000 shares of common stock with a fair value of $76,880 at the date of grant for services.
On October 16, 2018, the Company created a long-term employment retention bonus plan and issued 39,500,000 of restricted common shares to the plan. In 2019, 36,000,000 of these shares were cancelled. The remaining 3,500,000 shares have a 3-year vesting period and those eligible, employees, directors and advisors, must have been with the Company for at least 7 years with an additional 2 years necessary in order to participate in the plan and 3 to become fully vested. The shares will vest with a mandatory 2-year minimum requirement for such vesting to become valid with 33.4% in year two and 66.66% at the end of year three. If the individual leaves the Company prior to vesting, the Company or its assignee retains the option to repurchase the unvested shares at par. During the period ending June 30, 2020, the Company recognized a cost of $16,042 related to the retention plan, and the remaining/adjusted balance of $41,441 in unamortized expense will be recognized as compensation cost as the remaining shares vest. The board is evaluating a new employee stock option plan (ESOP) and intends to select a new plan by the end of the 2020.
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During the period ended June 30, 2020 the Company did not issue any stock related to financings, however, in the period ended June 30, 2019 the Company issued 250,000 shares of common stock with a fair value of $3,100 at the date grant for financing costs.
Common Stock Warrants
Since inception, the Company has issued numerous warrants to purchase shares of the Company’s common stock to shareholders, consultants and employees as compensation for services rendered.
A summary of the Company’s warrant activity and related information is provided below (the exercise price and the number of shares of common stock issuable upon the exercise of outstanding warrants have been adjusted to reflect a 1-for-75 reverse stock split):
Exercise Price $ | Number of Warrants | |||||||
| Outstanding and exercisable at December 31, 2019 | 0.0025 – 0.04 | 36,000,000 | ||||||
| Warrants exercised | - | - | ||||||
| Warrants granted | 0.0025 – 0.015 | 20,250,000 | ||||||
| Warrants expired | 0.04 | (500,000 | ) | |||||
| Outstanding and exercisable at June 30, 2020 | 0.0025 - 0.011 | 55,750,000 | ||||||
| Stock Warrants as of June 30, 2020 | ||||||||||||||
| Exercise | Warrants | Remaining | Warrants | |||||||||||
| Price | Outstanding | Life (Years) | Exercisable | |||||||||||
| $ | 0.011 | 2,500,000 | 0.50 | 2,500,000 | ||||||||||
| $ | 0.0025 | 40,000,000 | 4.54 | 40,000,000 | ||||||||||
| $ | 0.015 | 10,250,000 | 2.87 | 10,250,000 | ||||||||||
| $ | 0.01 | 3,000,000 | .53 | 3,000,000 | ||||||||||
In conjunction with the sale of Series B Preferred stock, the Company granted to investors warrants to purchase 10,000,000 shares of the Company’s common stock. The warrants are exercisable immediately, have an exercise price of $0.0025, and expire after its 5-year term.
In conjunction with the sale of Series C Preferred stock, the Company granted to investors warrants to purchase 10,000,000 shares of the Company’s common stock. The warrants are exercisable immediately, have an exercise price of $0.015, and expire after its 3-year term.
Additionally, during the six months ended June 30, 2020, we issued to an outside consultant warrant to purchase 250,000 shares of the Company’s common stock with a strike price of $0.015, and term of 3 years. The fair value of these warrants was estimated using the Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 265.59 (ii) discount rate of 0.18%, (iii) zero expected dividend yield, and (iv) expected life of 3 years. The total fair value of the option grants to the consultants at their grant dates was $3,793.
The outstanding and exercisable warrants at June 30, 2020 had an intrinsic value of approximately $580,750.
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 7,000,000 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 7,000,000 shares, of which, after adjusting for estimated pre-vesting forfeitures and expired options, approximately 2,235,000 were available for issuance as of June 30, 2020.
No options were outstanding at June 30, 2020.
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12. COMMITMENTS & CONTINGENCIES
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.
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
Due to COVID-19, we have experienced some changes in our business, that have been both positive and negative. Specifically, the Company’s IP licensing business has been negatively impacted by the global financial slowdown and many courts, judges and law firms are not working at full capacity, which is creating delays in finalizing licensing agreements or litigation. We have also experienced a small percentage of subscriptions being either cancelled or requested to be put on pause, due to financial hardships. On the positive side we saw an increase in product sales specifically with medical supplies and equipment. Overall our revenues have not been materially impacted as a whole, however there have been some shifts with certain revenue streams doing better post COVID and others doing worse.
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
13. SUBSEQUENT EVENTS
On July 6, 2020, we retired $13,635 in convertible debt and issued equity in the form of common stock of 4,545,000 shares.
On July 15, 2020, we retired $9,375 in convertible debt and issued equity in the form of common stock of 1,102,888 shares.
On July 17, 2020, we retired $37,412 in convertible debt and issued equity in the form of common stock of 4,401,408 shares.
On July 20, 2020 we issued 1,000,000 shares of stock to a consulting firm at a price of $0.015 for a fair value of $16,000.
On July 21, 2020 we issued 500,000 shares of stock to a consulting firm at a price of $0.015 for a fair value of $7,500.
On July 27, 2020, we retired $35,250 in convertible debt and issued equity in the form of common stock of 4,700,000 shares.
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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 “GTX Corp”, the “Company”, “we”, “us”, and “our” refer to the ongoing business operations of GTX Corp and our wholly-owned subsidiaries, Global Trek Xploration, and LOCiMOBILE, Inc.
Organization and Presentation
During the periods covered by the accompanying financial statements, GTX Corp and its subsidiaries (the “Company”, “GTX”, “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. GTX owns 100% of the issued and outstanding capital stock of its two subsidiaries - Global Trek Xploration, Inc. and LOCiMOBILE, Inc.
Global Trek Xploration is a California corporation which engages in the business of, design, development, manufacturing and sales of Global Positioning Satellite (“GPS”), Cellular, Radio Frequency (“RF”), Near Field Communications (“NFC”), WiFi, and Bluetooth low energy (“BLE”) monitoring and tracking solutions. GTX is vertically integrated and provides hardware, software and connectivity, delivering a location-based platform that enables subscribers to track in real time the whereabouts of people, or high valued assets. Our proprietary GPS devices, which consist of a miniature quad-band General Packet Radio Service (“GPRS”) transceiver, custom antenna, circuitry, battery and inductive charging pad can be customized and integrated into numerous form factors. The finished products are then placed or worn so that their 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, URLs and a library of software source code, all of which is also managed by Global Trek.
LOCiMOBILE, Inc., is the Companies digital platform which has been at the forefront of Smartphone application (“App”) development since 2008. With a suite of mobile applications that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can be tracked from handset to handset or through our tracking portal or on any connected device with internet access. LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems and continues to launch consumer and enterprise apps.
Operations
The Company designs, develops, manufactures, distributes and sells Com health and safety tracking and monitoring products and services, using GPS, BLE, RF and NFC technology, along with other medical supplies and equipment, 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 and retailers. 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 medical protective equipment, all of our consumer and enterprise tracking products funnel into the GTX Corp IoT monitoring platform which supports end user customers in over 35 countries. The Company is also in the business of licensing intellectual property and monetizing its patent portfolio.
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Overview
Like many companies, COVID-19 (“COVID”) had an impact on our second quarter of 2020, revenues were lower than last year, however, for the second quarter in a row, we still managed to show a net profit of $30,170 in Q2 2020. We did experience some interruptions with our supply chains. Many of our customers and suppliers experienced a slowdown in productivity, and we saw significant delays in freight forwarding and shipping, both inbound and outbound. In addition to general business disruptions from lockdowns, new social distancing, workplace policies and our building being closed periodically due to mandated shelter in place orders and again during the protests, COVID specifically created some temporary setbacks in on our product development, IP licensing campaign and subscriptions. We were expecting to launch our new 4G SmartSoles this quarter, however many of our engineering partners and suppliers were not operating at full capacity, which created delays, we did not recognize any IP licensing this quarter and due to the global financial hardships, we had to pause or cancel some subscriptions (not material), for those financially affected by COVID-19 who have requested temporary relief. We expect these setbacks to subside as the economy and business operations start to return to normal. On a positive note, due to our pivot in early March to expand our health and safety product line into the Personal Protective Equipment (“PPE”) business, we saw a 336% increase in product sales, added hundreds of new customers and significantly elevated our product and brand awareness in the U.S. Overall, revenues compared to the same period last year were down, but that is directly related to the swing in IP licensing. In Q2 of 2019, in addition to our normal IP licensing revenue, we had 1 large transaction that dramatically increased our licensing revenue for that quarter. However, in Q2 of 2020 we did not have 1 large transaction and COVID affected all of our other normal IP licensing revenues, but our product sales were very strong this quarter and even with the COVID setbacks we still managed to grow our product sales by 336%, maintained a close to 50% profit margin, reduced our expenses by 32%, and have over $200k in paid-for inventory. Except for a government assisted very low interest SBA loan ($228k), which we have 30 years to pay off, we did not take on any new debt and actually managed to reduce our existing debt by $320,000.
During the second quarter of 2020, basically starting April first, the Company was immersed in addressing the impact of COVID-19: from setting up work safety policies, social distancing guidelines, shelter in place lockdowns, contacting our customers and suppliers across the globe to address and ascertain their impact. In addition, we built our infrastructure to support the rapid need and demand for PPE’s. Early in the quarter we were facing the uncertainty of how to keep our team fully employed, hence, we filed for some of the government assistance loan programs, which we received late in the second quarter. Even with all the uncertainty, chaos and panic that ensued in early April, we managed to build out our PPE business whereby we sold and donated hundreds of thousands of PPE items to a wide range of entities such as essential businesses, assisted living facilities, pharmacies, Fortune 1,000 companies, hospitals, police departments, nonprofits, and local, state and federal government agencies, in almost every State across the U.S. We launched a PPE specific website www.gtxmask.com, which within weeks, saw over a 500% increase in website traffic, a 300% increase in consumer orders, a 67% increase in the average size per order and over a 50% increase in the number of items purchased per order. GTX has now well positioned itself as a trusted health & safety supplier by providing a wide variety of high quality products, excellent customer service and reliable same or next day shipping, all of which is contributing to an increase in our brand awareness and favorable customer testimonials and reviews. Since we are now addressing a much larger potential audience this quarter, we started an advertising campaign, and based on the results so far, we expect to keep the campaign going. We were able to pay for the services using our stock in order to preserve our cash for funding our operations and inventory requirements.
Since we cannot accurately predict how long the PPE business will remain in strong demand, based on the current events, it is unlikely to end completely before the end of the year. The entry into this business has also enabled us to broaden our product line, garner a lot of new customers, all of which we believe has expanded our visibility in the wearable technology GPS tracking space as we are starting to see cross selling across our product lines. We have seen a noticeable increase in inquiries from our distributors for wearable tracking, monitoring, and tracking solutions, which is the cornerstone of our business. We intend to leverage the increase in our brand awareness and expanded product line along with our increased customer base to introduce several new tracking solutions both for people and assets in the coming months.
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During the second quarter of 2020, we did not sign any new IP licensing agreements and did not recognize any revenues from granting non-exclusive intellectual property licenses to companies that are using or want to use our patented technology in the marketplace. We attribute this predominately to COVID-19, as many companies, legal teams, and court houses were not operating at full capacity. We expect this to be a COVID related setback and for these revenues to slowly come back as the economy begins to fully reopen.
During the second quarter of 2020, we continued development of our next generation miniaturized GPS tracking device, which will utilize a host of new technologies, including CatM1, NB-IoT, enhanced Wifi, and Bluetooth, for better accuracy, faster location requests and less power consumption. This new hardware platform will be small enough to be embedded into our line of wearable technology and offered as a licensed hardware platform as well. We had expected to have prototypes and go into certification and production by early second quarter, however due to CODVID-19 we experienced delays. Many of our suppliers and contractors are slowly coming back online and we were expecting to resume development efforts and be back to 75% capacity by end of May 2020 and possibly 95% by end of June 2020, however due to the protests and riots in June and the recent COVID spike across 20 States, we are now having to push this timeline back again by one or two months. The demand for our GPS SmartSoles is the highest it has been in over two years, so we are very focused and committed to getting our new product launched, but there are circumstances right now that are slowing us down.
As we now enter our 6th month of unprecedented times we are cautiously optimistic, seeing encouraging signs, are hearing from our European customers they are almost fully operational, and many parts of the U.S. and other countries are following along. But, one thing is for certain, there is a big desire for innovation and new solutions in the wearable technology healthcare industry post COVID-19 era. GTX has been at the forefront of many innovative technologies, we pivoted early into the PPE business and built an entire new business unit under extremely challenging conditions so we know we are resilient and will continue to push forward.
For now, we hope all our stakeholders are safe and healthy and we will keep updating everyone as best we can through our weekly podcast, press releases and newsletters.
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 June 30, 2020 (“Q2 2020”) Compared to the Three Months Ended June 30, 2019 (“Q2 2019”)
| Three Months Ended June 30, | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Product sales | 422,333 | 89 | % | 84,707 | 10 | % | ||||||||||
| Service income | 49,814 | 11 | % | 98,398 | 12 | % | ||||||||||
| IP royalties | - | 0 | % | 659,000 | 78 | % | ||||||||||
| Total revenues | 472,147 | 100 | % | 842,105 | 100 | % | ||||||||||
| Cost of products sold | 167,568 | 35 | % | 32,248 | 4 | % | ||||||||||
| Cost of service revenue | 83,271 | 18 | % | 26,842 | 4 | % | ||||||||||
| Cost of licensing revenue | - | 0 | % | 5,119 | 1 | % | ||||||||||
| Cost of goods sold | 250,839 | 53 | % | 64,209 | 8 | % | ||||||||||
| Gross profit | 221,308 | 47 | % | 777,896 | 92 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 163,185 | 35 | % | 180,254 | 21 | % | ||||||||||
| Professional fees | 115,140 | 24 | % | 138,817 | 16 | % | ||||||||||
| Sales and marketing expenses | 6,389 | 1 | % | 1,857 | 0 | % | ||||||||||
| General and administrative | 11,340 | 2 | % | 44,683 | 5 | % | ||||||||||
| Total operating expenses | 296,054 | 63 | % | 365,611 | 43 | % | ||||||||||
| Income/(loss) from operations | (74,746 | ) | -16 | % | 412,285 | 49 | % | |||||||||
| Other (expense)/income, net | 98,008 | 21 | % | (41,559 | ) | -5 | % | |||||||||
| Net income | 23,262 | 5 | % | 370,726 | 44 | % | ||||||||||
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Revenues
Revenues as a whole in Q2 2020 decreased by 44% or $369,958 in comparison to Q2 2019, primarily due to COVID-19, which directly impacted our ability to generate IP licensing revenues and professional services income, the shutdown of the economy and business landscape, especially due to the fact that GTX is located in Los Angeles, which is one of the most severally restricted cities in the United States. However, product revenues significantly increased in Q2 2020 by 399% or $337,625 over Q2 2019 primarily due to increased demand of our expanded health and safety product line.
Cost of goods sold
Cost of goods sold increased by 291% or $186,630 during Q2 2020 in comparison to Q2 2019 primarily due to the increased purchases of health and safety inventories. The total gross margin decreased from 92.38% in Q2 of 2019 to 46.87% in Q2 of 2020 primarily due to the decreased revenues from the higher margin sales related to licensing fees and the costs related to importing and selling the expanded health and safety product line.
Wages and benefits
Wages and benefits during Q2 2020 decreased by 9% or $17,069 in comparison to Q2 2019, primarily due to the reduction of costs related to retention bonuses.
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 $23,677 or 17% during Q2 2020 as compared to Q2 2019, primarily due to the Company’s reduced need for outside consultants.
Sales and marketing expenses
Sales and marketing expenses increased by 244% or $4,532 during Q2 2020 in comparison to Q2 2019, primarily as we advertised our increased health and safety products. These costs are expected to ramp up as we begin to launch more new products.
General and administrative
General and administrative costs during Q2 2020 decreased by $33,343 or 75% in comparison to Q2 2019 due to overall slowdown in business operations, we have reductions in travel, entertainment, tradeshows, parking, supplies and other general operational expenses.
Other income/(expense), net
Other expense, net decreased 336% or $139,567 from Q2 2019 to Q2 2020 primarily as a result of the gain of $91,781 from the extinguishment of debt and the reduction in expenses related to derivatives of $14,000. These gains offset the net interest expense related to debt. As of June 30, 2020, the Company had $70,950 in derivative liabilities.
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Net income/(loss)
Net loss decreased by 94% or $347,464 from Q2 2019 to Q2 2020 with GTX posting a profit of $23,262, primarily as a result of maintaining consistent net profits, gains from the sale of marketable securities, reductions in operating expenses (19%), reductions in derivative expense and reductions in debt and from the increased sales of our health and safety products.
Six Months Ended June 30, 2020 (“Q1 and Q2 2020”) Compared to the Six Months Ended June 30, 2019 (“Q1 and Q2 2019”)
| Six Months Ended June 30, | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Product sales | 453,940 | 80 | % | 104,109 | 11 | % | ||||||||||
| Service income | 114,923 | 20 | % | 148,152 | 16 | % | ||||||||||
| IP royalties | - | 0 | % | 692,750 | 73 | % | ||||||||||
| Total revenues | 568,863 | 100 | % | 945,011 | 100 | % | ||||||||||
| Cost of products sold | 190,970 | 34 | % | 48,144 | 5 | % | ||||||||||
| Cost of service revenue | 94,507 | 17 | % | 32,830 | 3 | % | ||||||||||
| Cost of licensing revenue | - | 0 | % | 23,145 | 2 | % | ||||||||||
| Cost of goods sold | 285,477 | 50 | % | 104,119 | 11 | % | ||||||||||
| Gross profit | 283,386 | 50 | % | 840,892 | 89 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 324,085 | 57 | % | 363,382 | 38 | % | ||||||||||
| Professional fees | 161,081 | 28 | % | 355,231 | 38 | % | ||||||||||
| Sales and marketing expenses | 13,149 | 2 | % | 3,420 | 0 | % | ||||||||||
| General and administrative | 80,026 | 14 | % | 124,112 | 13 | % | ||||||||||
| Total operating expenses | 578,341 | 102 | % | 846,145 | 90 | % | ||||||||||
| Income/(loss) from operations | (294,955 | ) | -52 | % | (5,253 | ) | -1 | % | ||||||||
| Other (expense)/income, net | 325,125 | 57 | % | (180,496 | ) | -19 | % | |||||||||
| Net income/(loss) | 30,170 | 5 | % | (185,749 | ) | -20 | % | |||||||||
Revenues
Revenues as a whole in Q1 and Q2 2020 decreased by 40% or $376,147 in comparison to Q1 and Q2 2019, primarily due to COVID-19, which directly impacted our ability to generate IP licensing revenues and professional services income, the shutdown of the economy and business landscape, especially due to the fact that GTX is located in Los Angeles, which is one of the most severally restricted cities in the United States. However, product revenues significantly increased in Q1 and Q2 2020 by 336% or $349,830 over Q1 and Q2 2019 primarily due to increased demand for our expanded health and safety product line.
Cost of goods sold
Cost of goods sold increased by 174% or $181,359 during Q1 and Q2 2020 in comparison to Q1 and Q2 2019 primarily due to the purchases of health and safety inventories. The total gross margin decreased from 88.98% in Q1 and Q2 of 2019 to 49.82% in Q1 and Q2 of 2020 primarily due to the decreased revenues from the higher margin sales related to licensing fees and the costs related to importing and selling the expanded health and safety product line.
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Wages and benefits
Wages and benefits during Q1 and Q2 2020 decreased by 11% or $39,297 in comparison to Q1 and Q2 2019, primarily on the reduction of costs related to retention bonuses.
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 $194,151 or 55% during Q1 and Q2 2020 as compared to Q1 and Q2 2019, primarily due to the Company’s reduced need for outside consultants.
Sales and marketing expenses
Sales and marketing expenses increased by 285% or $9,729 during Q1 and Q2 2020 in comparison to Q1 and Q2 2019. Primarily due to costs related to the ramp up of increased health and safety products and the associated advertising.
General and administrative
General and administrative costs during Q1 and Q2 2020 decreased by $44,086 or 45% in comparison to Q1 and Q2 2019 due to overall slowdown in business operations, we have reductions in travel, entertainment, tradeshows, parking, supplies and other general operational expenses.
Other income/(expense), net
Other expense, net decreased 280% or $505,621 from Q1 and Q2 2019 to Q1 and Q2 2020 primarily as a result of a $92,470 net gain for the sales of marketable securities held for sale, the gain of $129,261 from the extinguishment of debt and the reduction in expenses related to derivatives of $152,586. These gains offset the net interest expense related to debt. As of June 30, 2020, the Company had $70,950 in derivative liabilities.
Net income/(loss)
Net loss decreased by 116% or $215,919 from Q1 and Q2 2019 to Q1 and Q2 2020 with GTX posting a profit of $30,170, primarily as a result of maintaining consistent net profits, gains from the sale of marketable securities, reductions in operating expenses (32%), reductions in derivative expense, reductions in debt and from the increased sales of our health and safety products.
Liquidity and Capital Resources
As of June 30, 2020, we had $249,433 of cash and cash equivalents, and a working capital deficit of $2,799,238, compared to $125,200 of cash and cash equivalents and a working capital deficit of $3,630,942 as of December 31, 2019. A part of our negative working capital position at June 30, 2020 consisted of $70,950 of derivative liabilities related to unsecured convertible promissory notes and $889,820 related to the principal balance of unsecured convertible promissory notes.
During the six months ended June 30, 2020, our net income was $30,170 compared to a net loss of $185,749 for the six months ended June 30, 2019. Net cash used by operating activities for the first six months of 2020 was $434,219 and the net cash provided by operating activities for the first six months of 2019 was $53,134.
Net cash provided by investing activities during the six months ended June 30, 2020 was $146,201 which pertained to the proceeds received from the sale of marketable securities. There were no investing activities in the same period in 2019.
Net cash provided by financing activities during the six months ended June 30, 2020 was $412,251 and represents $139,319 in draws upon our lines of credit, $250,000 in financings, $227,870 from government fundings and $204,938 in payments on convertible notes and the lines of credit. During the six months ended June 30, 2019, net cash provided by financing activities was $65,510 and consists of proceeds totaling $71,510 received from the line of credit as well as a $6,000 debt reduction payment on a Convertible Note.
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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 2020, although the amount of revenues we receive in 2020 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 2020. 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 2020. 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 and working capital needs and new product development costs, during the second quarter of 2020 we continued to draw down on our credit line 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 stockholders’ deficit of $3,006,855 and negative working capital of $2,799,238 as of June 30, 2020 and used cash in operations of $434,219 during the current period then ended. A significant part of our negative working capital position at June 30, 2020 consisted of $1,105,201, of amounts due to various accredited investors of the Company for convertible promissory notes, loans and a letter of credit. 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, 2019 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 do not believe our business and operations have been materially affected by inflation.
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, 2019.
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.
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ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective. Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure 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.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
As a “smaller reporting company”, we are not required to provide the information under this Item 1A. Nonetheless, please see the disclosures in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report for a description of the impacts of COVID-19 on our business.
ITEM 2.(a). UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On April 9, 2020, we retired $11,250 in convertible debt and issued equity in the form of common stock of 3,750,000 shares.
On April 22, 2020, we retired $12,000 in convertible debt and issued equity in the form of common stock of 4,000,000 shares.
On April 24, 2020 we issued 4,000,000 shares of stock to a consulting firm at a price of $0.016 for a fair value of $64,000.
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On April 30, 2020, we retired $30,000 in convertible debt and issued equity in the form of common stock of 4,000,000 shares.
On May 11, 2020, we retired $12,000 in convertible debt and issued equity in the form of common stock of 4,000,000 shares.
On May 20, 2020, we retired $34,458 in convertible debt and issued equity in the form of common stock of 2,950,532 shares.
On May 28, 2020 we issued 5,000,000 shares of stock to a consulting firm at a price of $0.014 for a fair value of $70,000.
On June 9, 2020, we retired $106,032 in debt and accrued interest on convertible debt and issued equity in the form of common stock of 4,550,000 shares at an average price of $0.75.
The issuance of the above shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
(a) Exhibits
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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.
| GTX CORP | ||
| Date: August 14, 2020 | By: | /s/ ALEX MCKEAN |
| Alex McKean, | ||
| Chief Financial Officer (Principal Financial Officer) | ||
| Date: August 14, 2020 | By: | /s/ PATRICK BERTAGNA |
| Patrick Bertagna, | ||
| Chief Executive Officer |
| 29 |
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
EXHIBIT 31.1
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Patrick E. Bertagna, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of GTX Corp for the period ended June 30, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2020
| /s/ PATRICK E. BERTAGNA | ||
| Name: | Patrick E. Bertagna | |
| Its: | Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Alex McKean, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of GTX Corp for the period June 30, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2020
| /s/ ALEX MCKEAN | ||
| Name: | Alex McKean | |
| Its: | Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GTX Corp (the “Company”) on Form 10-Q, for the period ended June 30, 2020 as filed with the Securities and Exchange Commission, I, Patrick E. Bertagna, President, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 14, 2020
| /s/ PATRICK E. BERTAGNA | ||
| Name: | Patrick E. Bertagna | |
| Its: | Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GTX Corp (the “Company”) on Form 10-Q, for the period ended June 30, 2020 as filed with the Securities and Exchange Commission, I, Alex McKean, Interim Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 14, 2020
| /s/ ALEX MCKEAN | ||
| Name: | Alex McKean | |
| Its: | Chief Financial Officer (Principal Financial Officer) |